ACIT, NEW DELHI vs. SMT. SARASWATI DALMIA, NEW DELHI

Whereas, in the computation of capital gain on sale of shares, the assessee had adopted the cost of acquisition of one equity share as on 01.04.1981 at Rs. 1675/- per share by invoking the provisions of section 55(2)(b) of the Act by treating the value as the FMV. In support of such valuation, the assessee furnished a 11 | P a g e valuation report of a Chartered Accountant. On going through the valuation report, the Assessing Officer observed that while determining the FMV of the shares, the Valuer has taken the value of lease hold rights in land and building, admeasuring 22.95 acres (111000 sq. yards) at 48, Kaventer Lane, Sardar Patel Marg, Chanakyapuri, New Delhi, at Rs.26.89 crores as on 01.04.1981 based on the Valuation Report dated 18.10.2005 of Accurate Surveyors. On perusal of the balance sheet of EKPL as on 30.06.1981, the Assessing Officer observed that opening balance of the leasehold rights in the said property was shown at Rs.2,75,538/- and there was an addition of Rs.43,24,462/- on account of revaluation of the lease rights during the year ending 30th June, 1981 and the closing balance was shown at Rs.46 lakhs. Based on the aforesaid facts, the Assessing Officer called upon the assessee to justify the FMV of the share, valued at Rs. 1675/- per share. In response, the assessee furnished an exhaustive reply justifying the FMV of shares as on 01.04.1981.

Insofar as valuation of land by Accurate Surveyor, the Assessing Officer observed that Valuer has referred to a number of immovable property transactions claiming to be properties in the same locality. Whereas, none of the properties were as large as the property under consideration. He further observed, under the Income Tax Act, no specific formula is laid down to determine the FMV of the unquoted shares. Therefore, in absence of any specific procedure, other acts are to be examined, in which the procedure has been laid down. Having held so, he referred to Rule 1D of the Wealth Tax Rules and held that the valuation report of Accurate Surveyors obtained much after the date of relevant balance sheet is not relevant at all in determining the FMV of unquoted shares of EKPL under section 55(2)(b)(i) of the Act. He further observed that the assessee was allotted unquoted shares of EKPL from time to time during the period 1982-83 to 2000-01 and all throughout the rate of each equity share remained Rs.10

The assessee contested the aforesaid decision of the Assessing Officer before learned Commissioner (Appeals). Being convinced with the submissions of the assessee, learned Commissioner (Appeals) accepted the FMV of the shares as on 01.04.1981 as claimed by the assessee.

We have considered rival submissions and perused the materials on record. Undisputedly, the assessee has adopted the FMV of each equity share of EKPL as on 01.04.1981 at Rs.1675/- in terms of section 55(2)(b)(i) of the Act and based on the valuation report of a Chartered Accountant (CA). It is further observed, the CA has determined the FMV of the shares based on a valuation report of another Valuer, i.e, Accurate Surveyors, who has valued the lease hold rights in land and building held by EKPL, admeasuring 22.95 acres at a prime location in Delhi. The Accurate Surveyors have valued the property at Rs.26.89 croes as on 01.04.1981. Admittedly, while the assessee has furnished 14 | P a g e valuation report of experts, determining the FMV of equity shares, the Assessing Officer has not made any reference to the Departmental Valuation Officer (DVO) for ascertaining the FMV of shares as on 01.04.1981. On the contrary, the Assessing Officer has referred to the balance sheet of EKPL as at 30.06.1981 and observed that that the value of land and building has been shown at Rs.46 lakhs.

As per section 55(2)(b) of the Act, the ‘cost of acquisition’ would mean that the cost of acquisition of the asset to the assessee or the FMV of the asset as on 01.04.1981, at the option of the assessee. The expression “fair market value” has been defined in section 2(22B) of the Act to mean the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date. Thus, going by the definition of FMV, it cannot be said that the value of asset shown at the balance sheet can be the FMV. Therefore, in our view, the Assessing Officer could not have referred to cost/value of land and building as shown in the balance sheet for determining the FMV of the equity shares. More so, when section 55(2)(b) of the Act provides an option to the assessee to adopt the cost of acquisition as per FMV. It is further noticed that the Assessing Officer has made a fundamental error 15 | P a g e in determining the value of shares by referring to Rule 1D of the Wealth Tax Rules. It is observed, the said Rule stood omitted from the statute w.e.f. 01.04.1989. Therefore, the Assessing Officer has erred in law in determining the FMV by referring to Rule 1D of Wealth Tax Rules. He has committed further error by saying that there is no mode and mechanism for determining the FMV under the Income Tax Act. Whereas, section 55(2)(b) read with section 2(22B) of the Act provides mechanism for determining the cost of acquisition. In any case of the matter, to support the FMV of the shares as on 01.04.1981, the assessee has furnished valuation report of experts. Whereas, without taking assistance of DVO, the Assessing Officer has himself assumed role of an expert without having the requisite expertise or experience to determine the FMV of the equity shares as on 01.04.1981. It is well known that valuation is a highly technical subject, hence, has to be dealt by the experts. Therefore, when the Departmental Valuation Cell is available, the Assessing Officer, instead of referring the valuation process to the Valuation Cell, should not have taken the burden of valuation himself. In this regard, we are supported by the following decision:

It is further relevant to observe, while deciding the issue, learned first appellate authority has himself made inquiry to ascertain the FMV of the land and building under the possession of EKPL and as per the records of L & DO for the particular area, the value of land as on 01.04.1981 was Rs.2,000/- per sq. metre, which works out to about 81 lakhs per acre, which is much higher than the value of Rs.46 lakhs as shown in the balance sheet. It is further evident, though, the Assessing Officer has observed that the nature and character of land is dairy farming land, however, the facts on record reveal that EKPL has applied for conversion of dairy farming use to residential use in the year 1970, which was eventually allowed in the year 1992. Therefore, the FMV of the lease hold rights has to be ascertained based on its character of residential use. It is further observed, though, the Assessing Officer has alleged that the Accurate Surveyors in their valuation report has not considered the value of land in same locality, however, the observation is factually incorrect. We may also observe, merely because the assessee purchased shares of EKPL over a period of 20 years at the same face value of Rs.10 per share, it cannot be said that the FMV of the shares as on 1st April, 1981 would be Rs.10 per share. This is so because, the actual cost of acquisition cannot be the FMV as provided under section 55(2)(b) of the Act. In this regard, we refer to the following decisions:

Thus, on overall consideration of facts and circumstances of the case in the light of ratio laid down in the judicial precedents cited before us, we are of the considered view that the decision of learned Commissioner (Appeals) on the issue is not justiciable.

In the result, the appeal is dismissed.

The solitary ground raised by the Revenue reads as under:

In the result, the appeal is dismissed.

To sum up, both the appeals of Revenue are dismissed.