By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi
Chartered Accountants
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Section 48 — The full value of consideration as contemplated in section 48 of the Act does not have any reference to the market value, but only to the consideration referred to in the sale deeds or other supporting evidences as the sale price of the assets which have been transferred.
Facts:
The assessee-company sold shares held in Nalwa Sponge Iron Ltd. (NSIL) to three persons at Rs.12 per share. The book value of shares was estimated to be Rs.254.40 at the time of sale. The AO took the view that the sale of shares was a device to pass on undue monetary benefit to the persons, who according to the AO were related persons. Based on that the AO recomputed capital gain by adopting the fair market value of the shares which was Rs.254.50. He thus made additions of Rs.6,06,27,500 as undisclosed sale consideration. On appeal to the CIT(A) by the assessee, it was held that the AO can’t alter the computation of capital gain without any evidence.
The Department filed appeal against the order of the CIT(A).
Held:
Section 48 contemplates ascertainment of ‘full value of consideration received or accruing as a result of the transfer of capital asset’. The word received means actually received and word accruing means the debt created in favour of the assessee as a result of transfer. In any case, both the terms are used as actual and not estimated amounts. The erstwhile provision does not contain words ‘fair market value’, thus addition made to sale consideration by the AO is not in accordance with the section 48 of the Act.
As regards the objection raised by the AO regarding related party, there was no evidence to prove that transferees were related to the directors of the company. However in any case transferees could not be said to be related to the company as company does not have any corporeal existence.
Hence it was held that the transactions were conducted with independent parties.
Also it is commonly accepted law that the onus to prove otherwise than the fact lies on the person who alleges. In the instant case even though the transaction had taken place at values far less than the arm’s-length price, in absence of any evidence purporting receipt of more consideration than stated, computation of capital gain made by the assessee cannot be altered by the AO.
In order to show that the transaction was colourable device intended to evade tax, the Revenue must prove understatement of consideration. They should have basic material and evidence in its hand. In the instant case, the AO relied upon hypothetical sale price without any evidence, which does not prove that there is more consideration passed than what is disclosed.
Held that as there was no evidence on record that transferees were related to directors of the assessee-company and that the assessee had received amount more than stated consideration, computation of capital gain can be made only on the basis of consideration actually received.
