Section 48 — Actual value of sale consideration cannot be substituted by fair market value without any evidence.

The assessee acquired 8,91,181 shares of Hotel HQR in 2002
for a consideration of Rs.12.82 crore (i.e., for Rs.143. 85 per share).
Subsequently, a further subscription of shares was made by the assessee in 2004
and 2005 for Rs.10 per share. All the shares were then transferred to Shri R. P.
Mittal (a majority shareholder in the assessee company) at the rate of Rs.20 per
share. The AO held that transfer of shares was a colourable device to mitigate
tax. He further worked out fair market value of the shares at Rs.185.68 per
share. Capital gains was worked out on the basis of this amount as sale
consideration.

The hotel was not functional and was under repairs since
quite a long time. As per the valuation done by authorised valuer, the value per
share was coming to Rs.3.19. The Department has not brought any evidence to
rebut the valuation by the authorised valuer. Further, for the shares acquired
in 2004 and 2005 at Rs.10 per share, the assessee had earned profit. Hence, sale
of shares by the assessee to its majority shareholder is not a colourable device
to avoid tax. Hence, the actual value of sale consideration cannot be
substituted by some presumed fair market value.

Note : The other issues, being minor ones, have been ignored
while reporting the above decision.