Capital gains cannot be computed on estimates alone when actual cost and sale consideration are supported by evidence.

In computing capital gains, actual cost and actual sale consideration cannot be substituted by estimates or presumptions without cogent contrary evidence or statutory authority, and the addition based on such hypothesis was deleted. The record also showed that the Assessing Officer had been supplied additional evidence and had attended the first appellate proceedings, so the plea of denial of proper opportunity failed. Household expenditure was found to have been estimated on an inadequate basis and was reduced, giving the assessee partial relief. Disallowances from salary and bonus, brokerage and commission, telephone, and scooter and petrol expenses were partly sustained, though the latter two were reduced as excessive.

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Issues: (i) whether the assessee was denied proper opportunity before the first appellate authority; (ii) whether the estimation of household expenses and the resulting addition was justified; (iii) whether the addition on account of capital gains arising from sale of the residential property was sustainable; and (iv) whether the disallowances out of salary and bonus, brokerage and commission, telephone, and scooter and petrol expenses were justified.

Issue (i): whether the assessee was denied proper opportunity before the first appellate authority.

Analysis: The appellate record showed the attendance of the Assessing Officer and also indicated that copies of additional evidence were supplied for comments. On these facts, the plea that the Assessing Officer was not given a proper hearing was not borne out.

Conclusion: The objection failed and the addition was not vitiated on this ground.

Issue (ii): whether the estimation of household expenses and the resulting addition was justified.

Analysis: The authorities had estimated household expenditure at differing figures without adequate basis. Considering the family composition, the admitted withdrawals, and the surrounding circumstances, a more reasonable estimate was warranted.

Conclusion: The household expenses were to be estimated at a lower figure, and the assessee obtained partial relief.

Issue (iii): whether the addition on account of capital gains arising from sale of the residential property was sustainable.

Analysis: The assessee produced material showing existence of the property, construction history, permissions, valuation support, and capital account withdrawals. The Assessing Officer proceeded on presumption and substituted estimated figures for actual consideration and cost without rebutting the assessee's evidence. In a capital gains computation, the actual figures of cost and sale consideration could not be replaced merely on hypothesis in the absence of statutory authority or contrary proof.

Conclusion: The deletion of the capital gains addition was upheld and the assessee succeeded on this issue.

Issue (iv): whether the disallowances out of salary and bonus, brokerage and commission, telephone, and scooter and petrol expenses were justified.

Analysis: The disallowances relating to salary and bonus and brokerage and commission were supported by the circumstances showing family linkage and lack of convincing justification. The disallowances relating to telephone and scooter and petrol expenses were, however, considered excessive and were reduced on a lump-sum basis.

Conclusion: The assessee obtained only partial relief on these disallowances.

Final Conclusion: The revenue appeal failed, while the cross objection succeeded only in part, leaving the assessee with limited relief on the household expenditure and business expense issues and full relief on the capital gains issue.

Ratio Decidendi: In computing capital gains, the Assessing Officer cannot replace actual cost and actual sale consideration with estimates or presumptions in the absence of cogent contrary evidence or statutory authority.

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