Capital gains on unquoted shares must be computed from actual sale consideration, not substituted fair market value.

For computation of capital gains on transfer of unquoted equity shares, the actual sale consideration received governs section 48 of the Income-tax Act, 1961. The assessing authority cannot substitute that consideration with fair market value or a valuation derived from another group company unless the Act expressly permits such substitution. The distinction between full value of consideration and fair market value is controlling, and in the absence of evidence that the assessee received more than the declared price, no addition can be sustained.

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Issues: Whether, for computation of capital gains on transfer of unquoted equity shares, the Assessing Officer could substitute the actual sale consideration received by the assessee with the fair market value or the value derived from another group company's share valuation.

Analysis: The transfer of shares and the consideration actually received were not in dispute. The computation of capital gains under section 48 of the Income-tax Act, 1961 starts from the full value of consideration actually received or accruing as a result of transfer. The statutory scheme does not permit substitution of that consideration by fair market value merely because the authorities considered the declared price to be low. The distinction between full value of consideration and fair market value is well recognised, and substitution is permissible only where the Act specifically authorises it. On the facts, no material showed that the assessee had received any amount over and above the declared sale consideration.

Conclusion: The Assessing Officer could not replace the actual sale consideration with an estimated fair market value for computing capital gains. The addition was deleted and the assessee succeeded on this issue.

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