Tribunal adjusts capital gains calculation and upholds ad-hoc expense disallowance.

The Tribunal partly allowed the appeal, directing the Assessing Officer to re-compute the capital gains based on the declared sale consideration of Rs. 270 per share for shares sold. The Tribunal upheld the ad-hoc disallowance of expenses related to repairs, telephone, and car depreciation. The decision was issued on 17th May 2017.

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Issues Involved:
1. Addition of long-term capital gains on the sale of shares.
2. Ad-hoc disallowance of expenses related to repairs, telephone, and car depreciation.

Detailed Analysis:

Issue 1: Addition of Long-Term Capital Gains on Sale of Shares
The assessee contested the addition of Rs. 6,06,424/- under the head 'income from long-term capital gains' on the sale of 4900 shares of M/s. Dera Farmindale Private Limited. The shares were sold at a rate of Rs. 270 per share, totaling Rs. 13,23,000/-. The assessee argued that this sale price was higher than the fair market value of the shares. The Assessing Officer (AO) disagreed, valuing the shares at Rs. 393.76 per share based on the book value of certain expenses, leading to the addition in question.

The AO's valuation was based on the inclusion of expenses for a building under construction, which the assessee claimed had no market value as it was not in use. The CIT-A upheld the AO's valuation, noting that the assessee did not provide evidence to support the claim that the building had no market value.

The Tribunal examined whether the full value consideration for computing capital gains could be replaced by the fair market value of the shares. It was noted that Section 45(1) and Section 48 of the Income Tax Act require the computation of capital gains based on the "full value of consideration" received or accrued, not a notional or market value. The Tribunal referenced the Supreme Court's decisions in CIT vs. George Hinderson & Co. Ltd. and CIT vs. Gillanders Arbuthnot & Co., which clarified that "full value of consideration" refers to the actual price received, not the market value.

The Tribunal concluded that the AO's substitution of the fair market value for the actual sale consideration was not in accordance with the law. The amendment introducing Section 50CA, which allows for such substitution, was not applicable during the relevant period. Therefore, the Tribunal directed the AO to re-compute the capital gains based on the sale consideration of Rs. 270 per share declared by the assessee.

Issue 2: Ad-Hoc Disallowance of Expenses
The assessee challenged the ad-hoc disallowance of Rs. 52,312/- made on an estimate basis out of repairs, telephone expenses, and car depreciation. The AO had disallowed 20% of the claimed expenses on the grounds that personal use could not be ruled out, as the assessee did not maintain detailed records of phone calls and car usage.

The Tribunal upheld the disallowance, agreeing with the CIT-A's reasoning that the absence of detailed records justified the AO's decision. It was noted that the assessee failed to substantiate that the expenses were wholly and exclusively for business purposes.

General Ground of Appeal
The third ground of appeal was dismissed as it was general in nature and did not require adjudication.

Conclusion
The appeal was partly allowed. The Tribunal directed the AO to re-compute the capital gains based on the declared sale consideration, while upholding the ad-hoc disallowance of expenses. The decision was pronounced on 17th May 2017.

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