2017 (5) TMI 914 - AT - Income Tax

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. ... Addition of long term capital gains - sale of shares - can full value consideration on sale of shares be substituted by the fair market value of the shares as on date of sale? - Held that:- In the instant case, the Assessing Officer has not been able to point out whether the assessee received any amount more than the consideration shown in the return of income or any amount accrued more than such consideration shown in the return of income. In such circumstances we hold that the full value consideration received by the assessee and shown in the return of income for computing the capital gain, cannot be replaced by the fair market value of shares computed by the Assessing Officer. As a result, we set aside the order of the Ld. CIT-A on the issue in dispute and direct the Assessing Officer to re-compute the capital gain on the basis of sale consideration declared by the assessee in the return of income. The ground of appeal is accordingly allowed in favour of assessee Disallowance of @20% of repairs, telephone expenses and depreciation on car etc. - addition on the ground that personal expenditure could not be ruled out - Held that:- Before the Ld. CIT-A the assessee failed to substantiate its claim that expenses incurred were wholly and exclusively for the purpose of business. The Ld. CIT-A observed that the assessee had not claimed to have maintained details of phone calls made and log book of the cars and in view of those facts personal use could not be ruled out. In our opinion, the finding of the Ld. CIT-A on the issue in dispute is well reasoned and no interference on our part is required. Accordingly we uphold the finding of the Ld. CIT-A on the issue in dispute. - Decided against assessee. 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 SharesThe 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 ExpensesThe 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 AppealThe third ground of appeal was dismissed as it was general in nature and did not require adjudication.ConclusionThe 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.