Actual consideration governs capital gains on unlisted shares for pre-50CA years; notional valuation cannot replace declared sale price.

For assessment years before the introduction of section 50CA, capital gains on sale of unlisted shares must be computed under section 48 on the actual consideration received or accruing, unless the revenue proves understatement of consideration. An assessed fair market value based on projections or assumptions cannot replace the declared sale price where the transaction is between independent parties and the record supports the agreed consideration. Section 50CA applies only from assessment year 2018-19 and has no application to earlier years. The article therefore states that notional share valuation cannot be used to enhance capital gains for pre-50CA years.

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Issues: Whether, for assessment year 2014-15, the capital gains arising from sale of unlisted shares could be recomputed by substituting the actual sale consideration with an estimated fair market value, and whether section 50CA could be applied to such year.

Analysis: The shares were sold by one independent party to another at an agreed price, and the actual consideration was supported by the transaction record. In the absence of material showing understatement of consideration, section 48 required computation of capital gains on the full value of consideration actually received or accruing, and not on a notional market value. The valuation adopted by the Assessing Officer, based on projections and assumptions, was held to be unsustainable. Section 50CA, which permits substitution of fair market value for consideration in case of transfer of unquoted shares, was introduced with effect from assessment year 2018-19 and had no application to the year under appeal.

Conclusion: The addition made by substituting the declared sale price with a notional share valuation was deleted. The appeal was allowed in favour of the assessee.

Ratio Decidendi: For years prior to the introduction of section 50CA, capital gains on sale of shares must be computed under section 48 on the actual consideration received unless the revenue proves understatement of consideration; notional fair market value cannot be substituted.

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