ITAT allows LTCG on unquoted shares under Section 50C and HRA deduction for rent to grandfather's HUF

The ITAT Ahmedabad allowed both grounds in favor of the assessee. Regarding LTCG on unquoted shares, the tribunal held that Section 50C was not applicable to private limited company shares, distinguishing shareholders who were tenants/occupants requiring higher consideration for peaceful possession from non-occupant shareholders. The assessee's explanation for differential pricing among shareholder groups was accepted. For HRA deduction, the tribunal allowed rent paid to grandfather's HUF as legitimate HRA deduction, supported by bank statements and documentary evidence, following precedents from ITAT Delhi and ITAT Ahmedabad.

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Issues Involved:
1. Determination of the selling price of shares for calculating Long Term Capital Gains (LTCG).
2. Disallowance of deduction of rent paid against House Rent Allowance (HRA) received as part of salary.

Summary:

Issue 1: Determination of Selling Price of Shares for LTCG Calculation
The assessee contested the CIT(A)'s confirmation of the selling price of 201 shares of Chamanlal Mehta & Co. Pvt. Ltd. (CMPL) at Rs. 14,616/- per share, as estimated by the AO, instead of the actual consideration received at Rs. 8,512/- per share. The assessee argued that u/s 48, the full value of consideration should denote the actual amount received. The AO had substituted the sale consideration based on the price received by another group of shareholders, who were also tenants and occupants of the property, thus receiving a higher price. The Tribunal noted that the internal arrangement justified the different prices and that Section 50C, which pertains to land or building, was not applicable. The Tribunal found the assessee's explanation reasonable and allowed the ground, stating that the CIT(A) misunderstood the explanation and the AO's substitution was not justified.

Issue 2: Disallowance of Deduction of Rent Paid Against HRA
The assessee challenged the CIT(A)'s confirmation of the disallowance of Rs. 1,86,400/- rent paid against HRA received. The assessee provided evidence including Form 16, ledger accounts, proof of rent paid, and municipal receipts. The Tribunal noted that the assessee resided in a house owned by the HUF and actually paid rent. Citing precedents, the Tribunal concluded that the assessee was entitled to the deduction of rent paid against HRA and allowed the ground.

Conclusion:
The appeal of the assessee was allowed, with both grounds decided in favor of the assessee. The Tribunal pronounced the order on January 3, 2024.

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