2012 (11) TMI 716 - AT - Income Tax

Computation of Short term and long term capital gains - Cost of acquisition u/s 48 - Difference between actual sale price and market price at the time of sale - There is no allegation either by the Assessing Officer in the remand report or by the Commissioner of Income Tax (Appeals) that the assessee understated sale consideration; but addition has been made by taking into consideration the market price of the shares. Held that - section 48 does not have any reference to the market value of the asset; but it refers only to the consideration received or accruing as agreed between the parties to the transaction. - market price of the shares cannot be taken as full value consideration for the purpose of computation of capital gain as per sec. 48 when there is no under statement of sale consideration - Decided in favor of assessee.

Summary

Issues:
1. Enhancement of assessment by the Commissioner of Income Tax (Appeals) on short term and long term capital gains.
2. Interpretation of section 48 of the Income-tax Act, 1961 regarding the full value consideration for computation of capital gains.

Analysis:
1. The appeal challenged the Commissioner of Income Tax (Appeals)'s order enhancing the assessment for the Assessment Year 2005-06 based on short term and long term capital gains. The Assessing Officer made additions based on the market price of shares transferred by the assessee trust. The appellant argued that no capital gains should be levied as the consideration received was not more than the cost paid. The Tribunal noted that there was no evidence of understatement of sale consideration by the assessee. The Tribunal held that the market value of shares cannot be considered the full value of consideration for capital gains calculation when no understatement of sale consideration is suspected. The appeal was allowed in favor of the assessee.

2. The key issue revolved around the interpretation of section 48 of the Income-tax Act, 1961 concerning the full value consideration for capital gains computation. The Tribunal emphasized that the full value of consideration under section 48 refers to the price received or accruing from the transfer of a capital asset without any deductions. The Tribunal clarified that section 48 does not mandate using the market value of the asset but focuses on the actual consideration received by the parties involved in the transaction. In the absence of any indication of understatement of sale consideration, the market value of shares cannot replace the actual sale consideration for computing capital gains. The Tribunal cited various decisions to support this interpretation, emphasizing the importance of bona fide transactions and actual consideration received in determining capital gains.

This judgment provides a detailed analysis of the issues raised by the appellant regarding the enhancement of assessment and the interpretation of relevant provisions of the Income-tax Act, 1961. The Tribunal's decision clarifies the principles governing the computation of capital gains, emphasizing the significance of actual consideration received in determining tax liability.