Introduction
The Income Tax Appellate Tribunal (ITAT) Mumbai Bench, in ITA No.9520/Mum/2025, has delivered a significant ruling in DCIT-3(1)(1), Mumbai v. Bhavna Bharat Daftary, addressing the limits of an Assessing Officer’s power to substitute the actual sale consideration in a capital gains computation. The Revenue challenged the Commissioner of Income-tax (Appeals) order deleting additions aggregating Rs.97,02,60,256/- made under Section 143(3) read with Section 144B of the Income-tax Act. The Tribunal, comprising Judicial Member Amit Shukla and Accountant Member Prabhash Shankar, upheld the CIT(A)’s decision, holding that the AO lacked statutory authority to disregard the actual contractual consideration. The ruling is a strong reminder that tax authorities cannot re-engineer completed transactions absent an express statutory fiction.
Facts
The case arises from two separate transfers of equity shares of Bharat Serums and Vaccines Limited (BSVL), an unlisted company. On 30.09.2019, the assessee transferred 5,95,500 shares to Aksipro Diagnostics Private Limited (ADPL) at Rs.265 per share. At that time, ADPL was a closely held company owned equally by the assessee and his brother. The fair market value (FMV) under Rule 11UA was Rs.257.20 per share, meaning the actual consideration exceeded the statutory FMV. The consideration was adjusted through a running loan account maintained between the assessee and ADPL.
Subsequently, on 18.11.2019, a Definitive Agreement was executed with Anasamira Limited, an Advent Group company. That agreement did not fix the final consideration but prescribed a methodology contingent upon conditions precedent, due diligence, and closing. On 06.02.2020, after fulfilment of those conditions, Anasamira acquired a controlling interest in ADPL, altering its ownership. The final consideration was determined at Rs.1,893.98 per share, and on 07.02.2020, the assessee transferred a further 12,56,053 shares to ADPL.
During scrutiny assessment, the AO proposed to substitute the consideration for the first transfer (Rs.265 per share) with the higher rate of Rs.1,894.09 per share, relying on newspaper reports about negotiations and the ultimate receipt of funds on 07.02.2020. After rejecting the assessee’s objections, the AO made an aggregate addition of Rs.97,02,60,256/-, comprising the substitution addition of Rs.97,01,23,095/- and a small variation of Rs.1,37,161/-. The CIT(A) deleted the entire addition, and the Revenue appealed to the ITAT.
Reasoning
The Tribunal’s reasoning is the most substantial aspect of this commentary. To begin, the ITAT identified that there was no controversy regarding the genuineness of the transfers, the identity of the parties, the execution of the Definitive Agreement, the Rule 11UA valuation report, or the actual transfer through the depository mechanism. The Revenue did not allege that the transactions were sham, fictitious, or colourable. The sole dispute was whether the AO could substitute the actual consideration received on 30.09.2019 with the consideration received in a different transaction concluded on 07.02.2020.
The Tribunal then examined the statutory framework. Section 45 of the Income-tax Act charges capital gains on the transfer of a capital asset. Section 48 prescribes the mode of computation, using the expression “full value of consideration”. The ITAT held that “full value of consideration” means the actual consideration received or accruing as a result of the transfer. It does not authorise substitution of a notional or market value in the absence of an express statutory fiction. The Tribunal emphasised that substitution is permissible only under specific deeming provisions, such as Section 50CA, which applies when the declared consideration is less than the FMV. In this case, the actual consideration of Rs.265 per share was higher than the FMV of Rs.257.20 per share under Rule 11UA. Consequently, Section 50CA had no application. The AO’s reliance on newspaper reports and surrounding circumstances was not sufficient to displace the actual contractual consideration.
Furthermore, the Tribunal found that the two transfers were entirely independent transactions. The first transfer, on 30.09.2019, was an internal restructuring intended to consolidate family shareholding under one corporate vehicle. The consideration accrued on that very date and was adjusted through the running loan account. The amount physically received on 07.02.2020 merely represented repayment of the outstanding balance in that account; it did not determine the date of transfer or the accrual of consideration for the earlier transaction. The second transfer occurred under a materially different commercial setting: the Definitive Agreement of 18.11.2019 did not itself fix the consideration but prescribed a methodology for determination, contingent upon conditions precedent, due diligence, and closing. Only on 06.02.2020, after Advent acquired controlling interest in ADPL, did the final consideration crystallise at Rs.1,893.98 per share. Thus, the later consideration could not be retroactively applied to the earlier transfer.
The ITAT also rejected the AO’s implicit argument that the ultimate receipt of funds on 07.02.2020 suggested a pre-determined arrangement. Even if the promoters had explored strategic investment options, no concluded arrangement existed on 30.09.2019. The absence of a concluded arrangement was admitted on record. Therefore, the AO’s approach amounted to rewriting a completed commercial transaction without statutory backing. The Tribunal held that the AO had no legal basis to disregard the actual consideration of Rs.265 per share. This reasoning aligns with the principle that capital gains taxation operates on actual receipt or accrual unless a specific anti-avoidance provision is invoked. The Tribunal accordingly upheld the CIT(A)’s order deleting the additions.
Conclusion
The ITAT’s decision in DCIT v. Bhavna Bharat Daftary is a resounding affirmation that an Assessing Officer cannot substitute the actual consideration received in a share transfer with a notional or higher value derived from a subsequent, distinct transaction. The Assessment Order made under Section 143(3) read with Section 144B was set aside by the CIT(A) and now by the ITAT. This ruling provides clarity for taxpayers holding unlisted shares, particularly where the declared consideration exceeds the Rule 11UA FMV. It reinforces that deeming provisions like Section 50CA apply only in specific circumstances—when consideration is understated—and cannot be extended by analogy. The Revenue’s appeal was dismissed, and the addition of Rs.97,02,60,256/- stood deleted. This is a persuasive authority for similar disputes before the ITAT, and its reasoning will be relevant even in proceedings before a High Court if further appeal is contemplated.
—