DCIT Vs Bhavna Bharat Daftary (ITAT Mumbai)
Section 48 Cannot Borrow Tomorrow’S Price For Yesterday’S Transfer — ₹97 Crore Capital-Gain Addition Deleted
Same shares—but two different transactions
The assessee held substantial shares in Bharat Serums and Vaccines Ltd. [BSVL], an unlisted company. The dispute arose from two transfers of BSVL shares undertaken during the year under entirely different commercial circumstances.
On 30.09.2019, the assessee transferred 5,95,500 shares to Aksipro Diagnostics Pvt. Ltd. [ADPL] at ₹265 per share. At that time, ADPL was a family-controlled company owned equally by the assessee & his brother, Gautam Daftary.
The transfer was undertaken as an internal restructuring exercise to consolidate the family shareholding in BSVL under a corporate vehicle, thereby facilitating a possible future strategic divestment.
The FMV determined under Rule 11UA on the transfer date was ₹257.20 per share. Thus, the actual consideration of ₹265 per share was higher than the statutory FMV.
On 18.11.2019, the promoters subsequently entered into a Definitive Agreement with Anasamira Ltd., an Advent Group company. The agreement prescribed only a methodology for determining the price. The final consideration depended upon due diligence, fulfilment of conditions precedent, capital infusion & closing of the transaction.
Upon closing on 06.02.2020, Anasamira acquired control over ADPL. On 07.02.2020, the assessee transferred a further 12,56,053 BSVL shares to the now Advent-controlled ADPL at ₹1,893.98 per share.
AO sends the February price back to September
The AO treated the consideration of ₹1,894.09 per share arising from the February 2020 transaction as the “real” consideration applicable even to the earlier September 2019 transfer.
According to the AO, negotiations for the strategic sale had begun much earlier, as indicated by newspaper reports. He also considered it significant that money relating to the September transfer was physically received on 07.02.2020.
Accordingly, the AO substituted ₹265 per share with ₹1,894.09 per share for the 5,95,500 shares transferred on 30.09.2019 & made an addition of approximately ₹97.01 crore. Together with another minor adjustment, the aggregate addition amounted to ₹97.03 crore.
The CIT(A) deleted the entire addition. The Revenue carried the matter to the ITAT.
Section 48 taxes actual consideration—not an imagined one
The ITAT examined the integrated capital-gain scheme under sections 2(47), 45 & 48.
Section 48 requires computation with reference to the full value of consideration received or accruing as a result of the particular transfer. It does not authorise the AO to substitute the contractual consideration with the market value or an amount which, according to him, the assessee ought to have received.
Relying upon CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC) & CIT v. Gillanders Arbuthnot & Co. Ltd. [1973] 87 ITR 407 (SC), the Tribunal reiterated that “full value of consideration” means the consideration actually received or accruing—not any hypothetical value attributed to the transferred asset.
Where Parliament intends substitution, it creates a specific deeming fiction through provisions such as sections 50C, 50CA & 50D. The AO cannot create a fresh deeming fiction through commercial perception or administrative interpretation.
Section 50CA had no work to do
Section 50CA applies where unquoted shares are transferred for consideration lower than their prescribed FMV.
Here, the shares were transferred at ₹265 per share, whereas their Rule 11UA value was only ₹257.20 per share. Therefore, the only statutory provision capable of substituting the consideration was admittedly inapplicable.
There was neither an allegation nor evidence that the assessee received anything over & above ₹265 per share. The transaction was not treated as sham, colourable or fictitious.
Following K.P. Varghese v. ITO [1981] 131 ITR 597 (SC), the ITAT held that the Revenue cannot tax an amount which the assessee might supposedly have received without evidence & express statutory authority.
Transfer is not postponed until the cheque arrives
The September transfer was conclusively established by delivery instructions acknowledged by HDFC Bank & corresponding debits in the assessee’s demat account.
The consideration accrued on the transfer date & was credited to the assessee’s running loan account with ADPL. Its physical receipt on 07.02.2020 merely represented settlement of an existing liability.
Capital gains arise upon transfer of the capital asset, not upon subsequent receipt of sale proceeds. If deferred consideration postponed the transfer, every sale involving instalments would remain incomplete until the final instalment—an interpretation contrary to sections 2(47) & 45.
Same company name did not mean the same purchaser commercially
On 30.09.2019, ADPL was a closely held, family-controlled company & the transfer represented an internal consolidation.
By 07.02.2020, ADPL had become an Advent Group-controlled entity after capital infusion by Anasamira. The later transfer occurred under an independent strategic acquisition involving due diligence, conditions precedent & a contractual pricing formula.
Therefore, the two transfers differed in their ownership setting, contractual framework, commercial character & pricing mechanism. Their consideration could not be mechanically equated merely because the immediate transferee carried the same corporate name.
Newspaper headlines are not sale agreements
The newspaper reports merely indicated negotiations concerning a possible acquisition. They could not prove that a concluded agreement fixing the price existed on 30.09.2019.
Relying upon Laxmi Raj Shetty v. State of Tamil Nadu & Samant N. Balakrishna v. George Fernandez, the ITAT held that newspaper reports are not substantive evidence unless independently proved.
Indeed, the Definitive Agreement demonstrated that even on 18.11.2019, the final consideration had not crystallised. It was therefore impossible to presume that the February price had already been fixed in September.
Decision
The ITAT held that the two share transfers were independent commercial transactions. No provision authorised the AO to import the consideration from the February transfer retrospectively into the September transfer.
Since the actual consideration exceeded the Rule 11UA value, section 50CA was inapplicable. The deletion of the ₹97.03 crore addition was affirmed & the Revenue’s appeal was dismissed.
Cases Discussed
- CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC)
- CIT v. Gillanders Arbuthnot & Co. Ltd. [1973] 87 ITR 407 (SC)
- K.P. Varghese v. ITO [1981] 131 ITR 597 (SC)
- Laxmi Raj Shetty v. State of Tamil Nadu
- Samant N. Balakrishna v. George Fernandez & Ors. [1969] 3 SCR 603
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI
1. The present appeal has been preferred by the Revenue against the order dated 22nd October, 2025 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, for the assessment year 2020-21, whereby the learned CIT(A) deleted the additions aggregating to Rs.97,02,60,256/- made by the Assessing Officer under section 143(3) read with section 144B of the Income-tax Act, 1961. During the pendency of the present appeal, the original assessee, Shri Bharat Vinod Daftary, expired on 07.12.2023, whereupon his legal heir, Smt. Bhavna Bharat Daftary, was duly substituted and has continued the present proceedings.
2. At the outset, Shri Percy Pardiwala, learned Senior Counsel, appearing on behalf of the respondent-assessee and assisted by Shri Prateek Mehta, made elaborate submissions assailing the very foundation of the assessment order and supporting the findings recorded by the learned CIT(A). The learned Senior Counsel took us through the complete paper book comprising the contemporaneous documentary evidence, the Definitive Agreement executed amongst the parties, the valuation reports prepared under Rule 11UA, the demat records, the delivery instructions, the ledger accounts, the bank statements and the detailed written submissions filed before us. The learned CIT-DR, on the other hand, relied upon the reasoning contained in the assessment order and submitted that the learned CIT(A) had erred both on facts and in law in interfering with the additions made by the Assessing Officer. We have carefully considered the rival submissions, examined the orders of the authorities below and perused the entire material placed before us.
3. The material facts giving rise to the present appeal are that the assessee held substantial equity shareholding in Bharat Serums and Vaccines Limited (BSVL), an unlisted company. The controversy arises out of two transfers of equity shares effected during the relevant previous year under two entirely different factual and commercial settings. The first transfer was undertaken on 30.09.2019, whereby the assessee transferred 5,95,500 equity shares of BSVL to Aksipro Diagnostics Private Limited (ADPL) at a consideration of Rs.265/- per share. At the relevant point of time, ADPL was a closely held company owned equally by the assessee and his brother, Shri Gautam Daftary. According to the assessee, the said transfer formed part of an internal restructuring intended to consolidate the family shareholding in BSVL under one corporate vehicle so as to facilitate any future strategic divestment. It is an admitted position on record that the fair market value of the shares determined in accordance with Rule 11UA as on the date of transfer was Rs.257.20 per share and, therefore, the actual consideration at which the shares were transferred admittedly exceeded the statutory fair market value prescribed under the Rules.
4. The record further reveals that although the promoters had been exploring the possibility of inducting a strategic investor by inviting bids from prospective purchasers, no concluded arrangement had come into existence on the date of the aforesaid transfer. It was only subsequently, on 18.11.2019, that a Definitive Agreement came to be executed amongst the promoters and Anasamira Limited, an Advent Group company, for acquisition of the promoters’ shareholding in BSVL through ADPL. Significantly, the Definitive Agreement itself did not determine the final consideration payable for the shares but merely prescribed the methodology for determination of the consideration, which was made contingent upon fulfilment of various conditions precedent, completion of due diligence and the eventual closing of the transaction. Thereafter, on 06.02.2020, upon fulfilment of the contractual conditions, Anasamira Limited acquired controlling interest in ADPL through primary infusion of capital, thereby fundamentally altering the ownership structure of the purchasing company. Consequent upon such closing, the final consideration stood determined at Rs.1,893.98 per share, and on the following day, namely 07.02.2020, the assessee transferred a further 12,56,053 equity shares of BSVL to ADPL, which by then had become an Advent Group company.
5. During the course of scrutiny assessment proceedings, the Assessing Officer called upon the assessee to furnish complete particulars relating to the computation of capital gains arising from the transfer of unlisted shares. In response, the assessee furnished detailed replies from time to time together with voluminous documentary evidence, including the delivery instructions acknowledged by HDFC Bank, demat statements evidencing the transfer of shares, valuation reports prepared under Rule 11UA, the Definitive Agreement, bank statements, ledger accounts and detailed computation of capital gains. After examining the material so furnished, the Assessing Officer issued a show-cause notice proposing, inter alia, to recompute the capital gains by adopting the consideration of Rs.1,894.09 per share received in relation to the transfer effected on 07.02.2020 even in respect of 5,95,500 shares transferred on 30.09.2019, thereby proposing an addition of Rs.97,01,23,095/-. Besides the aforesaid adjustment, a further addition of Rs.1,37,161/- was proposed on account of an alleged variation in the sale price adopted in relation to the transfer effected on 07.02.2020. Another proposed addition relating to clubbing of income in respect of shares gifted to the assessee’s daughter-in-law was, however, dropped during the assessment proceedings after the explanation furnished by the assessee was accepted.
6. The assessee submitted elaborate replies to the show-cause notice, furnished further documentary evidence and also availed the opportunity of hearing through video conference. The principal explanation of the assessee was that the transfer undertaken on 30.09.2019 and the transfer effected on 07.02.2020 represented two independent commercial transactions governed by different factual circumstances, different contractual rights and different commercial considerations and, therefore, the consideration received in the latter transaction could not legally or factually be substituted for the actual consideration agreed upon and acted upon in the former transaction. It was further explained that the consideration relating to the transfer effected on 30.09.2019 had already accrued on that very date and stood adjusted through the running loan account maintained between the assessee and ADPL, whereas the amount physically received on 07.02.2020 merely represented repayment of the outstanding balance in the said account and did not determine either the date of transfer or the accrual of the consideration.
7. The Assessing Officer, however, was not persuaded by the explanation so furnished. Proceeding principally on the premise that the consideration in respect of the first transfer had ultimately been received on 07.02.2020, and placing reliance upon certain newspaper reports referring to negotiations for sale of BSVL, he concluded that the consideration for the earlier transfer stood pre-determined and that the shares transferred on 30.09.2019 ought to have been valued at the same rate at which the subsequent transfer had taken place. Proceeding on the aforesaid reasoning, he substituted the actual contractual consideration of Rs.265/- per share by Rs.1,894.09 per share (according to the assessee, the correct figure being Rs.1,893.98 per share) and completed the assessment by making an aggregate addition of Rs.97,02,60,256/- to the returned income.
8. Aggrieved by the assessment so framed, the assessee carried the matter in appeal before the learned CIT(A.). Upon an elaborate examination of the documentary evidence, the statutory framework governing the computation of capital gains and the rival contentions advanced before him, the learned CIT(A.) deleted the entire addition holding that the Assessing Officer was not justified in substituting the actual consideration arising from the transfer effected on 30.09.2019 with the consideration received in relation to an altogether different transaction concluded on 07.02.2020. The Revenue, being aggrieved by the relief so granted, is in appeal before us. It is in the backdrop of the aforesaid factual matrix that the rival contentions fall for our consideration.
9. We have given our thoughtful consideration to the rival submissions and carefully examined the entire material placed before us. Upon such consideration, we find that the dispute raised in the present appeal does not involve any controversy regarding the genuineness of the transfer of shares, the identity of the parties, the execution of the Definitive Agreement, the valuation report prepared under Rule 11UA, or the actual transfer of shares through the depository mechanism. Equally, it is not the case of the Revenue that the impugned transactions are sham, fictitious, colourable or unsupported by contemporaneous documentary evidence. The controversy essentially arises from the approach adopted by the Assessing Officer in disregarding the actual contractual consideration received by the assessee on transfer of 5,95,500 equity shares on 30.09.2019 and substituting the same with the consideration received in respect of another transfer of shares effected on 07.02.2020, on the premise that the latter represented the true value of the earlier transaction. It is this assumption and the legal authority of the Assessing Officer to undertake such substitution which falls for our consideration.
10. Before examining the statutory provisions and the legal submissions advanced on behalf of the parties, it would be appropriate to first identify those foundational facts which emerge from the record and which, significantly, remain either admitted or undisputed. It is an admitted position that the transfer of 5,95,500 equity shares by the assessee in favour of ADPL on 30.09.2019 is evidenced by the duly executed Delivery Instructions acknowledged by HDFC Bank and the corresponding debit reflected in the assessee’s demat account maintained with the depository participant. The Assessing Officer has nowhere doubted either the genuineness or the authenticity of these primary documents. Likewise, it is not disputed that the fair market value of the shares determined under Rule 11UA as on the date of transfer stood at Rs.257.20 per share, whereas the shares were actually transferred at Rs.265 per share, that is to say, at a value higher than the statutory fair market value. Thus, the date of transfer, the mode of transfer, the identity of the transferee and the consideration agreed between the parties are all supported by contemporaneous documentary evidence and are not displaced by any contrary material brought on record by the Revenue.
11. Equally undisputed is the subsequent sequence of events culminating in the second transfer. The Definitive Agreement dated 18.11.2019, executed between the promoters of BSVL and Anasamira Limited, envisaged a structured commercial acquisition through ADPL. However, the agreement itself did not prescribe any fixed sale price payable for the shares on the date of its execution. On the contrary, the contractual arrangement specifically contemplated that the ultimate consideration would be determined only upon fulfilment of the stipulated conditions precedent, completion of due diligence, infusion of capital by Anasamira Limited into ADPL and the eventual closing of the transaction. It is only after these contractual milestones were achieved on 06.02.2020 that ADPL ceased to remain a closely held family-controlled entity and came under the control of the Advent Group. Consequent upon such closing, the final consideration became determinable in accordance with the agreed formula and, on 07.02.2020, the assessee transferred 12,56,053 equity shares at the contractual price of Rs.1,893.98 per share. Therefore, the material on record unmistakably demonstrates that the transfer effected on 07.02.2020 was governed by an altogether different contractual framework, different commercial circumstances and a different ownership structure of the purchaser than those prevailing on 30.09.2019.
12. The learned Senior Counsel, while taking us through the documentary evidence, submitted that the entire approach adopted by the Assessing Officer proceeds on an incorrect appreciation of both the facts and the law. According to him, as on 30.09.2019, there was neither any concluded agreement with Anasamira Limited nor any certainty regarding the eventual sale consideration which could ultimately emerge after completion of due diligence and satisfaction of the conditions incorporated in the Definitive Agreement. The first transfer, according to the learned Senior Counsel, was undertaken purely as an internal restructuring measure with a view to consolidate the family shareholding under one corporate entity so that the proposed strategic divestment, if eventually materialised, could be commercially implemented with greater efficiency. It was emphasised that the first transfer neither formed part of the Definitive Agreement executed subsequently nor was it governed by the contractual rights and obligations flowing therefrom. It was therefore contended that the two transactions, though involving the same company, were commercially, contractually and legally distinct, and consequently the consideration arising in one transaction could never constitute the consideration for another independent transfer.
13. Another important limb of the submissions advanced by the learned Senior Counsel relates to the basis on which the Assessing Officer has proceeded to disregard the transfer effected on 30.09.2019. It was submitted that the Assessing Officer has proceeded on the assumption that since the physical receipt of money took place on 07.02.2020, the transfer itself should also be regarded as having taken place only on that date. Elaborating the factual position, it was submitted that the consideration payable by ADPL in respect of the shares transferred on 30.09.2019 had already accrued on the date of transfer itself and, instead of immediate payment, the amount stood adjusted through the running loan account maintained between the assessee and ADPL. The subsequent receipt of money on 07.02.2020 merely represented settlement of the outstanding balance appearing in the loan account and not the accrual of the sale consideration itself. It was therefore argued that the date on which the outstanding liability was discharged cannot be equated with the date on which the transfer was completed or the consideration accrued, particularly when the transfer itself stood evidenced by independent third-party records maintained by the depository participant.
14. The learned CIT-DR, on the other hand, supported the assessment order and submitted that the learned CIT(A.) was not justified in deleting the additions. According to the Revenue, the receipt of the consideration relating to the first transfer on 07.02.2020, simultaneously with the completion of the second transaction, constituted a significant circumstance indicating that the transactions formed part of one composite arrangement. It was further contended that the contemporaneous newspaper reports regarding the proposed acquisition of BSVL clearly demonstrated that negotiations for sale had commenced much earlier and, therefore, the consideration ultimately received on 07.02.2020 represented the real consideration even for the shares transferred on 30.09.2019. On this basis, it was urged that the Assessing Officer had correctly recomputed the capital gains by adopting the higher value.
15. Having carefully examined the rival submissions, we are unable to persuade ourselves to accept that the controversy can be resolved merely by comparing the sale prices prevailing on two different dates or by attaching determinative significance to the date on which the monies were ultimately received. The issue, in our considered opinion, has necessarily to be examined within the statutory framework governing the charge and computation of capital gains under the Act. The determination of the “full value of consideration”, the point of time at which a transfer is regarded as complete, the circumstances in which the Legislature permits substitution of the actual consideration by a deemed consideration and the legal consequences flowing from the admitted documentary evidence on record have all to be examined in the light of the relevant statutory provisions before the correctness of the Assessing Officer’s approach can be adjudicated. It is therefore appropriate to first examine the legislative scheme contained in Sections 2(47), 45, 48 and 50CA of the Act before appreciating the factual inferences drawn by the Assessing Officer from the surrounding circumstances.
16. Before adverting to the rival submissions on merits, it would be apposite to briefly notice the statutory framework governing the controversy. The determination of capital gains under the Act proceeds in a sequential manner. Firstly, there must be a “transfer” of a capital asset within the meaning of section 2(47). Upon such transfer, the charge created under section 45 gets attracted and the income chargeable under the head “Capital Gains” has thereafter to be computed strictly in accordance with the mechanism prescribed under section 48. The computation under section 48 proceeds with reference to the “full value of the consideration received or accruing as a result of the transfer”. It is only where the Legislature itself has considered it necessary to substitute the actual consideration by a deemed consideration that specific statutory provisions, such as section 50CA in the case of transfer of unquoted shares, have been enacted. Thus, unless the case falls within the ambit of an express statutory fiction, the computation necessarily has to proceed on the basis of the consideration actually received or accruing from the transfer in question. It is in the aforesaid statutory backdrop that the controversy arising in the present appeal requires to be examined.
17. The controversy before us has, therefore, to be examined in the backdrop of the statutory scheme governing taxation of capital gains. The charge of capital gains is created by section 45, whereas the manner of computation is prescribed under section 48. The two provisions are complementary and constitute an integrated code for determining the taxability arising from transfer of a capital asset. Section 48, while prescribing the mode of computation, specifically employs the expression “the full value of the consideration received or accruing as a result of the transfer of the capital asset.” The legislative emphasis, therefore, is on the consideration which actually accrues or is received as a consequence of a particular transfer. It is no longer res integra that the expression “full value of consideration” occurring in section 48 does not authorise the Assessing Officer to substitute the actual contractual consideration by any amount which, according to him, ought to have been received, unless the statute itself expressly creates such a deeming fiction. The learned Senior Counsel has rightly relied upon the decisions of the Hon’ble Supreme Court in CIT v. George Henderson & Co. Ltd. (1967) 66 ITR 622 (SC) and CIT v. Gillanders Arbuthnot & Co. Ltd. (1973) 87 ITR 407 (SC), wherein it has been held that the expression “full value of consideration” refers to the consideration actually received or accruing to the transferor as a result of the transfer and not the market value or any notional value which may be attributed to the asset transferred. These principles have consistently governed the interpretation of section 48 and continue to hold the field except where Parliament has itself enacted a specific deeming provision providing for substitution of consideration.
18. The legislative scheme also assumes significance from another perspective. Parliament, wherever it considered it necessary to substitute the actual consideration by a deemed consideration for the purpose of computation of capital gains, has done so by incorporating specific statutory provisions. Thus, provisions such as sections 50C, 50CA, 50D and other deeming provisions constitute express legislative departures from the ordinary rule embodied in section 48. The existence of such specific provisions itself demonstrates that, in the absence of an express statutory mandate, the Assessing Officer cannot disregard the actual consideration agreed upon between the parties and replace it by another figure merely because, in his opinion, such other figure better reflects the value of the asset transferred. It is equally well settled that a deeming provision, being in the nature of a legal fiction, must receive strict construction and cannot be extended beyond the purpose for which the Legislature has consciously enacted it. Consequently, unless the transaction falls within the four corners of a specific statutory fiction, the computation has necessarily to proceed on the basis of the actual consideration arising from the transfer in question.
19. It is precisely in this context that section 50CA assumes relevance. The said provision empowers substitution of the actual consideration only where the consideration declared by the transferor in respect of transfer of unquoted shares is less than the fair market value determined in the prescribed manner under Rule 11UA. In the present case, however, it is not even the case of the Assessing Officer that the transfer effected on 30.09.2019 attracted section 50CA. On the contrary, it is an admitted factual position that the fair market value determined under Rule 11UA was Rs.257.20 per share, whereas the shares were transferred at Rs.265 per share, which admittedly exceeded such fair market value. Thus, the only statutory provision under which substitution of consideration could possibly have been contemplated admittedly stood excluded on the facts of the present case itself. Having accepted this factual position, the Assessing Officer nevertheless proceeded to substitute the consideration of Rs.265 per share by Rs.1,894.09 per share, not under any provision of the Act, but on the premise that such amount represented the “real” consideration. In our considered opinion, such an exercise travels far beyond the statutory framework governing computation of capital gains.
20. Equally significant is the fact that the assessment order nowhere identifies any charging or computation provision authorising such substitution. The entire reasoning proceeds on perceived commercial probabilities and surrounding circumstances without first identifying the statutory source of power enabling the Assessing Officer to disregard the consideration actually accruing from the transfer. Tax liability under the Income-tax Act cannot rest upon equitable considerations or commercial perceptions divorced from the statutory provisions. The authority of the Assessing Officer to compute taxable income must necessarily emanate from the Act itself. Once the Legislature has consciously enacted a specific mechanism under section 50CA dealing with transfer of unquoted shares and has prescribed the circumstances in which the declared consideration can be replaced by the prescribed fair market value, it is impermissible to evolve another mode of substitution dehors the statutory provisions. Acceptance of such an approach would amount to creating a fresh deeming fiction by administrative interpretation, a course wholly impermissible in the field of fiscal legislation.
21. The learned Senior Counsel also rightly relied upon the decision of the Hon’ble Supreme Court in K.P. Varghese v. ITO (1981) 131 ITR 597 (SC) in support of the proposition that taxation under the head “Capital Gains” is founded upon the consideration actually accruing from the transfer, and that any departure therefrom must find clear legislative sanction. The principle emerging from the aforesaid decision is that the Revenue cannot proceed on assumptions regarding what the assessee might have received unless the statute itself authorises such an inference. The same principle squarely applies to the present controversy. Here, there is no allegation that the assessee received anything over and above the contractual consideration agreed upon on 30.09.2019. There is equally no material brought on record to establish that the declared consideration of Rs.265 per share was fictitious or that any part of the actual consideration was suppressed. In the absence of such material and in the absence of any statutory provision authorising substitution, the computation necessarily has to proceed on the basis of the consideration actually accruing from the transfer effected on 30.09.2019.
22. Having thus examined the statutory framework governing the computation of capital gains, we now proceed to examine whether, on the facts emerging from the record, the Assessing Officer was justified in treating the transfer effected on 30.09.2019 and the transfer completed on 07.02.2020 as one composite transaction merely because the physical receipt of monies ultimately took place on the latter date and because both transfers ultimately formed part of the larger process culminating in acquisition of BSVL by the Advent Group. It is this aspect, which forms the principal foundation of the assessment order, that now requires closer examination in the light of the documentary evidence produced before the authorities below.
23. The principal foundation of the assessment order is that since the consideration in respect of the transfer of 5,95,500 shares was ultimately received on 07.02.2020, the transfer itself should also be regarded as having effectively taken place on that date and, consequently, the consideration applicable to the second transfer should equally govern the first transfer. In our considered opinion, the aforesaid premise proceeds on a complete misconception of the statutory concept of “transfer” embodied in the Act. The incidence of capital gains is attracted upon the transfer of a capital asset and not upon the subsequent receipt of the sale proceeds. Once a transfer satisfying the requirements of section 2(47) has taken place, the accrual of capital gains is determined with reference to that transfer itself. The subsequent mode, manner or timing of discharge of the consideration agreed between the parties cannot alter either the date of transfer or the legal consequences flowing therefrom. If the proposition canvassed by the Revenue were to be accepted, it would necessarily follow that in every case where the consideration is deferred or paid in instalments, the transfer itself would stand postponed till the last instalment is received. Such an interpretation not only runs contrary to the scheme of the Act but would also introduce complete uncertainty in the computation of capital gains, which the Legislature has consciously linked with the event of transfer and not with the subsequent realisation of the consideration.
24. At this stage, it would also be relevant to examine the nature of the evidence available on record evidencing the transfer itself. The transfer of 5,95,500 equity shares on 30.09.2019 is not sought to be established merely on the basis of entries in the books of account maintained by the assessee. On the contrary, the transfer is evidenced by contemporaneous and independent third-party documents, namely, the duly executed Delivery Instructions acknowledged by HDFC Bank and the corresponding debit reflected in the assessee’s demat account maintained with the depository participant. These documents originate from an independent statutory depository system over which the assessee exercises no control and constitute the primary evidence of the completion of the transfer of dematerialised securities. Significantly, neither the genuineness nor the authenticity of these documents has been doubted by the Assessing Officer. Once the transfer of shares stands conclusively established through such independent documentary evidence, the subsequent receipt or settlement of the consideration cannot postpone or alter the date on which the transfer had already become complete. The date of transfer has, therefore, to be determined with reference to the contemporaneous documentary evidence evidencing the transfer of the capital asset and not with reference to the subsequent discharge of the monetary obligation arising therefrom.
25. In the present case, the assessee has consistently maintained that immediately upon transfer of the shares on 30.09.2019, the sale consideration became due and payable and, instead of immediate payment, stood adjusted in the running account maintained between the assessee and ADPL. The ledger account placed before the authorities below reflects that the consideration relatable to the transfer of shares was credited to the assessee’s account on the date of transfer itself and thereafter formed part of the outstanding balance payable by ADPL. The amount ultimately received on 07.02.2020, according to the assessee, merely represented settlement of the existing liability appearing in the said account. This explanation is not only supported by the contemporaneous accounting records but also harmonises with the sequence of events emerging from the documentary evidence. The Assessing Officer has neither demonstrated that the ledger account is fabricated nor brought any independent material to discredit the entries recorded therein. Merely describing the accounting treatment as a “book entry” does not, by itself, render the transaction fictitious or non-existent. Every commercial transaction necessarily finds reflection in the books of account and, unless such entries are shown to be sham or contrary to the contemporaneous evidence, they cannot be discarded merely because they do not support the inference sought to be drawn by the Revenue.
26. Equally important is the independent documentary evidence evidencing the transfer itself. The delivery instructions executed by the assessee in favour of the depository participant, duly acknowledged by HDFC Bank, together with the corresponding debit reflected in the demat account, constitute third-party records maintained in the ordinary course of business over which the assessee has no control. These documents unmistakably establish that the shares stood transferred from the demat account of the assessee pursuant to the delivery instructions issued on 30.09.2019. The Revenue has neither questioned the genuineness of these records nor suggested that the entries maintained by the depository participant were manipulated or incorrectly recorded. Once such independent evidence conclusively establishes the transfer of shares on the stated date, the mere fact that the monetary consideration was physically received at a later point of time cannot efface the legal consequences flowing from the completed transfer. In fact, the Revenue has accepted the very existence of these documents but has chosen to attach greater significance to the date of receipt of money. Such an approach, in our considered opinion, overlooks the distinction between the completion of the transfer and the subsequent discharge of the financial obligation arising therefrom.
27. We also find considerable substance in the submission of the learned Senior Counsel that the two transactions cannot be equated merely because the immediate transferee in both instances happened to be ADPL. The assessment order proceeds on the assumption that the purchaser remained the same throughout and, therefore, there was no justification for adopting two different values. This assumption overlooks the undisputed commercial transformation which had taken place between the two transactions. On 30.09.2019, ADPL was admittedly a closely held company owned and controlled by the Daftary family. The first transfer was admittedly an internal consolidation of shareholding amongst entities under common control. However, by 06.02.2020, consequent upon the primary infusion of capital by Anasamira Limited in terms of the Definitive Agreement, ADPL had ceased to be a family-controlled entity and had become a company controlled by the Advent Group. The second transfer on 07.02.2020 was, therefore, not merely a subsequent transfer but one undertaken pursuant to a negotiated commercial acquisition by an independent third-party investor under an elaborate contractual arrangement. The commercial environment, ownership pattern, contractual obligations and pricing mechanism governing the second transaction were fundamentally different from those prevailing on 30.09.2019. In these circumstances, merely because the corporate name of the immediate purchaser continued to remain ADPL, it cannot be concluded that both transfers were identical in their commercial character or were required to carry the same valuation.
28. Another significant aspect which completely undermines the reasoning adopted by the Assessing Officer is the Definitive Agreement itself. A careful reading of the agreement unmistakably demonstrates that even on 18.11.2019, when the agreement was executed, the final consideration payable for the shares had not crystallised. The parties had merely agreed upon the methodology by which the consideration would eventually be determined upon fulfilment of the stipulated conditions and completion of the agreed due diligence. The closing itself took place only in February 2020 after satisfaction of the contractual conditions. If the final consideration itself remained indeterminate even on the date of execution of the Definitive Agreement, it becomes difficult to appreciate the basis on which the Assessing Officer concluded that the same consideration had already stood predetermined on 30.09.2019, nearly seven weeks before the Definitive Agreement came into existence. Such an inference is directly inconsistent with the contractual documents themselves, which constitute the best evidence of the rights and obligations undertaken by the parties. Where contemporaneous contractual documents clearly demonstrate that the final consideration was dependent upon future contingencies and contractual milestones, the same cannot be displaced by assumptions founded merely upon subsequent events.
29. In our considered opinion, the Definitive Agreement constitutes the best and the most reliable evidence of the contractual understanding between the parties. Far from supporting the case of the Revenue, the agreement completely negatives the assumption on which the assessment has been framed. A careful reading of the agreement demonstrates that while the parties had agreed upon the methodology for determination of the sale consideration, the final consideration itself remained indeterminate on the date of execution of the agreement and was expressly made dependent upon fulfilment of the stipulated conditions precedent, completion of due diligence, infusion of capital by Anasamira Limited into ADPL and the eventual “closing” of the transaction. Thus, even on 18.11.2019, the parties themselves had not arrived at any concluded sale consideration. If that be the contractual position emerging from the primary document executed between the parties, it becomes wholly incongruous to presume that the consideration had already stood finally determined on 30.09.2019, nearly seven weeks prior to the execution of the Definitive Agreement itself. Such an inference is not only contrary to the express terms of the agreement but also overlooks the settled principle that the rights and obligations of contracting parties are primarily governed by the terms of the contract consciously entered into between them and cannot be displaced by conjectures founded upon subsequent events.
30. We are, therefore, of the considered view that the documentary evidence placed on record consistently supports the assessee’s explanation that the transfer effected on 30.09.2019 and the transfer completed on 07.02.2020 constituted two independent commercial transactions, each governed by its own factual background and contractual framework. The attempt made by the Assessing Officer to merge the two transactions into one composite event solely on the basis of the date of receipt of consideration or the subsequent commercial acquisition of BSVL by the Advent Group is neither borne out from the documentary evidence nor supported by the statutory provisions governing computation of capital gains. Having reached the aforesaid conclusion, we shall now examine the other principal circumstance relied upon by the Assessing Officer, namely, the reliance placed upon certain newspaper reports to infer that the sale consideration had already been predetermined much prior to the transfer effected on 30.09.2019.
31. The other principal circumstance relied upon by the Assessing Officer to support the impugned addition is the reference made to certain newspaper reports appearing in June, 2019, from which an inference has been drawn that the sale of BSVL had already been negotiated and, therefore, the consideration ultimately received on 07.02.2020 represented the true consideration even for the transfer effected on 30.09.2019. We find ourselves unable to endorse the aforesaid approach for more than one reason. In the first place, the assessment order itself reveals that the newspaper reports were not made the basis of the original show-cause notice in the manner in which they have ultimately been relied upon while framing the assessment. More importantly, the Assessing Officer has not relied upon any primary contractual document or any contemporaneous evidence evidencing a concluded agreement existing on or prior to 30.09.2019 fixing the consideration at Rs.1,893.98 or Rs.1,894.09 per share. The inference has been drawn solely from newspaper reports referring to negotiations and possible acquisition of BSVL. Such reports, at the highest, may indicate that negotiations between prospective parties were in progress. They cannot, however, constitute evidence of a concluded contract or establish that the sale consideration stood irrevocably determined months before the execution of the Definitive Agreement itself.
32. The learned Senior Counsel has rightly placed reliance upon the decisions of the Hon’ble Supreme Court in Laxmi Raj Shetty v. State of Tamil Nadu and Samant N. Balakrishna v. George Fernandez & Ors. [1969] 3 SCR 603, wherein it has been consistently held that newspaper reports, by themselves, do not constitute substantive evidence of the facts stated therein unless independently proved in accordance with law. We respectfully find ourselves in agreement with the aforesaid principle. In the present case, the newspaper reports have not been corroborated by any independent material demonstrating that the parties had entered into a binding arrangement fixing the consideration much before the execution of the Definitive Agreement. On the contrary, the primary documentary evidence placed on record, namely the Definitive Agreement itself, unequivocally demonstrates that even on 18.11.2019, the final consideration remained undetermined and was dependent upon fulfilment of various contractual conditions, completion of due diligence and the eventual closing of the transaction. Therefore, the primary contractual evidence completely belies the inference sought to be drawn from the newspaper reports. Where direct documentary evidence exists between the contracting parties, the same necessarily prevails over speculative inferences sought to be drawn from external publications.
33. There is yet another aspect which, in our considered opinion, goes to the very root of the matter. Even assuming for the sake of argument that negotiations with prospective investors had commenced much before September, 2019, that circumstance, by itself, would not justify substitution of the actual consideration received on the transfer effected on 30.09.2019. Commercial negotiations, preliminary discussions, expressions of interest and even non-binding term sheets are common features of complex corporate acquisitions. They do not create enforceable rights nor do they determine the consideration ultimately payable unless and until the parties reduce their obligations into a binding contractual arrangement. The material placed before us clearly demonstrates that the Definitive Agreement itself contemplated several conditions precedent, extensive due diligence and a contractual mechanism for computation of the final consideration. The closing took place only in February, 2020. Had those contractual conditions remained unfulfilled, the transaction itself might not have culminated. Therefore, to hold that the consideration stood irrevocably fixed as early as September, 2019 would not only be contrary to the contractual documents but would amount to rewriting the commercial arrangement consciously entered into between the parties.
34. We also find that the learned CIT(A.) has meticulously analysed each of these aspects while examining the documentary evidence produced before him. The findings recorded by the learned CIT(A.) are neither based on assumptions nor founded upon equitable considerations. They are founded upon contemporaneous documentary evidence, namely, the delivery instructions, the demat statements, the Rule 11UA valuation report, the Definitive Agreement, the change in ownership of ADPL, the ledger accounts and the contractual mechanism governing determination of the final sale consideration. The Revenue has not been able to point out any perversity in these factual findings nor has it demonstrated that any material evidence placed before the learned CIT(A.) has either been ignored or incorrectly appreciated. Merely because another view may be possible on appreciation of the surrounding circumstances would not justify interference where the conclusions reached by the first appellate authority are fully supported by the documentary record and are in consonance with the statutory provisions governing computation of capital gains.
35. The learned Senior Counsel had also invited our attention to the assessment completed in the case of the assessee’s brother, Shri Gautam Daftary, wherein, according to him, on substantially identical facts arising out of the same series of transactions relating to BSVL shares, the transfer effected on 30.09.2019 has been accepted by the Department without adopting the approach followed in the present case. We have taken note of the aforesaid submission. However, since we have independently examined the controversy on the basis of the contemporaneous documentary evidence available on record, the statutory provisions governing computation of capital gains and the legal principles emerging from the authorities relied upon by the learned Senior Counsel, we do not consider it necessary to rest our conclusion on the principle of parity or consistency alone. Our decision is founded upon the intrinsic merits of the present case, which, in our considered opinion, are themselves sufficient to uphold the order of the learned CIT(A).
36. An overall appreciation of the contemporaneous documentary evidence, the contractual framework governing the transactions and the statutory provisions applicable thereto leaves us with little hesitation in holding that the approach adopted by the Assessing Officer cannot be sustained in law. The impugned addition essentially rests upon the assumption that the consideration arising from a subsequent commercial transaction could retrospectively be imported into an earlier and independent transfer merely because the payment was ultimately received on the same date and because both transactions formed part of a larger commercial objective. Such an assumption, however, finds no support either from the contemporaneous documentary evidence or from the statutory framework governing capital gains. The independent documentary evidence establishes the transfer of 5,95,500 shares on 30.09.2019; the contractual documents unequivocally demonstrate that the consideration under the Definitive Agreement itself had not crystallised even on 18.11.2019; the admitted Rule 11UA valuation excludes the applicability of section 50CA; and no provision of the Act has been brought to our notice authorising the Assessing Officer to substitute the actual consideration accruing from one transfer with the consideration arising from another independent transaction. The assessment, therefore, proceeds more on perceived commercial probabilities than on the statutory mandate contained in the Act.
37. In view of the foregoing discussion, we are of the considered opinion that the impugned addition is unsustainable both on facts and in law. The contemporaneous documentary evidence unequivocally establishes that the transfer of 5,95,500 equity shares stood completed on 30.09.2019; the contractual documents unmistakably demonstrate that the consideration payable under the Definitive Agreement had not crystallised on that date; the consideration actually declared by the assessee admittedly exceeded the fair market value determined under Rule 11UA, thereby rendering section 50CA inapplicable; and no provision of the Act authorises substitution of the actual consideration arising from one completed transfer with the consideration arising from another independent commercial transaction concluded several months thereafter. The view taken by the learned CIT(A.), in deleting the impugned addition, thus merits affirmation, as it is firmly anchored in the contemporaneous evidence on record, accords with the statutory scheme governing the computation of capital gains and is in complete consonance with the settled legal principles governing the field. We, accordingly, uphold the order of the learned CIT(A.) and decline to interfere with the relief granted therein.
38. In the result, appeal of the Revenue is dismissed.
Order pronounced on 17th August, 2026.
