Understated consideration rule limits substitution of fair market value where actual sale price is honestly and fully declared.

Section 52(2) of the Income-tax Act applies only where the consideration for transfer of a capital asset is understated, and the Revenue bears the burden of proving such understatement. Where the transfer is honest and bona fide and the actual consideration is correctly declared, the provision cannot be used to substitute an estimated fair market value for the declared sale price in computing capital gains under section 45. On the facts stated, section 52(2) could not be invoked, and the issue was answered in favour of the assessee.

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Issues: Whether section 52(2) of the Income-tax Act, 1961 could be invoked to substitute the fair market value of the transferred land for the actual sale consideration declared by the assessee while computing capital gains under section 45 of the Income-tax Act, 1961.

Analysis: Section 52(2) applies only where the consideration for transfer of a capital asset has been understated. The burden of establishing such understatement lies on the Revenue. Where the transaction is honest and bona fide and the consideration received is correctly declared, the provision has no application and the actual sale consideration cannot be replaced by an estimated fair market value.

Conclusion: Section 52(2) could not be invoked on the facts found, and the question was answered in the affirmative in favour of the assessee.

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