Section 52(2) applies only to proved understatement of share transfer consideration; Revenue bears the burden of proof.

Section 52(2) of the Income-tax Act applies only where the consideration for transfer of a capital asset is proved to have been understated, meaning the declared price is less than what was actually received. In the absence of evidence of understatement or concealment, and where the transfer is shown to be honest and bona fide, the provision cannot be invoked. The burden of proving understatement lies on the Revenue. On the facts stated, section 52(2) did not apply and the capital gains addition based on that provision could not be sustained.

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Issues: Whether section 52(2) of the Income-tax Act, 1961 applied to the transfer of shares where the consideration shown was not alleged to be understated and, if not, whether the addition made under the head of capital gains could stand.

Analysis: The settled rule, as declared by the Supreme Court, is that section 52(2) is attracted only when the consideration for transfer of a capital asset has been understated, that is, when the full value of consideration shown is less than what was actually received. In the absence of proof of understatement or concealment, and where the transaction is honest and bona fide, the provision cannot be invoked. The burden of proving such understatement lies on the Revenue.

Conclusion: Section 52(2) was not applicable on the facts found, and the addition made on that basis could not be sustained. The questions were answered in favour of the assessee and against the Revenue.

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