Understated consideration requirement limits section 52(1); fair market value cannot replace declared price without proof of concealed receipt.

Section 52(1) of the Income-tax Act, 1961 applies only where the transfer document shows understatement of consideration and there is material to prove that the assessee actually received more than the stated price. A mere comparison with higher market rates or comparable transactions is insufficient to invoke the provision, as the machinery cannot be used without evidence of concealed consideration or tax-avoidance intent connected with the transfer. On that basis, the provision was held inapplicable to the transactions discussed, and the matter was decided in favour of the assessee and against the Revenue.

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Issues: Whether section 52(1) of the Income-tax Act, 1961 could be invoked where the transfer document did not disclose any understatement of consideration and there was no material to show that the assessee had received more than the stated price.

Analysis: Section 52(1) is attracted only where the transferee is directly or indirectly connected with the assessee and the transfer is effected with the object of avoidance or reduction of liability under section 45. The provision proceeds on an understatement of consideration in the transfer document. Where the Revenue does not establish that the declared consideration is less than what was actually received, the machinery provision cannot be used merely because comparable transactions indicate a higher market rate. In the absence of evidence of concealed consideration, no basis exists for substituting fair market value under section 52(1).

Conclusion: Section 52(1) of the Income-tax Act, 1961 was not applicable to the impugned transactions, and the answer was in favour of the assessee and against the Revenue.

Ratio Decidendi: Section 52(1) cannot be applied unless the transfer document reflects an understatement of consideration and there is material to show that the assessee actually received more than the stated amount.

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