Section 52(2) cannot replace declared share-sale consideration with market value absent proof of understatement.

Section 52(2) of the Income-tax Act applied only where there was material showing understatement of consideration in a transfer of capital assets; it could not be invoked merely because the property might have fetched a higher market value. On the facts, the assessee had disclosed the actual consideration for transfer of shares and no evidence suggested any additional unreported amount, so the deeming provision was inapplicable and the Revenue failed. The Tribunal was also unjustified in directing a de novo enquiry, because there was no basis to suspect suppression of consideration and further investigation would have served no purpose.

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Issues: (i) Whether section 52(2) of the Income-tax Act, 1961 applied where the assessee had disclosed the actual consideration received on transfer of shares and there was no material showing any understatement of consideration. (ii) Whether the Tribunal was right in setting aside the assessment and directing a de novo enquiry on the premise that the full value of consideration had not been properly investigated.

Issue (i): Whether section 52(2) of the Income-tax Act, 1961 applied where the assessee had disclosed the actual consideration received on transfer of shares and there was no material showing any understatement of consideration.

Analysis: The provision was construed in the light of the earlier capital gains provisions and the consistent judicial view that the deeming fiction operates only where there is understatement of consideration. The expression "full value of the consideration" was held not to authorise substitution of fair market value merely because the property might have fetched a higher price. The provision was aimed at cases where consideration was actually understated with a view to tax avoidance, and not at honest and genuine transfers where only the declared consideration was received.

Conclusion: Section 52(2) did not apply on the facts, and the question was answered in favour of the assessee and against the Revenue.

Issue (ii): Whether the Tribunal was right in setting aside the assessment and directing a de novo enquiry on the premise that the full value of consideration had not been properly investigated.

Analysis: There was no suggestion in the assessment proceedings, or before the appellate authority, that any additional consideration over and above the declared sale price had been received. In the absence of any material indicating suppression of consideration, further enquiry would have served no purpose. The Tribunal's direction for fresh investigation was therefore unsustainable.

Conclusion: The Tribunal was not justified in setting aside the assessment, and the question was answered in the negative, against the Revenue.

Final Conclusion: The appeals were disposed of by holding that the deeming machinery under section 52(2) could not be invoked in a bona fide transfer without understatement of consideration, and the assessment could not be reopened for a futile de novo enquiry.

Ratio Decidendi: Section 52(2) applies only where there is material to show understatement of consideration in a transfer of capital assets; it cannot be invoked merely because the fair market value exceeds the declared consideration.

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