Unregistered release deed and valuation evidence cannot trigger capital gains without a valid transfer or proof of understatement.

An unregistered release deed in respect of immovable property does not, by itself, effect a valid transfer for capital gains purposes where registration is legally required or the transaction is otherwise void; on that basis, no capital gains arose. Section 52(2) of the Income-tax Act cannot be applied merely because the Departmental Valuation Officer adopts a higher market value: there must be evidence that more than the declared consideration was actually received. In the absence of proof of understatement, substitution of a higher figure for computing capital gains is not justified.

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Issues: (i) Whether the execution of an unregistered release deed in respect of immovable property amounted to a transfer giving rise to capital gains. (ii) Whether the higher market value determined by the Departmental Valuation Officer could be adopted under section 52(2) of the Income-tax Act, 1961 in the absence of evidence of understatement of consideration.

Issue (i): Whether the execution of an unregistered release deed in respect of immovable property amounted to a transfer giving rise to capital gains.

Analysis: The transaction involved relinquishment of rights in immovable property through an unregistered release deed. The legal effect of such a document had to be tested under the income-tax definition of transfer, and not merely by factual conduct or inferred possession. The absence of registration meant there was no valid relinquishment or extinguishment of rights in law. The further circumstance that the transaction was hit by the prohibition under section 27 of the Urban Land (Ceiling & Regulation) Act, for want of prior approval, also supported the view that the alleged transfer was void ab initio.

Conclusion: No transfer in law was established, and no capital gains was chargeable in favour of the Revenue.

Issue (ii): Whether the higher market value determined by the Departmental Valuation Officer could be adopted under section 52(2) of the Income-tax Act, 1961 in the absence of evidence of understatement of consideration.

Analysis: Section 52(2) could be invoked only where there was evidence that the assessee had received more than what was declared. A valuation report showing a higher fair market value, by itself, was insufficient to prove understatement. On the record, there was no evidence that any amount over and above the stated consideration had passed to the co-owners. The difference between the declared consideration and the departmental valuation therefore did not justify substitution of a higher figure for computing capital gains.

Conclusion: Section 52(2) could not be applied, and the enhancement of capital gains was not sustainable in favour of the Assessee.

Final Conclusion: The alleged transfer failed in law, and the addition based on a deemed higher consideration was also unsustainable, so the assessees succeeded on both substantive issues.

Ratio Decidendi: An unregistered release deed does not effect a transfer of immovable property for capital gains purposes where registration is legally required or the transfer is otherwise void, and section 52(2) cannot be invoked merely because the departmental valuation exceeds the stated consideration unless understatement is proved by evidence.

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