Judgment:
M.B. Shah J.
1. Under section 256(1) of the Income-tax Act, 1961 ('the Act', for short), the Income-tax Appellate Tribunal, Ahmedabad, has referred the following two questions for our decision :
'1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in setting aside the order of the Commissioner of Income-tax made under section 263 of the Income-tax Act, 1961
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that section 52(2) of the Income-tax Act, 1961, had no application to the facts of the case of consequently the Commissioner's direction to the Income-tax Officer in that behalf were bad ?'
2. The aforesaid questions arise in the background of the facts that the assessee transferred the land admeasuring 1,026 sq. yards of village Madalpur, Ahmedabad city, for a sale consideration of Rs. 45,000 during the assessment year 1972-73. After deducting the expenditure of Rs. 1,871, the sale price was mentioned as Rs. 43,129. Out of land admeasuring 1,026 sq. yards, actually 900 sq. yards of land was sold and 126 sq. yards of land was kept for road and hence it was not taken into consideration. The Income-tax Officer asked the assessee to explain as to why the prevailing fair market value of land of not less than Rs. 90 per sq. yard should not be substituted in the sale price mentioned by the assessee. In response to this, the assessee submitted a chart pointing out that that prevailing price was from Rs. 53 to 55 per sq. yard. Thereafter, the Income-tax Officer finalised the assessment by adopting that fair market price at the rate of Rs. 90 per sq. yard and worked out the capital gains accordingly. Against that order, the assessment preferred an appeal before the Appellate Assistant Commissioner.
3. During the pendency of the said appeal, the Commissioner of Income-tax, Gujarat-I, initiated proceedings under section 263 of the Act. He observed in his order dated December 24, 1976, that the market value of the land as on the date of the sale exceeded by more than 15 per cent. The full value of consideration declared by the assessee in regard to the transfer and, therefore, the Income-tax Officer ought to have applied the provisions of section 52 of the Act and ought to have obtained prior approval of the Inspecting Assistant Commissioner of Income-tax as required under the said section. He further held that the order passed by the Income-tax Officer suffered from infirmity and was erroneous because he wrongly considered the assessee's contention that only 900 sq. yards of land was sold instead of 1,026 sq. yards. He, therefore, set aside the order passed by the Income-tax Officer and directed him to make fresh assessment after applying properly the provisions of section 52 and to recompute the capital gain after taking into consideration the assessee's contention as regards the land used for the road.
4. Against that order dated December 24, 1976, the assessee preferred an appeal before the Tribunal, which was numbered as Income-tax Appeal No. 1879/ (Ahd.) of 1976-77. The Tribunal arrived at the conclusion that before invoking the provisions of section 52 of the Act, the Department should have something on record to show that the assessee had received some amount in excess of the sale consideration declared by the assessee. For this purpose, the Tribunal relied upon various decisions of the High Courts. The Tribunal held that in the instant case, admittedly, there was no material or evidence whatever in the possession of the Department which would indicate that the actual consideration for the sale or transfer received by the assessee was much more than what was declared and, therefore, the provisions of section 52 could not be invoked. The Tribunal further held that the mere fact that there was evidence of other comparative sales which would indicate that the market value was higher did not by itself support the Department's case and that the Commissioner was not justified in holding that the provisions of section 52 were applicable and that the Income-tax Officer ought to have applied them in adopting the marker value.
5. As regards the second point, as to whether the fair market value method should have been adopted or not with regard to land admeasuring 126 sq. yards, the Tribunal held that as resort to the provisions of section 52 of the Act was not justified, the question relating to non-inclusion of the market value of 126 sq. yards of lands in the computation of the upper figure out of which the cost of acquisition of the assessee's asset had to be deducted, did not arise. The Tribunal, therefore, allowed the appeal and set aside the order of the Commissioner of Income-tax. Against that order, the Department has sought a reference and the aforesaid two questions were referred for our opinion.
6. In the case of K. P. Verghese v. ITO : [1981]131ITR597(SC) while dealing with the provisions of section 52(2) of the Income-tax Act, the Supreme Court has held that it can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee or, in other words, the full value of the consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee, and the burden of proving such understatement or concealment is on the Revenue. It is further held that the sub-section has no application in the case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him. The aforesaid decision is followed in the case of CIT v. Shivakami Co. P. Led. : [1986]159ITR71(SC) wherein the Supreme Court held that since the Tribunal had found that the consideration was not understated and there was no evidence direct or inferential to show that the consideration actually received by the respondent was more than what was disclosed or declared by the respondent, the proviso to section 12B(2) could not be invoked. The court further held that unless there is evidence that more than what was stated was received, no higher price can be taken to be basis for computation of capital gains.
7. In view of the settled legal position, in our view, the Tribunal was perfectly justified in arriving at the conclusion that the Commissioner ought not to have given a direction to the Income-tax Officer to start proceedings by invoking the provisions of section 52 of the Act. Admittedly, as stated by the Tribunal, there was no material or evidence whatsoever in the possession of the Department, which would indicate that the actual consideration for the sale or transfer received by the assessee was much more than what was declared.
8. In view of the aforesaid discussion, the Tribunal was right in law in holding that section 52(2) of the Act has no application to the facts of the present case and consequently the directions of the Commissioner of Income-tax to the Income-tax Officer in that behalf were bad in law. Hence, question No. 2 is answered in the affirmative, in favour of the assessee and against the Revenue.
9. As we have arrived at the conclusion that the direction given by the Commissioner of Income-tax initiating proceedings under section 52 of the Act was without any basis, question No. 1 is not required to be answered in the facts and circumstances of the case. Hence, question No. 1 is not answered.
10. In the result No. 1 is not answered in the facts and circumstances of the case. Question No. 2 is answered in the affirmative, in favour of the assessee and against the Revenue. The reference stands disposed of accordingly with no order as to costs.