Commissioner of Income Tax, Nagpur vs Ramkrishna Ramnath Properties Pvt. Ltd.

Mohta, J.—This is a reference under s. 256(1) of the I.T. Act, 1961, at the behest of the Revenue. The following three questions are referred :

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in upholding the order of the Appellate Assistant Commissioner of Income Tax ?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the provisions of s. 52 of the Income Tax Act, 1961, were not applicable to the instant case ?

(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that there was no capital gain taxable u/s 52 of the Income Tax Act, 1961, arising to the assessee on the sale of various properties for the assessment years in question ?"

However, Shri Joshi, the learned counsel of the Revenue, wants us to answer only question Nos. 2 and 3 as question No. 1 is of a very general nature and the answer depends essentially upon the answer to questions No. 2 and 3.

In the assessment years 1973-74 and 1974-75, the assessee made transfers of seven properties in all. The ITO held that the consideration for sale of the properties were understated. Applying the provisions of s. 52(1) as well as of s. 52(2) of the I.T. Act, 1961, he assessed their value on the basis of the fair market value as determined by the valuer and determined capital gains on that basis. The AAC allowed the appeals filed by the assessee, and the Tribunal confirmed the appellate order. This reference arises out of this order. Now, it is well settled that actual understatement of the consideration has to be established by the Revenue and the assessment of capital gains cannot be made dependent only on the fair market value. It is an undisputed position that no material exists to support the actual understatement. Consequently, in view of the Supreme Court decision in K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, question No. 2 is answered in the affirmative and in favour of the assessee, and question No. 3 is also answered in the affirmative and in favour of the assessee. There shall be no order as to costs.