Law:

Section:

Section 52 of the Income-tax Act, 1961 – Capital gains – Understatement of consideration for transfer – Whether formation of belief that transaction has been effected in order to avoid or reduce tax liability has to be initially that of ITO and in a case where assessment order does not indicate formation of any such reasonable belief as is contemplated by section 52(1), infirmity cannot be cured on appeal before Tribunal – Held, yes - Whether where assessment order neither disclosed any satisfaction nor did it contain any recital that ITO had reason to believe that transfer of property was made with object of avoidance or reduction of liability of assessee under section 45, and Tribunal had come to conclusion that transaction was effected for such a purpose, on account of fact that sale consideration was very low and had no relation to fair market value, provisions of section 52(1) were not applicable and, assessee was not liable to pay tax on capital gains – Held, yes FACTS The assessee received a plot of land from his brother. This plot was sold to his daughter's father-in-law for Rs. 20,000. The ITO took the view that inasmuch as the fair market value of the property on the date of transfer was not less than Rs. 42,000, the provisions of section 52 were applicable and accordingly he imposed capital gains tax on the assessee. The decision was reversed by the AAC. The Tribunal, however, held that the case was covered by section 52(1) and reversing the order of the AAC upheld the order of the ITO. On reference : HELD Before section 52(1) can be applied, the ITO must have reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 45. The formation of the belief that the transaction has been effected in order to avoid or reduce the tax liability has to be initially that of the ITO. In a case where the assessment order does not indicate the formation of any such reasonable belief as is contemplated by section 52(1), the infirmity cannot be cured on appeal before the Tribunal. In the instant case, the assessment order did not disclose any such satisfaction, neither did it contain any…

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