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Levy of capital gains on transfer of asset also subject to gift-tax. Analysis: 1. The dispute in this case revolves around the levy of capital gains on the transfer of an asset, which was also subject to gift-tax. The Assessing Officer found that the market value of a diamond sold by the assessee was higher than the sale price to a close relative. Consequently, the full value of consideration was taken at the market value for assessing long-term capital gains. The CIT(A) accepted the assessee's contention that the transfer of the asset was considered a gift, leading to the deletion of the capital gains addition. 2. The department contended that the capital gains tax should still apply, citing the Madras High Court decision regarding the provisions of section 47(iii) of the Income-tax Act. The departmental representative argued that the gift-tax assessment did not exempt the assessee from capital gains tax. The Assessing Officer's application of section 52(1) was challenged, as it was deemed out of context in this scenario. 3. The counsel for the assessee supported the CIT(A)'s decision, emphasizing the need for a clear finding that the substituted consideration or market price was actually received by the assessee. The counsel distinguished the Madras High Court decision relied upon by the department, asserting that it supported the CIT(A)'s order. 4. The Tribunal analyzed the provisions of section 47(iii) and section 52(1) of the Income-tax Act, emphasizing the conditions for invoking section 52(1) in cases of understatement of consideration. The Tribunal clarified that the purpose of section 52(1) is to prevent avoidance or reduction of tax liability by understating consideration, not merely to show understatement without a tax liability reduction objective. 5. The Tribunal referred to previous court decisions to highlight that the provisions aim to address actual capital gains, not fictional gains. It stressed the importance of proving understatement to invoke section 52(1) and emphasized that the burden of proof lies with the department to establish understatement and tax liability reduction intent. 6. The Tribunal noted that the Assessing Officer failed to provide evidence that the assessee received more than the stated consideration or that the transaction aimed to reduce tax liability. Without clear findings of understatement or tax liability reduction intent, invoking section 52(1) was deemed unjustified. The Tribunal upheld the CIT(A)'s decision to delete the capital gains addition, dismissing the appeal.
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