COMMISSIONER OF INCOME TAX Vs. MEDICAL TRUST HOSPITAL

JUDGEMENT

(1.) THIS appeal under Section 260A of the IT Act, is filed by the Revenue against the order of the Tribunal confirming first appellate order cancelling assessment pertaining to capital gains on sale of land and building by the respondent assessee. During the previous year, relevant for the asst. yr. 1994 -95, the respondent a firm, sold one acre and ten cents of land and a hospital complex therein, to one Sri Satyabalan, for a consideration of Rs. 30 lakhs. However, during search conducted in the premises of the purchaser, he made a statement to the Department under Section 132(4) of the IT Act confirming that the sale price for the land and building purchased from the respondent assessee was Rs. 71 lakhs as against Rs. 30 lakhs declared in the document. In fact, pursuant to the statement given at the time of search Sri Satyabalan filed a return and paid tax on the additional income of Rs. 41 lakhs which, according to him, is the sale price paid over the value declared in the sale document. Based on the statement furnished by the purchaser, the AO proposed to make assessment for capital gains on the actual sale consideration received by the respondent assessee. Respondent denied receipt of any sale consideration over the value declared in the document. In order to demolish the statement of the purchaser the respondent got the purchaser cross -examined in the course of assessment proceedings. Even though Sri Satyabalan gave statement to the Department under Section 132(4) of the IT Act about the additional price paid by him for the land and building over the price declared in the document, and he even returned the income as income from other source and paid tax thereon, he still chose to retract from the statement given to the Department and stated that sale price given for purchase of hospital complex with land from the respondent was only the value actually declared in the sale document. Even though the AO rejected the denial made by the purchaser in the course of cross -examination and made assessment for capital gains based on the statement given by the purchaser under Section 132(4) of the Act and subsequent payment of tax on the income so returned, the CIT(A) cancelled the assessment. In the Departmental appeal, the Tribunal confirmed the order of the CIT(A) against which this appeal is filed by the Revenue.

(2.) WE have heard senior standing counsel, Sri P.K.R. Menon appearing for the appellant, and senior counsel Sri N. Sukumaran, appearing for the respondent assessee. While Departmental counsel contended that CIT(A) and Tribunal have committed serious error in relying on the statement in the cross -examination by Sri Satyabalam counsel appearing for the assessee submitted that statement given by Sri Satyabalan before the Department in the course of search under Section 132(4) cannot be relied upon against the respondent assessee. Besides hearing counsel on both sides, we have also gone through the orders of the lower authorities. We are unable to uphold the order of the Tribunal for the reason that it is just based on a retracted statement given by the purchaser, namely, Sri Satyabalan in cross -examination. It is the admitted position that besides giving statement under Section 132(4) before the inspecting officers, the purchaser, namely, Sri Satyabalan, returned Rs. 41 lakhs being the differential price which according to him was paid to the respondent assessee for purchase of land and building over the value declared in the sale document and paid tax thereon. Unfortunately, the first appellate authority as well as the Tribunal failed to take note of this very important aspect, that is, returning of Rs. 41 lakhs and payment of tax thereon by the purchaser consistent with the statement given by him to the Department under Section 132(4) of the Act. We do not think the subsequent statement given by the purchaser, namely, Satyabalan in cross -examination, contrary to his earlier statement to the Department under Section 132(4) and follow up action by him can save the respondent assessee. In fact the statement given under Section 132(4) stands reconfirmed when the declarant offers very same income and pays tax thereon. In fact the incidence of tax on the undisclosed sale consideration is much higher on the purchaser than on the respondent assessee because respondent is called upon to pay tax only on capital gains whereas the purchaser pays tax at normal rates. When the purchaser acts upon his statement given under Section 132(4) in the course of search, his going back from his earlier statement in cross -examination in the assessment proceedings against the respondent cannot be taken on its face value. We are of the view that the AO rightly rejected the evidence of the purchaser given in cross -examination only as last effort to save the respondent assessee. In fact, purchaser's statement given under Section 132(4) is not only supported and strengthened by subsequent offer and payment of tax on the additional income, but is also proved by the valuation report obtained by the Department from the approved valuer who has valued the property at above Rs. 1.68 crores. Besides this, the purchaser himself got the property valued after purchase for availing bank loan wherein the valuation of the property is at Rs. 71 lakhs, which is the actual sale price at which the property was purchased by the purchaser, according to the statement given by him in the course of search under Section 132(4) of the Act. Even though senior counsel appearing for the respondent -assessee relied on a valuation report modified by the CIT(A) in the WT assessment wherein the valuation shown is only Rs. 20 lakhs, we are unable to accept this as correct valuation report because it is not contemporaneous with the sale and the valuation took place four years prior to the same. Moreover in the valuation report obtained by the Department later, the valuer has stated about five storeyed building with a lift constructed by the respondent during 1989. We are of the view that the first statement given by the purchaser under Section 132(4) in the course of search gets strengthened and stands proved by the subsequent conduct in declaring additional income for assessment and in paying tax thereon. Even though senior counsel for the respondent assessee argued that the amount declared by the purchaser may represent either investment or expenditure, we find from the records that he has clearly stated that Rs. 41 lakhs offered by him is additional consideration paid by him for the property purchased from respondent assessee over the value shown in the sale deed. It is a notorious fact that on account of high stamp duty prevalent in the State undervaluation is a normal course adopted by the parties to avoid stamp duty and huge expenditure on transfer of property. We are of the view that the Tribunal and the first appellate authority went wrong in just relying on the statement in cross -examination and in accepting the case of the respondent that the hospital building and large extent of over 1 acre of land was sold for the price declared in the document. We therefore reverse the order of the Tribunal and that of the first appellate authority on this issue and hold that capital gains has to be computed on the sale price at Rs. 71 lakhs. However, since the other issues, namely, base year market value of the land for determining long -term capital gains and the contest against quantum assessment, were not gone into by the first appellate authority, we set aside the order of the Tribunal and that of the first appellate authority and remand the matter to CIT(A) for rehearing and for decision afresh on other issues in the appeal. We make it clear that the assessee will be entitled to apply for waiver of interest under Sections 234B, 234C, etc.