Ita/41/2003 Of Commissioner Of Income Tax v. Medical Trust Hospital

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR FRIDAY, THE 28TH MARCH 2008 / 8TH CHAITHRA 1930 ITA.No. 41 of 2003(I) --------------------- ITA.475/COCH/1998 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT ------------------------------------ THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS: RESPONDENT ----------------------- M/S. MEDICAL TRUST HOSPITAL, KOTTARAKKARA. ADDL. 2. S. SUSEELA, ROHINI, PULAMON P.O., KOTTARAKKARA. ADDL. 3. DR. N. PRABHAKARAN, 31,CHURATON CROSS, WESBORRY PARK, NEW CASTLE UNDER LYME, UNITED KINGDOM. CASTLE UNDER LYME, UNITED KINGDOM. ADDL. 4. ANNAMMA KUNJAPPAN, P.I. BUNGLOW, TRIKKANNAMANGAL. KOTTARAKKARA. ADDL. 5. S. SUDHARMA (ALIAS S. SUDDA), ANANDAVILASWOM BUNGLOW, ADOOR. ADDL. R2 TO R5 ARE IMPLEADED AS PER ORDER ON IA 3120/07 DATED 17.12.2007 R2 & R4 BY ADVS. SRI.N.SUKUMARAN SRI.S.SHYAM SRI.BOBBYMATHEW KOOTHATTUKULAM THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 28/03/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR &T.R. RAMACHANDRAN NAIR, JJ. -------------------------------------------- I.T.A. No. 41 OF 2003 -------------------------------------------- Dated this the 28th day of March, 2008 JUDGMENT C.N. Ramachandran Nair,J. This appeal under Section 260A of the Income Tax is filed by therevenue against the order of the Income Tax Appellate Tribunalconfirming first appellate order cancelling assessment pertaining tocapital gains on sale of land and building by the respondent-assessee.During the previous year, relevant for the assessment year 1994-95, therespondent, a firm, sold one acre and ten cents of land and a hospitalcomplex therein, to one Sri. Satyabalan, for a consideration of Rs. 30lakhs. However, during search conducted in the premises of thepurchaser, he made a statement to the department under Section 132(4)of the I.T. Act confirming that the sale price for the land and buildingpurchased from the respondent-assessee was Rs. 71 lakhs as against Rs.30 lakhs declared in the document. In fact, pursuant to the statementgiven 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, isthe sale price paid over the value declared in the sale document. Basedon the statement furnished by the purchaser, the assessing officerproposed to make assessment for capital gains on the actual saleconsideration received by the respondent-assessee. Respondent deniedreceipt of any sale consideration over the value declared in thedocument. In order to demolish the statement of the purchaser therespondent got the purchaser cross-examined in the course ofassessment proceedings. Even though Sri. Satyabalan gave statementto the department under Section 132(4) of the I.T. Act about theadditional price paid by him for the land and building over the pricedeclared in the document, and he even returned the income as incomefrom other source and paid tax thereon, he still chose to retract from thestatement given to the department and stated that sale price given forpurchase of hospital complex with land from the respondent was onlythe value actually declared in the sale document. Even though theassessing officer rejected the denial made by the purchaser in thecourse of cross-examination and made assessment for capital gainsbased on the statement given by the purchaser under Section 132(4) of the Act and subsequent payment of tax on the income so returned, thecommissioner of Income-tax (Appeals) cancelled the assessment. Inthe departmental appeal, the Tribunal confirmed the CIT (Appeals)against which this appeal is filed by the revenue. the Act and subsequent payment of tax on the income so returned, thecommissioner of Income-tax (Appeals) cancelled the assessment. Inthe departmental appeal, the Tribunal confirmed the CIT (Appeals)against which this appeal is filed by the revenue. 2. We have heard senior standing counsel Sri. P.K.R. Menonappearing for the appellant, and senior counsel Sri. N. Sukumaran,appearing for the respondent-assessee. While departmental counselcontended that CIT (Appeals) and tribunal have committed seriouserror in relying on the statement in the cross-examination by Sri.Satyabalan, counsel appearing for the assessee submitted that statementgiven by Sri. Satyabalan before the department in the course of searchunder Section 132(4) cannot be relied upon against the respondent-assessee. Besides hearing counsel on both sides, we have also gonethrough the orders of the lower authorities. We are unable to upholdthe order of the Tribunal for the reason that it is just based on aretracted statement given by the purchaser, namely, Sri. Satyabalan incross-examination. It is the admitted position that besides givingstatement under Section 132(4) before the Inspecting Officers, thepurchaser, 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 inthe sale document and paid tax thereon. Unfortunately the firstappellate authority as well as the Tribunal failed to take note of thisvery important aspect, that is, returnsing of Rs. 41 lakhs and paymentof tax thereon by the purchaser consistent with the statement given byhim to the department under Section 132(4) of the Act. We do notthink the subsequent statement given by the purchaser, namely,Satyabalan in cross-examination, contrary to his earlier statement to thedepartment under Section 132(4) and follow up action by him, can savethe respondent-assessee. In fact, the statement given under Section 132(4) stands reconfirmed when the declarant offers very same income andpays tax thereon. In fact the incidence of tax on the undisclosed saleconsideration is much higher on the purchaser than on the respondent-assessee because responent is called upon to pay tax only on capitalgains whereas the purchaser pays tax at normal rates. When thepurchaser acts upon his statement given under Section 132(4) in thecourse of search, his going back from his earlier statement in cross-examination in the assessment proceedings against the respondent cannot be taken on it's face value. We are of the view that theassessing officer rightly rejected the evidence of the purchaser given incross-examination only as last effort to save the respondent-assessee.In fact, purchaser's statement given under Section 132(4) is not onlysupported and strengthened by subsequent offer and payment of tax onthe additional income, but is also proved by the valuation reportobtained by the department from the approved valuer who has valuedthe property at above Rs. 1.68 crores. Besides this, the purchaserhimself got the property valued after purchase for availing bank loanwherein the valuation of the property is at Rs. 71 lakhs, which is theactual sale price at which the property was purchased by the purchaser,according to the statement given by him in the course of search underSection 132 (4) of the Act. Even though senior counsel appearing forthe respondent-assessee relied on a valuation report modified by theCIT (Appeals) in the Wealth Tax assessment, wherein the valuationshown is only Rs. 20 lakhs, we are unable to accept this as correctvaluation report because it is not contemporaneous with the sale andthe valuation took place four years prior to the same. Moreover in thevaluation report obtained by the department later, the valuer has stated about five storied building with a lift constructed by the respondentduring 1989. We are of the view that the first statement given by thepurchaser under Section 132(4) in the course of search getsstrengthened and stands proved by the subsequent conduct in declaringadditional income for assessment and in paying tax thereon. Eventhough senior counsel for the respondent-assessee argued that theamount declared by the purchaser may represent either investment orexpenditure, we find from the records that he has clearly stated that Rs.41 lakhs offered by him is additional consideration paid by him for theproperty purchased from respondent-assessee over the value shown inthe sale deed. It is a notorious fact that on account of high stamp dutyprevalent in the State undervaluation is a normal course adopted by theparties to avoid stamp duty and huge expenditure on transfer ofproperty. We are of the view that the Tribunal and the first appellateauthority went wrong in just relying on the statement in cross-examination and in accepting the case of the respondent that thehospital building and large extent of over 1 acre of land was sold forthe price declared in the document. We therefore reverse the order ofthe 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. 71lakhs. However, since the other issues, namely, base-year market valueof the land for determining long term capital gains and the contestagainst quantum assessment, were not gone into by the first appellateauthority, we set aside the order of the Tribunal and that of the firstappellate authority and remand the matter to Commissioner of Income-tax (Appeals) for rehearing and for decision afresh on other issues inthe appeal. We make it clear that the assessee will be entitled to applyfor waiver of interest under Sections 234B, 234C, etc. Appeal is allowed to the above extent. (C.N.RAMACHANDRAN NAIR)Judge.Judge. (T.R.RAMACHANDRAN NAIR) Judge. kk