Section 48 of the Income-tax Act, 1961

Section 48 of the Income-tax Act, 1961 – Capital gains – Computation of – Assessment year 1994-95 – Assessee firm had sold certain land along with hospital building thereon for a consideration of Rs. 30 lakhs – However, during search operation in premises of purchaser, he made a statement under section 132(4) confirming that actual amount paid by him was Rs. 71 lakhs and not Rs. 30 lakhs as stated in document – He, accordingly, filed return and paid tax on additional amount of Rs. 41 lakhs – Based on statement of purchaser, Assessing Officer proposed to make assessment of capital gains on actual sale consideration received by assessee – Assessee denied having received additional amount and also cross-examined purchaser who retracted his earlier statement – Assessing Officer rejected denial made by purchaser and assessed capital gains based on his statement made under section 132(4) – On appeal, Commissioner (Appeals) cancelled assessment which was upheld by Tribunal – Whether when purchaser’s statement given under section 132(4) was not only supported and strengthened by subsequent offer and payment of tax on additional income, but was also proved by valuation report obtained by department from approved valuer who had valued property at above Rs. 1.68 crores, Tribunal and first appellate authority went wrong in relying upon statement of purchase in cross-examination and in accepting case of assessee – Held, yes – Whether, therefore, capital gains had to be computed on sale price of Rs. 71 lakhs – Held, yes FACTS During relevant assessment year, the assessee-firm had sold certain land alongwith a hospital complex thereon for a consideration of Rs. 30 lakhs. However, during the search conducted in the premises of the purchaser, he made a statement under section 132(4) confirming that the sale price of the said land and building purchased from the assessee was Rs. 71 lakhs as against Rs. 30 lakhs declared in the document. The purchaser, accordingly, filed a return and paid tax on the additional income of Rs. 41 lakhs. Based on that statement the Assessing Officer proposed to make assessment of capital gains on the actual sale consideration received by the assessee. The assessee denied the receipt of additional consideration and also got the purchaser cross-examined in the course of assessment proceeding wherein the purchaser had retracted his statement and stated that the sale price was what was declared in the document. The Assessing Officer rejected the denial of purchaser and made assessment for capital gains based on the statement of S given under section 132(4). On appeal, the Commissioner (Appeals) concelled the assessment, which was confirmed by the Tribunal on appeal. On appeal: HELD In order of the Tribunal could not be upheld for the reason that it was just based on a retracted statement given by the purchaser, namely, in cross-examination. It was the admitted position that besides giving statement under section 132(4) before the inspecting officers, the purchaser ‘S’ returned Rs. 41 lakhs being the differential price, which according to him was paid to the 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 that very important aspect, that was 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). The subsequent statement given by the purchaser in cross-examination, contrary to his earlier statement to the department under section 132(4) and follow up action by him could not save the assessee. In fact, the statement given under section 132(4) stood reconfirmed when the declarant offered very same income and paid tax thereon. In fact, the incidence of tax on the undisclosed sale consideration was much higher on the purchaser them on the assessee because the assessee was called upon to pay tax only on capital gains whereas the purchaser paid tax at normal rates. When the purchaser acted 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 assessee could not be taken on it’s face value. The Assessing Officer rightly rejected the evidence of the purchaser given in cross-examination only as last effort to save the assessee. In fact, the purchaser’s statement given under section 132(4) was not only supported and strengthened by subsequent offer and payment of tax on the additional income, but was also proved by the valuation report obtained by the department from the approved valuer who had valued the property at above Rs. 1.68 crores. Besides that, the purchaser himself got the property valued after purchase for availing bank loan wherein the valuation of the property was at Rs. 71 lakhs, which was 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). Even though the assessee relied upon a valuation report modified by the Commissioner (Appeals) in the wealth-tax assessment, wherein the valuation shown was only Rs. 20 lakhs, said report could not be accepted as correct valuation report because it was 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 had stated about five storied building with a lift constructed by the assessee during 1989. The first statement given by the purchaser under section 132(4) in the course of search got strengthened and stood proved by the subsequent conduct in declaring additional income for assessment and in paying tax thereon. Even though the assessee argued that the amount declared by the purchaser might represent either investment or expenditure, it was found from the records that he had clearly stated that Rs. 41 lakhs offered by him was additional consideration paid by him for the property purchased from the 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, under valuation is a normal course adopted by the parties to avoid stamp duty and huge expenditure on transfer of property. 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 assessee that the hospital building and large extent of over 1 acre of land was sold for the price declared in the document. Therefore, the order of the Tribunal and that of the first appellate authority on that issue were to be reversed and capital gains had to be computed on the sale price at Rs. 71 lakhs. [Para 2] The appeal was to be allowed accordingly.