2008 (3) TMI 645 - HC - Income Tax

Cancelling assessment pertaining to capital gains on sale of land and building - Held that - 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 ₹ 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 Commissioner of Income-tax (Appeals) 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 and 234C, etc. Appeal allowed.

Issues:
1. Assessment of capital gains on the sale of land and building.
2. Reliability of purchaser's statement under section 132(4) of the Income-tax Act.
3. Valuation of the property for determining capital gains.
4. Need for reassessment on other issues.

Assessment of Capital Gains:
The case involved an appeal under section 260A of the Income-tax Act regarding the assessment of capital gains on the sale of land and a hospital complex by the respondent. The respondent firm sold the property for Rs. 30 lakhs, but the purchaser later admitted to the department that the actual sale price was Rs. 71 lakhs. The Assessing Officer proposed to assess capital gains based on the higher amount, which was contested by the respondent. Despite the purchaser's retraction during cross-examination, the court held that the initial statement under section 132(4) was supported by the purchaser's subsequent actions of returning Rs. 41 lakhs and paying tax on the additional income. The court rejected the reliance on the retracted statement and upheld the assessment based on the actual sale price of Rs. 71 lakhs.

Reliability of Purchaser's Statement:
The court emphasized that the purchaser's statement under section 132(4) should be given weightage as it was supported by the subsequent payment of tax on the additional income and a valuation report valuing the property above Rs. 1.68 crores. The court noted that the purchaser's valuation for a bank loan also supported the higher sale price. Despite arguments on the nature of the declared amount, the court held that the purchaser's statement was credible, especially considering the prevalent undervaluation practices to avoid stamp duty.

Valuation of the Property:
The court compared different valuation reports, highlighting the discrepancies in the valuation modified by the CIT (Appeals) and the later valuation obtained by the department. The court concluded that the valuation supporting the higher sale price was more reliable, considering factors like the construction of a five-storied building by the respondent in 1989.

Need for Reassessment on Other Issues:
While deciding in favor of assessing capital gains based on the actual sale price, the court remanded the matter to the Commissioner of Income-tax (Appeals) for rehearing on other issues like determining the base-year market value of the land and contesting the quantum assessment. The court also clarified the assessee's entitlement to apply for waiver of interest under relevant sections.

In conclusion, the High Court allowed the appeal to assess capital gains based on the actual sale price of Rs. 71 lakhs, emphasizing the importance of the purchaser's initial statement under section 132(4) and supporting evidence. The court directed a reassessment on other unresolved issues, ensuring a comprehensive review of all aspects of the case.

← Previous Next →