2002 (6) TMI 4 - HC - Income Tax

Notice issued by the authority under section 269UD - notice issued by the appropriate authority under section 269UD does not disclose all the material on the basis of which it could be said to have been issued, much less the details thereof and, therefore, the interest of the petitioners could be said to have been totally prejudiced - It is pointed out that notice was received on February 15, 1995, and the petitioners were expected to represent themselves with all the details on February 21, though the matter was no doubt shunted for one day only. Therefore, this cannot be said to be reasonable opportunity afforded to the petitioners to defend themselves.

Summary

Issues Involved:
1. Validity of the order under Section 269UD(1) of the Income-tax Act, 1961.
2. Comparison of property values in different localities.
3. Consideration of encumbrances and litigations affecting property value.
4. Adherence to principles of natural justice and reasonable opportunity to defend.
5. Calculation and determination of discounted consideration.

Issue-wise Detailed Analysis:

1. Validity of the order under Section 269UD(1) of the Income-tax Act, 1961:
The petitioners challenged the order dated February 24, 1995, passed by the Appropriate Authority under Section 269UD(1) of the Income-tax Act, 1961. The court observed that the order was based on the assumption that the apparent consideration indicated in the transaction form was understated and less than the market price, suggesting an intention to evade tax. However, the court found that the Appropriate Authority did not provide adequate details or material evidence to substantiate this claim in the notice issued under Section 269UD(1).

2. Comparison of property values in different localities:
The court noted that the Appropriate Authority compared the value of the property in question, located in Dharampeth Extension, with properties in the Civil Lines area of Nagpur. The court found this comparison flawed, as the two areas are geographically and economically distinct, with Civil Lines being a more commercially developed area. The court emphasized that properties in different localities with varying commercial potentials and residential nature cannot be directly compared for valuation purposes.

3. Consideration of encumbrances and litigations affecting property value:
The court acknowledged that the property in question was burdened with multiple litigations and encumbrances, which adversely affected its market value. The petitioners had highlighted ongoing disputes with tenants and unresolved issues regarding the title of one of the heirs. The court criticized the Appropriate Authority for not adequately considering these factors, which significantly impacted the valuation of the property.

4. Adherence to principles of natural justice and reasonable opportunity to defend:
The court observed that the petitioners were given insufficient time to prepare their defense, as the notice was received on February 15, 1995, and the hearing was scheduled for February 21, 1995. The court highlighted that the petitioners had requested permission to lead evidence, either orally or by affidavit, which was not considered by the Appropriate Authority. The court cited the Supreme Court's decision in A.K. Kraipak v. Union of India, emphasizing that principles of natural justice require a fair opportunity to defend, which was denied in this case.

5. Calculation and determination of discounted consideration:
The court found that the Appropriate Authority's calculation of the discounted consideration was not adequately justified. The authority assumed a considerable appreciation in property values over the preceding 12 to 13 months without providing concrete evidence. The court rejected the authority's reliance on "common knowledge" for property value appreciation, stating that judicial or quasi-judicial decisions must be based on documented evidence.

Conclusion:
The court quashed and set aside the impugned order dated February 24, 1995, passed by the Appropriate Authority, citing the reasons mentioned above. The court allowed the petition, making the rule absolute and awarding costs of Rs. 15,000 to be borne by the department and paid to the petitioners.