2000 (11) TMI 98 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the show-cause notice under section 269UD(1) of the Income-tax Act, 1961.
2. Legality of the final order for pre-emptive purchase under section 269UD.
3. Adequacy of the valuation method used by the Departmental Engineer.
4. Compliance with principles of natural justice.
5. Requirement of recording satisfaction regarding undervaluation and tax evasion.

Detailed Analysis:

1. Validity of the Show-Cause Notice:
The petitioner challenged the show-cause notice dated July 21, 1993, arguing it lacked particulars, materials, or reasons for the proposed pre-emptive purchase. The petitioner cited the Supreme Court's decision in *C. B. Gautam v. Union of India [1993] 199 ITR 530*, which mandates that such notices must include tentative findings and the basis for concluding undervaluation. The court agreed that the notice did not mention any tentative findings or basis, but held that the omission did not vitiate the proceedings since the petitioner had already produced materials to rebut the presumption of undervaluation.

2. Legality of the Final Order for Pre-Emptive Purchase:
The petitioner argued that the final order lacked recorded satisfaction regarding undervaluation and tax evasion, as required by *C. B. Gautam's case*. The court found that the impugned order did not record any satisfaction about the undervaluation or evasion of taxes. The court emphasized that for a valid pre-emptive purchase order, the authority must be satisfied that the apparent consideration is less than the market value by 15% or more and that such undervaluation aims to evade tax.

3. Adequacy of the Valuation Method:
The valuation report by the Departmental Engineer, which was the basis for the pre-emptive purchase, was questioned by the petitioner as fabricated and not genuine. The court noted that the valuation method used-comparable sale instances-was inappropriate for a tenanted property. The court cited decisions such as *CIT v. Panchanan Das [1979] 116 ITR 272* and *CIT v. Ashima Sinha [1979] 116 ITR 26*, which support the rental method for valuing tenanted properties. The court held that the valuation was legally unsustainable and set it aside.

4. Compliance with Principles of Natural Justice:
The petitioner contended that the entire proceedings, including the impugned order, violated principles of natural justice. The court acknowledged that the show-cause notice did not comply with the principles of natural justice but did not entertain this complaint at the stage since the petitioner was not affected by this omission. However, the court found that the respondents failed to consider all facts and materials before passing the order, which amounted to a breach of natural justice.

5. Requirement of Recording Satisfaction:
The court reiterated that the authority must record satisfaction that the undervaluation is aimed at evading tax, as held in *C. B. Gautam's case* and other decisions like *Vysya Bank Ltd. v. Appropriate Authority of Income-tax [1998] 233 ITR 560 (Cal)* and *Hotel Mardias Pvt. Ltd. v. Union of India [1996] 220 ITR 94 (Guj)*. The court found that the impugned order did not record such satisfaction, making it unsustainable.

Conclusion:
The court set aside the impugned order for pre-emptive purchase under section 269UD, directing the respondent authority to issue a no-objection certificate within four weeks. The petitioner was entitled to costs assessed at 100 G.Ms. The court granted a stay of the operation of the order for a fortnight. The judgment emphasized the need for authorities to follow legal precedents and principles of natural justice in such proceedings.