1999 (9) TMI 45 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the show-cause notice issued by the appropriate authority.
2. Compliance with principles of natural justice in the issuance of the show-cause notice.
3. Requirement of disclosing reasons and material in the show-cause notice.

Summary:

1. Validity of the Show-Cause Notice:
The petitions challenge the order passed by the appropriate authority u/s 269UD of the Income-tax Act, 1961, for compulsory purchase of property. The petitioners argued that the show-cause notice did not disclose the material or reasons for the tentative conclusion that the transaction was undervalued, thereby making the notice defective.

2. Compliance with Principles of Natural Justice:
The court referred to the Supreme Court's judgment in C.B. Gautam v. Union of India [1993] 199 ITR 530, which mandates that a reasonable opportunity of being heard must be given to the parties likely to be adversely affected by an order of purchase u/s 269UD. The court emphasized that the principles of natural justice require that the reasons and material for the tentative conclusion of undervaluation must be disclosed in the show-cause notice to allow the affected parties to effectively show cause.

3. Requirement of Disclosing Reasons and Material:
The court observed that the show-cause notice issued by the appropriate authority was cryptic and did not indicate the material or reasons for the tentative conclusion of undervaluation. The court held that the basic approach of the authority was erroneous, as non-disclosure of reasons and material in the show-cause notice defeats the purpose of issuing such a notice. The court cited its own judgment in Mrs. Nirmal Laxminarayan Grover v. Appropriate Authority [1997] 223 ITR 572, which supports the requirement of disclosing particulars in the show-cause notice to comply with the principles of natural justice.

Conclusion:
The court concluded that a show-cause notice which does not disclose the material and reasons for the tentative conclusion of undervaluation is defective. Consequently, any order made on the basis of such a defective show-cause notice is incompetent and liable to be set aside. Both petitions were allowed, and the rule was made absolute in terms of prayer clauses (a) and (b) with no order as to costs.