1998 (2) TMI 112 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the order under section 269UD(1) of the Income-tax Act, 1961.
2. Determination of fair market value and whether there was significant undervaluation.
3. Compliance with principles of natural justice.

Issue-wise Analysis:

1. Validity of the order under section 269UD(1) of the Income-tax Act, 1961:
The writ of certiorari was filed to quash the order No. AA/Hyd/6 (08) 9/ 96-97 dated December 31, 1996, passed under section 269UD(1) of the Income-tax Act, 1961, by the appropriate authority (Income-tax Department, Bangalore). The case revolves around the sale agreement of a property for Rs. 36 lakhs between the first and second petitioners. The appropriate authority issued a notice for pre-emptive purchase of the property, claiming the apparent consideration was well below 15% of the market value. The impugned order stated that the property shall vest in the Central Government free from all encumbrances and directed the transferor/transferee to deliver vacant possession within 15 days.

2. Determination of fair market value and whether there was significant undervaluation:
The appropriate authority compared the disputed property with other properties in Jubilee Hills to determine if there was significant undervaluation. The show-cause notice cited various comparable sales, including properties on Road No. 62 and Road No. 45, and auction sales by HUDA. The petitioners argued these were not comparable due to differences in location, type of property, and timing of sales. The appropriate authority rejected the petitioners' explanations and maintained that the apparent consideration was significantly undervalued.

The court found inconsistencies in the authority's comparisons. For instance, the sale of a vacant plot on Road No. 62 was considered comparable, despite differences in property type and the fact that the purchaser was a non-resident Indian. The authority's rejection of a sale on Road No. 58 because the transferor was an NRI showed a double standard. The court also noted that the guidelines rate of Rs. 2,500 per sq. yard used by the authority was fixed after the sale agreement date, and the correct rate at the time was Rs. 1,230 per sq. yard. The engineering department's valuation of Rs. 1,592 per sq. yard was also noted.

3. Compliance with principles of natural justice:
The court referred to the Supreme Court's decision in C. B. Gautam v. Union of India, which emphasized that the provisions of Chapter XX-C of the Income-tax Act should be used only where there is significant undervaluation of 15% or more. The court found that the appropriate authority complied with the principles of natural justice by providing a reasonable opportunity for the petitioners to explain their case. However, the authority's decision was found to be influenced by irrelevant considerations and inconsistent standards, making it unreasonable.

Conclusion:
The court concluded that there was no material to draw a presumption that the apparent consideration was less than the fair market value by 15% or more. The decision of the appropriate authority was deemed unreasonable due to reliance on irrelevant considerations and inconsistent standards. Therefore, the writ petition was allowed, and the impugned order was quashed. The petitioners were awarded costs, and the advocate's fee was set at Rs. 500.