1995 (9) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the order under Section 269UD(1) for purchasing the property for the Central Government.
2. Alleged undervaluation of the property by more than 15% of its fair market value.
3. Inclusion of construction cost differences in the fair market value assessment.
4. Presumption of tax evasion due to undervaluation.
5. Adequacy of the show-cause notice and adherence to principles of natural justice.

Detailed Analysis:

1. Validity of the Order under Section 269UD(1):
The petitioner challenged the order dated May 30, 1995, issued under Section 269UD(1) for purchasing the property for the Central Government. The court scrutinized whether the appropriate authority had valid grounds to invoke this section and whether the procedural requirements were met.

2. Alleged Undervaluation of the Property:
The petitioners argued that the consideration under the agreement was not significantly undervalued by more than 15% of its fair market value, as required to invoke Section 269UD. The court noted that the appropriate authority had hiked the estimated fair market price by adding a difference in the construction cost, which was neither disclosed in the notice nor subject to inquiry from the petitioner. This additional cost was used to artificially inflate the fair market value, thereby creating a presumption of undervaluation.

3. Inclusion of Construction Cost Differences:
The court found that the appropriate authority included the difference between the construction cost per square meter as per the agreement and the rate it considered reasonable. This difference was added to the apparent consideration without proper disclosure or inquiry. The court observed that the actual cost of construction should not affect the consideration received by the transferor, as the agreed consideration in the sale agreement remained unchanged regardless of construction costs.

4. Presumption of Tax Evasion:
The court referred to the Supreme Court's ruling in C. B. Gautam v. Union of India, which stated that Chapter XX-C provisions are intended to counter tax evasion through significant undervaluation of immovable property. The court emphasized that the appropriate authority must establish a nexus between the estimated undervaluation and an attempt to evade tax. The court found that the order under challenge did not provide sufficient grounds to establish such a nexus, as it was based on assumptions rather than concrete evidence.

5. Adequacy of the Show-Cause Notice:
The court noted that the show-cause notice did not provide adequate disclosure of the grounds for the fair market value assessment. The notice failed to explain the basis for considering the property's location as superior and did not disclose the inclusion of construction cost differences. The court held that the notice did not offer a reasonable opportunity for the petitioner to respond, thereby breaching principles of natural justice.

Conclusion:
The court concluded that the order under Section 269UD(1) could not be sustained due to the lack of satisfaction on necessary conditions, errors apparent on the face of the record, and breach of natural justice. The impugned orders dated May 30, 1995, were quashed. The respondents were directed to take necessary consequential steps, including issuing a NOC within eight weeks. If possession had been taken and payment made to the transferor, the petitioner was required to pay the requisite amount to respondent No. 1 within six weeks, after which possession of the property would be returned to the petitioner.

Final Judgment:
The petition succeeded, and the impugned orders were quashed. The court directed the respondents to take necessary steps, including issuing a NOC within eight weeks. If possession had been taken, the petitioner was to pay the requisite amount within six weeks, and possession would be returned along with necessary certificates within two weeks of payment. No order as to costs.