1995 (10) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Determination of fair market value of the property in question.
2. Alleged undervaluation of the property with a view to evade tax.
3. Comparability of Sale Instance Properties (SIPs) with the Property Under Consideration (PUC).
4. Requirement of a positive finding on tax evasion intention by the appropriate authority.

Detailed Analysis:

1. Determination of Fair Market Value:
The petitioner contended that the appropriate authority failed to determine the fair market value of the property in question. It was argued that the property under consideration (PUC) was not comparable to the sale instance properties (SIPs) cited by the authority. The petitioner highlighted various locational advantages of SIP-1 and SIP-2, which were not present in the PUC, such as proximity to major roads, overlooking the Mula river, and being situated in residential areas. In contrast, the PUC was located in a small lane with a dead end near an army vehicle depot, facing public toilets, and lacking the locational advantages of the SIPs. The petitioner also pointed out that the PUC was comparable to an adjoining property (TSI) for which the authority had issued a no objection certificate, and argued that the authority should have considered this TSI in determining the fair market value.

2. Alleged Undervaluation with a View to Evade Tax:
The petitioner contended that the order was bad because the appropriate authority had not given any finding that the alleged undervaluation was done with a view to evade tax. The petitioner relied on the judgment of the Bombay High Court in Vimal Agarwal v. Appropriate Authority, which stated that it is necessary to determine the fair market value of the property in question to infer undervaluation. The Supreme Court in C. B. Gautam v. Union of India held that the provisions of Chapter XX-C of the Income-tax Act were intended to counter attempts at tax evasion by significant undervaluation of immovable property. However, the impugned order in the present case did not record a finding that the alleged undervaluation was done with a view to evade tax.

3. Comparability of SIPs with PUC:
The petitioner argued that the SIPs relied upon by the appropriate authority were not comparable with the PUC due to various locational and situational differences. The petitioner submitted that the SIPs had better locations and advantages, making them command higher prices compared to the PUC. The petitioner also emphasized that the PUC had several drawbacks, such as being near public toilets emitting foul smell and being located in a less desirable area. The petitioner further argued that the authority should have considered the TSI, which was an adjoining property, in determining the fair market value.

4. Requirement of Positive Finding on Tax Evasion Intention:
The court found that the petition deserved to be allowed by accepting the petitioner's contention that the impugned order was vitiated as there was no finding that the apparent consideration was not the real consideration or that it was with a view to evade tax that the apparent consideration was understated. The Supreme Court in C. B. Gautam v. Union of India held that the appropriate authority must arrive at a decision that there is significant undervaluation of the property by 15% or more and that such undervaluation is an attempt at tax evasion. This court followed the same principle in Anagram Finance Ltd. v. Appropriate Authority and other decisions. The court emphasized that the order must reflect the satisfaction of the appropriate authority about the twin requirements of significant undervaluation and intention to evade tax. The impugned order did not meet this mandatory requirement, and therefore, the court quashed and set aside the order.

Conclusion:
The court allowed the petition and quashed the impugned orders of the appropriate authority. The respondents were directed to issue a no objection certificate under section 269UL(1) of the Income-tax Act within six weeks and to take all consequential steps. The rule was made absolute with no order as to costs.