1994 (7) TMI 64 - HC - Income Tax

Appropriate Authority Burden Of Proof Fair Market Value Income Tax Movable Property Purchase Of Immovable Property By Central Government Transfer To Defraud Revenue

Summary

Issues Involved:
1. Validity of the order under Section 269UD of the Income-tax Act, 1961.
2. Determination of fair market value and alleged undervaluation.
3. Compliance with principles of natural justice.
4. Consideration of comparable sale instances.
5. Application of Supreme Court guidelines from C. B. Gautam v. Union of India.

Detailed Analysis:

1. Validity of the Order under Section 269UD:
The petitioner challenged the order dated February 26, 1993, under Section 269UD(1) of the Income-tax Act, directing the purchase of the property by the Central Government. The court found that the appropriate authority had failed to determine the fair market value of the property and had not adhered to the guidelines established by the Supreme Court in C. B. Gautam v. Union of India.

2. Determination of Fair Market Value and Alleged Undervaluation:
The appropriate authority compared the sale price of the petitioner's flat with three other transactions and concluded that the apparent consideration was significantly lower. However, the petitioner argued that the sale was a distress sale due to personal circumstances and ongoing litigation with the housing society. The court noted that the apparent consideration of Rs. 2,189 per sq. ft. was not lower by 15% or more than the fair market value of the comparable instances provided by the appropriate authority.

3. Compliance with Principles of Natural Justice:
The court emphasized that the opportunity of hearing given to the petitioner must be real and not a mere formality. The appropriate authority failed to consider the sale instances provided by the petitioner and did not supply crucial reports to the petitioner, thus violating the principles of natural justice.

4. Consideration of Comparable Sale Instances:
The petitioner provided several sale instances of flats in the same locality, which were nearer in time to the petitioner's sale agreement. The appropriate authority did not adequately consider these instances and relied on older transactions. The court criticized the authority for not locating the files related to the sale instances provided by the petitioner and for dismissing them without proper scrutiny.

5. Application of Supreme Court Guidelines from C. B. Gautam v. Union of India:
The court reiterated the Supreme Court's guidelines that the provisions of Chapter XX-C should be used only in cases of significant undervaluation aimed at tax evasion. The appropriate authority must provide a reasonable opportunity for the parties to show cause and must base its decision on a careful analysis of comparable sale instances. The court found that the appropriate authority had not complied with these guidelines.

Conclusion:
The court concluded that the impugned order under Section 269UD(1) was arbitrary and illegal. It emphasized the need for a thorough and fair determination of the fair market value and careful consideration of all relevant sale instances. The writ petition was allowed, and the order of the appropriate authority was set aside.