2010 (7) TMI 700 - HC - Income Tax

Reassessment - Acquisition of immovable property - on the ground that the approach of the competent authority in its reasons to believe was manifestly incorrect and opposed to law, it would be apposite to refer to and deal with this aspect, in the first instance - It is subsection (2) of section 269C which stipulates that where the fair market value exceeds the apparent consideration by more than 25 per cent., it shall be a conclusive proof that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer - In the instant case, since the consideration shown in the sale deed was Rs. 16 lakhs, action could be initiated only if the competent authority had reasons to believe that the fair market value is Rs. 18,40,000 or above - The very fact that even according to the competent authority, the only reason for doubling the rates of residential property for arriving at the fair market value in respect of residential-cum-commercial property is it is well known and that itself suggests that there was no material much less tangible material and the competent authority was going by general perception - When the very basis of fixing the said market value is erroneous and without any foundation, raising such an argument that the value fixed is more than 25 per cent. would be clearly preposterous - Appeal is dismissed

Issues Involved:
1. Legality of the initiation of acquisition proceedings under Chapter XX-A of the Income-tax Act.
2. Validity of the "reasons to believe" recorded by the competent authority.
3. Sufficiency and relevance of material considered by the competent authority.
4. Onus of proof under section 269C(2) of the Income-tax Act.
5. Impact of subsequent legislative changes and property transfers on the appeal.

Detailed Analysis:

1. Legality of the initiation of acquisition proceedings under Chapter XX-A of the Income-tax Act:
The respondent purchased a property and reported it to the income-tax authorities. The competent authority initiated acquisition proceedings under section 269A of the Income-tax Act, based on the belief that the fair market value of the property exceeded the consideration shown in the sale deed by more than 25%. The Tribunal set aside this order, and the High Court examined whether the initiation of proceedings was legally justified.

2. Validity of the "reasons to believe" recorded by the competent authority:
The competent authority's "reasons to believe" were based on a comparison with a residential property in Green Park sold at Rs. 4,600 per sq. mtr. The competent authority doubled this rate to Rs. 9,000 per sq. mtr. for the semi-commercial property in question without any supporting material. The High Court found that the conclusion was based on general impressions rather than tangible material, rendering the "reasons to believe" invalid. The court emphasized that the competent authority must have reasons based on some material, not mere perceptions or general impressions.

3. Sufficiency and relevance of material considered by the competent authority:
The competent authority ignored the valuation report submitted by the respondent, which valued the land at Rs. 6,000 per sq. mtr. Instead, it relied on an unsubstantiated general belief that semi-commercial properties are valued at twice the rate of residential properties. The High Court criticized this approach, stating that the competent authority must base its conclusions on relevant and tangible material, not on general perceptions or assumptions.

4. Onus of proof under section 269C(2) of the Income-tax Act:
The competent authority argued that since the fair market value exceeded the apparent consideration by more than 25%, the onus was on the respondent to prove otherwise. The High Court dismissed this argument, stating that when the basis for fixing the market value is erroneous and without foundation, such an argument is untenable. The court reiterated that the competent authority must have a valid basis for its conclusions.

5. Impact of subsequent legislative changes and property transfers on the appeal:
The respondent argued that Chapter XX-A, under which the acquisition proceedings were initiated, was replaced by Chapter XX-C and later ceased to exist. Additionally, the property had been transferred multiple times, making the appeal infructuous. However, the High Court did not address these arguments in detail, as it dismissed the appeal on merits, finding the initiation of proceedings itself illegal.

Conclusion:
The High Court dismissed the appeal, holding that the competent authority's "reasons to believe" were based on insufficient and irrelevant material. The court emphasized the necessity for tangible material to justify the initiation of acquisition proceedings and criticized the reliance on general perceptions. The judgment underscores the importance of a reasoned and evidence-based approach by tax authorities in such cases.

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