1983 (11) TMI 33 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the competent authority under s. 269C of the I.T. Act, 1961.
2. Applicability of Chapter XX-A of the I.T. Act to the case.
3. Validity of the valuation report used by the competent authority.
4. Existence of material to support the conclusion of tax evasion.
5. Interpretation of s. 269C(2) regarding presumption of undervaluation.

Summary:

1. Jurisdiction of the competent authority under s. 269C of the I.T. Act, 1961:
The court examined whether the initiation of proceedings by the competent authority under s. 269C of the I.T. Act, 1961, was in accordance with law. The conditions requisite for exercise of powers under s. 269C include: (i) immovable property of a market value exceeding Rs. 25,000 is transferred, (ii) fair market value exceeds the apparent consideration by more than 15%, (iii) consideration for transfer has not been truly stated in the instrument of transfer, and (iv) such untrue statement is with the object of facilitating tax evasion. The court found that the competent authority was not justified in assuming these conditions were met based on the flawed valuation report.

2. Applicability of Chapter XX-A of the I.T. Act to the case:
The petitioners argued that Chapter XX-A was not applicable as the deed of transfer was lodged for registration before the introduction of the Chapter. The court referred to a previous judgment (Amarchand J. Agarwal v. Union of India) which upheld that Chapter XX-A applies if the registration was not complete by the date of its introduction. Hence, this contention by the petitioners was rejected.

3. Validity of the valuation report used by the competent authority:
The court scrutinized the valuation report which assumed parts of the property were vacant and available for sale, which was incorrect. The deed of transfer indicated that respondent No. 10 retained the right to dispose of the vacant flats. The court concluded that the report had serious infirmities and could not justify the competent authority's assumption that the fair market value exceeded the apparent consideration by more than 15%.

4. Existence of material to support the conclusion of tax evasion:
The court emphasized that there was no material beyond the valuation report to support the competent authority's conclusion that the consideration stated was untrue and aimed at tax evasion. The court cited the Gujarat High Court's decision in CIT v. Smt. Vimlaben Bhagwandas Patel, asserting that the competent authority must have rational and direct connection with the material before initiating proceedings.

5. Interpretation of s. 269C(2) regarding presumption of undervaluation:
The court clarified that the presumption under s. 269C(2) that the consideration is untrue and aimed at tax evasion is not available at the stage of initiating proceedings but only at a later stage when an inquiry is to be concluded. The court referenced decisions from the Gujarat and Calcutta High Courts to support this interpretation.

Conclusion:
The court concluded that the initiation of proceedings by the competent authority was without jurisdiction due to the lack of material evidence and the flawed valuation report. The petition succeeded, and the rule was made absolute in terms of prayer (a-1) of the petition. No order as to costs was made.