2007 (9) TMI 241 - HC - Income Tax

Allegation of undervaluation of property allegation that apparent consideration is lower than the fair market value by 15 % - admittedly, the fair market value of the flat had not been determined by revenue hence it could no be said that there was undervaluation moreover revenue has not filed relevant particulars of sale instances of comparable sales breach of principle of natural justice order passed u/s 269UD (1) for purchase of immovable property by central govt. is set aside

Summary

Issues:
Challenge to order under section 269UD(1) of the Income Tax Act without hearing petitioners, determination of fair market value, consideration of advantages/disadvantages of property, failure to provide documents for inspection, consideration of sale instances, breach of natural justice principles.

Analysis:
The petition challenged an order dated February 25, 1993, passed under section 269UD(1) of the Income Tax Act, 1961, without giving the petitioners a hearing. The petitioners had agreed to purchase a flat in Mumbai for Rs.40 lakhs, and a previous order in 1987 was set aside for a fresh decision. The petitioners objected to the purchase order citing no undervaluation and referred to a similar sale for comparison. The petitioners requested materials on sale instances but the order was passed without providing them, leading to the filing of the present petition.

The petitioners argued that the order should be quashed as fair market value was not determined, advantages/disadvantages were not considered, documents were not provided, and their sale instances were ignored. They relied on a court decision to support their contentions. The revenue contended that fair market value determination was not a prior practice, and the petitioners could have inspected documents. They argued for dismissal based on sale instances in the order.

The court found serious flaws in the order, citing the need to establish fair market value before alleging undervaluation. It emphasized the importance of considering all circumstances to determine undervaluation accurately. As fair market value was not determined, the court concluded that the alleged undervaluation could not be substantiated. Additionally, the failure to provide sale instance details for inspection breached natural justice principles. The court quashed the impugned order under Section 269 UD(1) of the Act due to these reasons, making the rule absolute with no costs awarded.