2017 (1) TMI 1158 - HC - Income Tax

Recovery of dues - Transaction between the petitioner and the original owners declared as void in exercise of powers under Section 281(1) - transfer made for adequate consideration - denial of natural justice - Held that - If the transferee is in a position to point out that such transfer was made for adequate consideration and without notice of the pendency of any proceedings under the Act, or without notice of such tax or other sum payable by the assessee, such a transfer is not required to be declared as void. Therefore, if the opportunity would have been given to the petitioner transferee, in that case, the petitionertransferee could have pointed out and / or satisfied respondent no.1 that the sale in favour of the petitioner was for adequate consideration and without notice of pendency of proceedings under the Act or without notice of such tax or other sum payable by the assessee. At this stage, it is required to be noted that it is not the case on behalf of the respondent no.1 that the sale in favour of the petitioner was either without adequate consideration and / or petitioner-transferee had knowledge / notice of pendency of any proceedings under the Act against the original assessee or petitioner-transferee had in knowledge / notice as such tax such tax or other sum payable by the assessee. Under the circumstances, the impugned order is absolutely in breach of principle of natural justice and same deserves to be quashed and set aside on the aforesaid ground alone. Thus the impugned order passed by the respondent no.1 declaring the sale between the petitioner and the respondent no.2 with respect to property situated at Plot No. 48/B, Sector 19, Gandhinagar as void in exercise of powers under Section 281(1) of the Act is hereby quashed and set aside

Summary

Issues:
Challenge to impugned order under Section 281(1) of the Income Tax Act - Breach of natural justice - Jurisdiction of Assessing Officer - Adequate consideration for property transfer.

Analysis:

Issue 1: Challenge to Impugned Order under Section 281(1) of the Income Tax Act
The petitioner sought to quash the order declaring the transaction between the petitioner and the original owner as void under Section 281(1) of the Income Tax Act. The petitioner contended that the order was in breach of natural justice as no notice or opportunity was provided to challenge the decision. It was argued that the petitioner was a bona fide purchaser without knowledge of any pending proceedings against the original owner. The petitioner emphasized that if given a chance, they could have demonstrated that the sale was made for adequate consideration and without notice of any pending proceedings.

Issue 2: Breach of Natural Justice
The Court noted that the impugned order lacked natural justice as the petitioner, being the transferee, was not given an opportunity to be heard before the transaction was declared void. While a notice was served to the original owner, the petitioner was not afforded a chance to present their case. The Court highlighted that as per the Act, a transfer should not be declared void if made for adequate consideration and without notice of any pending proceedings or tax liabilities. Since the petitioner was not given an opportunity to prove these aspects, the order was deemed a violation of natural justice.

Issue 3: Jurisdiction of Assessing Officer
The petitioner argued that the Assessing Officer did not have the jurisdiction to declare the sale as void under Section 281(1) of the Act. Citing a previous decision, it was contended that the Assessing Officer's only remedy was to file a suit to declare the sale void, rather than unilaterally declaring it so. The Court agreed with this argument, emphasizing that the impugned order declaring the sale as void was beyond the Assessing Officer's jurisdiction.

Issue 4: Adequate Consideration for Property Transfer
The Court reiterated that if a transfer is made for adequate consideration and without notice of pending proceedings or tax liabilities, it should not be declared void under Section 281(1) of the Act. Since the petitioner was not given a chance to demonstrate these aspects, the Court concluded that the impugned order was unjust and lacked legal basis. Consequently, the Court quashed and set aside the order declaring the sale between the petitioner and the original owner as void.

In conclusion, the High Court held that the impugned order lacked natural justice, exceeded the Assessing Officer's jurisdiction, and failed to consider the aspect of adequate consideration for the property transfer. The Court ruled in favor of the petitioner and set aside the order declaring the transaction as void under Section 281(1) of the Income Tax Act.