2017 (1) TMI 1377 - HC - Income Tax

Wife of the assessee in default as proceeded against for the income-tax dues - recovery proceedings - Held that - The petitioner has produced two documents to contend that the consideration paid, as seen from Exhibit P1, is in consonance with the consideration as seen from the documents produced, being Exhibits P3 and P4. The Revenue has refuted such contention and has also produced, along with its counter affidavit, two documents as Exhibits R1(b) and R1(d) to contend that the consideration was inadequate. These are factual issues, which are to be examined by the original authority, on the basis of the location of the properties and the then prevalent market value. The contention of the petitioner that the property did not have a proper access and, hence, was not of value but for the petitioner who has the adjoining land, cannot be countenanced for two reasons. The title deed produced at Exhibit P1 in its Schedule shows a pathway on one of the boundaries. Then there is nothing produced to show that the adjoining property belongs to the petitioner. The boundary shown in the Schedule also does not indicate a property belonging to the petitioner to be adjoining to the subject property. Be that as it may, the question of under-valuation having not been specifically considered in Exhibit P9, the same would have to be considered. The petitioner would appear before the Tax Recovery Officer within two weeks from the date of receipt of a certified copy of the judgment and file objections producing documents, if any, within that time. The Tax Recovery Officer would grant an opportunity for hearing within two weeks therefrom and pass orders within two weeks from the date of hearing. It is made clear that the directions are issued by this Court itself, since otherwise the time would run out on notice being issued and hearing being posted by a further notice.

Summary

Issues Involved:

1. Validity of the conveyance of property from the petitioner’s husband to the petitioner.
2. Procedural defects and jurisdiction in the recovery process.
3. Applicability of limitation period under Rule 68B of Schedule II of the IT Act.
4. Adequacy of consideration for the property transferred.

Detailed Analysis:

1. Validity of the Conveyance of Property:

The petitioner, the wife of an assessee in default, challenged the Income-tax authorities' actions against her property, which was conveyed to her by her husband, an assessee in default. The core issue was whether the conveyance was a sham transaction due to inadequate consideration. The court noted that the property transfer occurred during the block period (1986-87 to 1995-96) when suppression was found against the assessee. The conveyance was deemed liable to proceedings for recovery under the Explanation to Section 222(1) of the IT Act, which includes properties transferred to relatives without adequate consideration.

2. Procedural Defects and Jurisdiction:

The petitioner argued that she was running a business and purchased the property from her income, contending that the purchase was for valid consideration. She also raised procedural objections, including the lack of a demand notice and the need for a suit to declare the conveyance void. The court dismissed these objections, stating that the Department did not intend to declare the petitioner as an assessee in default. The recovery was initiated under the Explanation to Section 222(1), which allows proceeding against properties transferred by the assessee to relatives without adequate consideration.

3. Applicability of Limitation Period:

The petitioner raised the issue of limitation under Rule 68B of Schedule II of the IT Act, arguing that the block assessment attained finality on 03.11.2008. The court noted that the limitation period would commence from 31.03.2009 and expire on 31.03.2012, with provisions for extension due to appeals. The writ petition was filed within the limitation period, and the court extended the period by 180 days due to the ongoing proceedings.

4. Adequacy of Consideration:

The petitioner contended that the consideration for the property was adequate, citing documents showing similar valuations for nearby properties. The Revenue refuted this, producing documents to show inadequate consideration. The court acknowledged that these factual issues needed examination by the original authority. The petitioner was directed to appear before the Tax Recovery Officer, file objections, and present documents within the specified timeframe. The Tax Recovery Officer was instructed to grant a hearing and pass orders accordingly.

Conclusion:

The court rejected all grounds raised by the petitioner but directed the Tax Recovery Officer to consider the question of under-valuation. The writ petition was disposed of with instructions for further proceedings to ensure a fair hearing and resolution of the valuation issue. Both parties were ordered to bear their respective costs.