1980 (5) TMI 11 - HC - Income Tax

Issues Involved:
1. Validity of the acquisition notice under Section 269D(1) of the Income Tax Act, 1961.
2. Whether the fair market value of the property was correctly determined.
3. Whether the consideration stated in the conveyance was less than the fair market value.
4. Whether there was a misstatement of consideration with the object of evasion of tax or concealment of income.

Issue-wise Detailed Analysis:

1. Validity of the acquisition notice under Section 269D(1) of the Income Tax Act, 1961:
The petitioner challenged the acquisition notice issued by Respondent No. 1 under Section 269D(1) of the Income Tax Act, 1961. The notice alleged that the property was transferred for an apparent consideration less than its fair market value and that the consideration was not truly stated, with the object of tax evasion or income concealment. The petitioner argued that there was no material before Respondent No. 1 to form such a belief, as required under Section 269C of the Act.

2. Whether the fair market value of the property was correctly determined:
The petitioner contended that Respondent No. 1 did not consider comparable properties on Burdwan Road and relied on properties in different localities, which was not appropriate. The valuation by Respondent No. 1 was based on local inquiries and advertisements, concluding that the property was undervalued. The petitioner argued that Respondent No. 1 did not consider that the property was tenanted, which significantly affects its market value. The valuation should have been based on the yield method rather than the land and building method, especially for a tenanted property.

3. Whether the consideration stated in the conveyance was less than the fair market value:
The petitioner purchased an undivided half-share of the property for Rs. 1 lakh. Respondent No. 1 assessed the fair market value of the property at Rs. 3,50,000, concluding that the consideration stated was significantly less. The petitioner argued that the valuation did not account for the tenancy, which would reduce the market value. The court referenced several precedents, including CIT v. Smt. Ashima Sinha and CIT v. Panchanan Das, which emphasized that the fair market value of tenanted properties should be based on rental yield and statutory controls.

4. Whether there was a misstatement of consideration with the object of evasion of tax or concealment of income:
The petitioner argued that Respondent No. 1 had no material to support the belief that the consideration was misstated for tax evasion or income concealment. The court noted that Respondent No. 1 did not have knowledge of the tenancy and did not conduct sufficient inquiries to determine the fair market value accurately. The court held that the conditions for initiating acquisition proceedings under Section 269C were not satisfied, as there was no material to form the required belief.

Conclusion:
The court quashed the acquisition notice issued by Respondent No. 1 under Section 269D(1) of the Income Tax Act, 1961, and made the rule absolute. The court emphasized that the fair market value of a tenanted property must consider statutory controls and rental yield. The proceedings were deemed without jurisdiction as the conditions precedent for initiation were not fulfilled. There was no order as to costs.

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