2022 (5) TMI 299 - HC - Income Tax

Order by appropriate authority for purchase by Central Government of immovable property u/s 269UD - Undervaluation of property- determining the fair market value of the property - why the fair market value of the said property should not be taken as Rs.75, 94, 560/- and why an order should not be made in accordance with the provisions of Section 269UD (1) - HELD THAT - In the case at hand there is no finding that the undervaluation was intended to evade tax let alone discharge the onus of establishing that undervaluation was with a view to evade tax. In the impugned order it is only stated that the transaction under consideration was proposed to take place at a rate lower than the fair market value by more than 15% considering the fair market value determined by the Appropriate Authority. On this ground alone the impugned order is liable to be quashed and set aside. In our view the view taken by the Appropriate Authority is palpably erroneous and cannot stand to the scrutiny of law even on merits. Therefore to recap the Valuation Officer has noted on 22nd April 1991 and the Deputy Commissioner of Income Tax (A.A.) has noted on 24th April 1991 that the said property was not undervalued. The Appropriate Authority (respondent no.2) has not stated in its reasons recorded in 1991 why they did not accept these two reports. The Appropriate Authority (respondent no.2) has not stated anywhere why it was not accepting the three comparables mentioned by VO. The Appropriate Authority (respondent no.2) has not given the basis for comparing Sea Face Park and Navroze Apartment with the said property when those two properties were farther away than the three properties used by VO to compare Valuation of Navroze Apartment used in the first order dated 29th April 1991 by the Appropriate Authority (respondent no.2) was only about 9% more compared to the said property. The mathematical calculations by adding and subtracting advantages and disadvantages to arrive at a conclusion that there was undervaluation in excess of 15% limit can be stated to be far from being honest. This 15% limit also cannot be applied mechanically but a reasonable margin of error has to be considered. There is also no finding that the undervaluation was intended to evade tax which as held in Mrs. Amarjit Thapar (Supra) was mandatory vitiating the stand of respondents. Even for a moment we assume there was a difference of 15% the Appropriate Authority cannot assume jurisdiction under Section 269UD of the Act automatically. Various factors determine the price for a property like demand supply terms of payment the urgency for the seller to sell or for the buyer to buy relationship between parties dominance of a party etc. None of these points are also considered by the Appropriate Authority while arriving at its conclusions in the impugned order. The impugned order therefore requires to be set aside. Respondent no. 2 could not have acquired the said property under Section 269UD. We hold that petitioner shall be entitled to the said property alongwith the shares in the society upon payment to respondent nos.1 to 4 of consideration of Rs.61, 77, 411/-. If this amount is not paid within twelve weeks from today interest thereon at 12% p.a. shall become payable until payment / realisation. Petitioner shall pay all society charges payable at the relevant time i.e. 1991 together with interest if any for getting the shares transferred in its name. The Prothonotary and Senior Master shall refund to respondent nos.1 to 4 the sum of Rs.1, 75, 500/- deposited during the second petition together with accumulated interest if any. This amount shall be paid provided (a) respondent nos.1 to 4 file a declaration that they are not challenging this order or judgment or (b) the SLP or petition to be filed by respondent nos.1 to 4 is dismissed or rejected. From the minutes of the order dated 13th September 1991 filed in the second petition there is a sum of Rs.1, 22, 589/- that would become payable to respondent nos.5 to 7 in that petition together with interest thereon at 10% per annum from 13th September 1991 until payment.

Issues Involved:
1. Compliance with court directions regarding fair market value determination.
2. Validity of the show cause notice and comparable sale instances.
3. Consideration of valuation officer's and deputy commissioner's opinions.
4. Requirement of a finding that undervaluation was intended to evade tax.
5. Jurisdiction of the Appropriate Authority under Section 269UD of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Compliance with Court Directions Regarding Fair Market Value Determination:
The petitioner argued that respondent no.2 failed to comply with the Court’s directions from the order dated 21st October 2008, which required the determination of the fair market value before passing the order. The Court noted that the Appropriate Authority did not determine the fair market value in the initial show cause notice dated 19th December 2008 and only attempted to correct this by issuing a supplementary notice on 7th January 2009. The Court found this approach improper and emphasized that the determination of fair market value was crucial and should have been done transparently and timely.

2. Validity of the Show Cause Notice and Comparable Sale Instances:
The petitioner contended that the show cause notice did not indicate why the sale rate in the agreement was considered lower and cited non-comparable sale instances. The Court agreed that the Appropriate Authority failed to provide a clear rationale for selecting the comparable properties and did not transparently disclose the basis for their valuation. The Court highlighted that the show cause notice should give a reasonable opportunity to the affected parties to respond effectively, which was not done in this case.

3. Consideration of Valuation Officer's and Deputy Commissioner's Opinions:
The petitioner pointed out that both the Valuation Officer and the Deputy Commissioner of Income Tax opined that the declared value was reasonable and not grossly understated. The Court noted that the Appropriate Authority did not provide any reasons for disregarding these opinions. The Court emphasized that the opinions of these officers should have been considered, and their dismissal without explanation was unjustified.

4. Requirement of a Finding that Undervaluation was Intended to Evade Tax:
The Court referred to precedents that required a finding of tax evasion intent for the exercise of pre-emptive purchase rights under Section 269UD. The Court found that the impugned order lacked any finding that the undervaluation was intended to evade tax. The Court held that this omission was a significant flaw, as establishing the intent to evade tax is mandatory for such actions.

5. Jurisdiction of the Appropriate Authority under Section 269UD of the Income Tax Act:
The Court reiterated that the right of pre-emptive purchase under Section 269UD is not a simple right of pre-emption but is exercisable only in cases of significant undervaluation with the intent to evade tax. The Court found that the Appropriate Authority did not meet the required threshold for assuming jurisdiction under this section as there was no clear evidence of significant undervaluation or tax evasion intent.

Conclusion:
The Court quashed the impugned order dated 9th January 2009, holding it to be in breach of principles of natural justice and bad in law. The Court directed that the petitioner is entitled to the property upon payment of the consideration amount to the respondents. The Court also ordered the refund of the deposited sum to the respondents under specific conditions and provided directions for the handling of additional amounts related to the case. The petition was disposed of with no order as to costs, and a stay of 120 days was granted on the order.

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