1985 (7) TMI 136 - AT - Income Tax

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 269C.
2. Determination of fair market value and bona fide purchase of the property by the transferees.

Detailed Analysis:

1. Validity of initiation of proceedings under Section 269C:

The first effective ground of appeal argued by the counsel for the transferees was the invalid initiation of proceedings under Section 269C. The paper-books presented detailed documents including Form No. 37EE, the agreement between the transferees and the transferor, and various correspondences. The counsel highlighted that the conditions requisite for exercising powers under Section 269C, as elucidated by the Bombay High Court in Unique Associates Co-operative Housing Society Ltd. vs. Union of India & Ors., were not satisfied. These conditions include:

(i) Immovable property of market value exceeding Rs. 25,000 is transferred.
(ii) The fair market value exceeds the apparent consideration by more than 15%.
(iii) The consideration for transfer has not been truly stated in the transfer instrument.
(iv) The untrue statement of consideration is aimed at facilitating tax evasion.

The counsel argued that the IAC (Acq) did not have sufficient material to conclude that the property was purchased at less than 15% of the fair market value or that the untrue statement was made with the object of evading tax. The Department's standing counsel, while almost conceding, referred to decisions by other High Courts and the Supreme Court, suggesting that the initiation of proceedings could be justified if there were reasonable grounds to believe non-disclosure of material facts. However, the Tribunal, bound by the Bombay High Court's decision, held that the initiation of proceedings under Section 269C was invalid as the requisite conditions were not met, particularly the aspect of tax evasion was not established or indicated in the reasons recorded.

2. Determination of fair market value and bona fide purchase of the property:

Regarding the fair market value, the transferees purchased the flat for Rs. 9,00,000, which was not ready for occupation at the time of purchase. The Department's valuer estimated the fair market value at Rs. 12,98,000, based on different valuation methods. The Tribunal considered several factors, including the condition of the flat, the introduction of Section 269AB affecting real estate prices, and comparable sales in the same building.

The Tribunal noted that a flat on the second floor of the same building was sold at Rs. 700 per sq. ft., and acquisition proceedings for that flat were dropped. Additionally, the flat in question required further investment for completion, which the transferees incurred. The Tribunal concluded that the apparent consideration represented the fair market value, and the order of the IAC (Acq) could not be sustained on merits.

Conclusion:

The appeal was allowed, with the Tribunal holding that the initiation of proceedings under Section 269C was invalid and the apparent consideration represented the fair market value of the property.