1981 (12) TMI 54 - AT - Income Tax

Issues Involved:

1. Validity of initiation of acquisition proceedings by the competent authority.
2. Validity of notice issuance under Section 269D(2).
3. Opportunity to cross-examine the Departmental Valuation Officer.
4. Method of valuation adopted for the property.
5. Determination of fair market value of the property.
6. Applicability of Chapter XXA of the IT Act.

Issue-wise Detailed Analysis:

1. Validity of initiation of acquisition proceedings by the competent authority:

The appellant contended that the initiation of proceedings by the competent authority was invalid and against the law, arguing that the necessary satisfaction under Section 269C was not in existence due to the absence of the Departmental Valuation Officer's report at the time of initiation. However, upon verification, it was found that the report dated 19th June 1973 was indeed available before the initiation on 20th June 1973. The reasons recorded by the competent authority indicated that the market value of the property was more than 125% of the apparent consideration, suggesting undervaluation to reduce tax liabilities.

2. Validity of notice issuance under Section 269D(2):

The appellant argued that no notice was issued under Section 269D(2) at the time of initiation, rendering the initiation invalid. The notice was issued only on 7th October 1976. However, the Tribunal found this contention unsubstantial, stating that initiation is based on the public notice given in the gazette under Section 269D(1), not on individual notices. The non-issue of notices was considered an irregularity, not fatal to the proceedings, as substantial compliance was achieved, and no prejudice was caused to the appellant.

3. Opportunity to cross-examine the Departmental Valuation Officer:

The appellant requested an opportunity to cross-examine the Departmental Valuation Officer, as mentioned in a letter dated 31st March 1979. The Tribunal decided to address this aspect only if necessary after discussing the merits of the case.

4. Method of valuation adopted for the property:

The appellant contested the method of valuation, suggesting that the land and scrap value of the building or the rental method should have been adopted instead of the method used by the competent authority. The Departmental Representative argued that the valuation method was appropriate, considering the building's age and condition. The Tribunal found the method of valuing the land and building together more suitable, rejecting the scrap value approach due to the building's relatively recent construction.

5. Determination of fair market value of the property:

The Tribunal examined various factors, including the age and condition of the building, the value of the land, and comparable sales. The competent authority had fixed the land value at Rs. 70 per sq. yd., but the Tribunal determined it should be Rs. 65 per sq. yd. with a 30% deduction for encumbrance, resulting in a land value of Rs. 45 per sq. yd. The Tribunal also considered the rental method, concluding that the fair market value of the property was around Rs. 1,03,000, slightly above one lakh rupees.

6. Applicability of Chapter XXA of the IT Act:

Chapter XXA provisions apply only when the fair market value exceeds the apparent consideration by 15%. In this case, the fair market value did not exceed Rs. 1,03,600, the threshold for Chapter XXA applicability. Even if the value exceeded 15%, the presumption under Section 269C(2)(b) is rebuttable. Both the transferee and transferor denied any consideration beyond the stated amount, and no evidence suggested otherwise. Thus, the presumption was rebutted, and the property was outside the acquisition proceedings' purview.

Conclusion:

The Tribunal quashed the orders of acquisition in both cases, determining that the fair market value did not exceed the apparent consideration by more than 15%, and the presumption under Section 269C(2) was rebutted. The appeals were allowed.

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