1982 (8) TMI 106 - AT - Income Tax

Summary

Issues Involved:
1. Fair Market Value Determination
2. Validity of Acquisition Proceedings
3. Application of Section 269C IT Act
4. Competent Authority's Adherence to Legal Principles
5. Comparison of Property Sales for Valuation
6. Role of Chandigarh Administration in Valuation
7. Onus of Proof and Presumptions

Detailed Analysis

1. Fair Market Value Determination:
The competent authority initiated acquisition proceedings based on the Valuation Officer's (VO) report, which estimated the fair market value of the property at Rs. 1,25,702, significantly higher than the apparent consideration of Rs. 92,421. The VO's method involved comparing sales of properties in different sectors (e.g., Sector 36D and Sector 19A) and applying arbitrary rebates, which the Tribunal found unjustified and not reflective of the actual market conditions at the time of the sale.

2. Validity of Acquisition Proceedings:
The Tribunal emphasized that the acquisition proceedings are quasi-criminal and penal in nature, requiring strict adherence to legal principles. The competent authority's reliance solely on the VO's report without independent verification or consideration of the objections raised by the transferee was deemed insufficient. The Tribunal highlighted the necessity for the competent authority to apply judicial mind and not merely adopt the VO's findings.

3. Application of Section 269C IT Act:
The Tribunal scrutinized the application of Section 269C, which mandates that the competent authority must have reasons to believe that the apparent consideration is less than the fair market value by 15% or more and that the understatement is with the intent to evade tax. The Tribunal found that the competent authority failed to gather sufficient evidence beyond the VO's report to justify these presumptions.

4. Competent Authority's Adherence to Legal Principles:
The Tribunal criticized the competent authority for not following the principles laid down by courts, including the requirement to independently verify the fair market value and the necessity to consider the objections and evidence presented by the transferee. The Tribunal noted that the competent authority acted as if the VO's report was conclusive, which is not permissible under the law.

5. Comparison of Property Sales for Valuation:
The Tribunal found fault with the VO's comparison of the subject property with properties in different sectors, which had different market conditions and amenities. The VO's failure to consider a comparable sale in the same sector (Lt. Col. N.N. Syal's sale) was particularly criticized. The Tribunal emphasized that comparisons should be made with similar properties in the same locality to ensure accuracy.

6. Role of Chandigarh Administration in Valuation:
The Tribunal noted that the Chandigarh Administration had determined the fair market value for the purpose of calculating the unearned increase, which was lower than the VO's valuation. The Tribunal held that this valuation by a government department should have been given due consideration, and the competent authority's dismissal of this valuation was unjustified.

7. Onus of Proof and Presumptions:
The Tribunal reiterated that the burden of proof to establish that the apparent consideration is less than the fair market value lies with the Revenue. The competent authority's approach of shifting this burden to the transferee was incorrect. The Tribunal held that the competent authority failed to discharge this burden, as required under Section 269C, thereby invalidating the acquisition proceedings.

Conclusion:
The Tribunal concluded that the acquisition proceedings initiated by the competent authority were invalid due to multiple legal and procedural flaws, including reliance on an unjustified valuation, failure to consider relevant evidence, and improper application of legal principles. The order of acquisition was thus cancelled, and the appeal was allowed.