1975 (5) TMI 26 - AT - Income Tax

Issues Involved:
1. Validity of acquisition proceedings under Section 269 of the Income Tax Act, 1961.
2. Determination of the fair market value of the property.
3. Compliance with procedural requirements for initiating acquisition proceedings.
4. The impact of the transferees' objections and the competent authority's response.

Issue-wise Detailed Analysis:

1. Validity of Acquisition Proceedings under Section 269 of the Income Tax Act, 196:
The appellants challenged the acquisition of property under Section 269(F) of the IT Act, 1961, arguing that the fair market value of the property was not more than 15% above the apparent consideration of Rs. 1,00,000. The competent authority initiated acquisition proceedings based on the belief that the fair market value exceeded the apparent consideration by more than 15%, thus indicating an understatement of the sale price to evade taxes.

2. Determination of the Fair Market Value of the Property:
The competent authority referred the matter to the Valuation Officer, who estimated the fair market value at Rs. 1,60,000 to Rs. 1,70,000. The property was declared by the transferor in his Wealth-tax return at Rs. 1,40,750, and the Wealth-tax Officer computed it at Rs. 1,60,750. The appellants submitted a valuation report by an approved valuer, Sh. Y.R. Puri, estimating the fair market value at Rs. 1,02,000. However, the competent authority found this report to have various infirmities and adopted a value of Rs. 1,62,000 based on another report by Sh. L.R. Malhotra, Assistant Valuation Officer.

3. Compliance with Procedural Requirements for Initiating Acquisition Proceedings:
The appellants argued that the acquisition proceedings were not validly initiated as the service of notices was effected before the publication in the official gazette. Section 269-D of the IT Act prescribes that acquisition proceedings are initiated by a notice published in the Official Gazette. The competent authority served notices on the appellants on 22nd March 1973, while the notice was published in the Gazette on 24th March 1973. The tribunal treated this defect as a mere irregularity, not invalidating the entire proceedings, as the appellants were provided the opportunity to contest the proceedings.

4. The Impact of the Transferees' Objections and the Competent Authority's Response:
The transferees vigorously contested the acquisition proceedings, arguing that the property was purchased to provide a source of livelihood and prevent the money left by the deceased from being frittered away. They claimed that the property was situated in an area with various disqualifications and that they did not have extra money to pay under the table to the transferor. The competent authority, however, did not find force in these objections and concluded that the fair market value exceeded the apparent consideration by more than 25%, thus proving that the consideration was not truly stated with the object of facilitating tax evasion.

Separate Judgment by the Accountant Member:
The Accountant Member disagreed with the majority opinion, holding that the acquisition proceedings were ab initio void due to non-compliance with the mandatory requirements of Section 269-D. The notice under Section 269-D(1) was served on the transferees before its publication in the Official Gazette, which was a fundamental irregularity that vitiated the entire proceedings. The Accountant Member opined that the order of acquisition should be quashed as bad in law.

Conclusion:
The tribunal, by majority, upheld the acquisition of the property under Section 269(F) of the IT Act, 1961, finding that the fair market value exceeded the apparent consideration by more than 25%, thus proving understatement of the sale price to evade taxes. The procedural defect in serving notices before publication in the Gazette was treated as an irregularity, not invalidating the proceedings. However, the Accountant Member dissented, holding that the acquisition proceedings were void due to non-compliance with mandatory procedural requirements.

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