1988 (12) TMI 147 - AT - Income Tax

Issues Involved:

1. Validity of the acquisition order under section 269-G of the IT Act, 1961.
2. Justification for the initiation of acquisition proceedings.
3. Service of notice under section 269D(1) of the IT Act.
4. Determination of fair market value exceeding the apparent consideration.
5. Relevance and validity of the valuation reports.
6. Comparable sale instances and their impact on the case.

Issue-wise Detailed Analysis:

1. Validity of the Acquisition Order:

The appeal under section 269-G of Chapter XX-A of the IT Act, 1961, contests the acquisition order dated 17th May 1985, issued by the IAC of IT (Acq.) Range-V, New Delhi. The appellant, a transferee, argues that the facts did not justify the initiation of acquisition proceedings, much less the passing of the order.

2. Justification for the Initiation of Acquisition Proceedings:

The Competent Authority initiated acquisition proceedings based on the Valuation Officer's report, which estimated the fair market value of the property at Rs. 8,03,500 against the sale consideration of Rs. 7,00,000. The Competent Authority believed that the transferor and transferee had not truly stated the consideration to reduce tax liability and conceal income, as per sections 269-C(1) and 269-C(2).

3. Service of Notice under Section 269D(1):

The notice under section 269D(1) was allegedly served on the transferee on 10th Feb 1986, before its publication in the Official Gazette on 15th Feb 1986. The Competent Authority failed to provide clear evidence of the exact date and mode of service. The Tribunal emphasized that the Revenue must establish the service of notice, which was not done satisfactorily in this case.

4. Determination of Fair Market Value Exceeding the Apparent Consideration:

The Competent Authority's belief that the fair market value exceeded the apparent consideration by 18% was based on the Valuation Officer's report. However, the Tribunal found that the initial valuation report did not justify such a belief, and the subsequent higher valuation report could not be retroactively applied to validate the initiation of proceedings.

5. Relevance and Validity of the Valuation Reports:

The Tribunal rejected the Revenue's contention that a later valuation report, which estimated the property's value at Rs. 15,95,200, should be considered retrospectively. It held that the initial report dated 25th Sept 1985, which valued the property at Rs. 8,03,500, was the only relevant report at the time of initiating proceedings.

6. Comparable Sale Instances and Their Impact on the Case:

The appellant provided comparable sale instances indicating that the recorded consideration was not understated. The Tribunal found these instances credible and noted that the Competent Authority's comparable instances were not relevant. The Tribunal concluded that the facts and comparable sales supported the appellant's contention that the recorded consideration was fair.

Conclusion:

1. The acquisition proceedings were invalid due to the improper service of notice under section 269D(1).
2. There was no material basis for the Competent Authority to believe that the fair market value exceeded the apparent consideration by more than 15%.
3. The initial valuation report did not support the initiation of acquisition proceedings.
4. The comparable sale instances provided by the appellant demonstrated that the recorded consideration was fair.

Final Judgment:

The Tribunal struck down the acquisition proceedings and the order on three separate counts, each independent of the other. The appeal was allowed, and the acquisition order was canceled.

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