1993 (4) TMI 109 - AT - Income Tax

Summary

Issues Involved:

1. Validity of initiation of acquisition proceedings under Section 269C of the Income Tax Act.
2. Determination of fair market value (FMV) of the property.
3. Service of notice within the prescribed statutory period.
4. Application of presumptions under Section 269C(2) of the Income Tax Act.
5. Consideration of unearned increase as part of the apparent consideration.
6. Validity of the Competent Authority's reliance on comparable sale instances.

Issue-wise Detailed Analysis:

1. Validity of Initiation of Acquisition Proceedings under Section 269C of the Income Tax Act:

The Competent Authority initiated acquisition proceedings based on the belief that the FMV of the property exceeded the apparent consideration by more than 15%. The Competent Authority relied on a valuation report and comparable sale instances to form this belief. However, the tribunal found that the Competent Authority did not have sufficient material to form a reasonable belief that the FMV exceeded the apparent consideration by the required margin. The tribunal emphasized that the belief must be that of an honest and reasonable person based on reasonable grounds and not mere suspicion.

2. Determination of Fair Market Value (FMV) of the Property:

The Competent Authority initially determined the FMV of the property at Rs. 46,39,831 based on a rate of Rs. 3,600 per sq. mtr. for the land and the depreciated value of the structure. However, during the course of the hearing, the Competent Authority revised the FMV to Rs. 41 lakhs based on the sale of a comparable property at 32-Park Avenue. The tribunal found that the Competent Authority's reliance on the sale instance of 32-Park Avenue was flawed as it did not account for differences in the properties, such as the commercial potential of 32-Park Avenue and the residential nature of the disputed property.

3. Service of Notice within the Prescribed Statutory Period:

The tribunal addressed the objection that the notice under Section 269D was not served within the statutory period. The tribunal found that the notice was published in the official gazette within the prescribed period and reasonable attempts were made to serve the notice personally and through affixture. Therefore, the tribunal held that the notice was validly served.

4. Application of Presumptions under Section 269C(2) of the Income Tax Act:

The tribunal addressed the objection that presumptions under Section 269C(2) were not available at the stage of initiation of acquisition proceedings. The tribunal found that the Competent Authority was justified in relying on these presumptions based on the decisions of the jurisdictional High Court and other relevant case law.

5. Consideration of Unearned Increase as Part of the Apparent Consideration:

The tribunal noted that the sale deed included a clause obligating the transferees to pay any unearned increase to the DDA or any other authority. The tribunal held that this unearned increase should be considered part of the apparent consideration. The Competent Authority's failure to account for this unearned increase was an error.

6. Validity of the Competent Authority's Reliance on Comparable Sale Instances:

The Competent Authority relied on the sale instance of a property at 17A/17 WEA Karol Bagh to initiate acquisition proceedings. The tribunal found that this property was not similarly situated to the disputed property and had several peculiar circumstances and advantages that were not present in the disputed property. The tribunal held that the Competent Authority's reliance on this sale instance was unreasonable and did not provide a rational basis for forming the belief that the FMV of the disputed property was Rs. 47 lakhs.

Conclusion:

The tribunal concluded that the Competent Authority did not have sufficient material to form a reasonable belief that the FMV of the property exceeded the apparent consideration by more than 15%. The initiation of acquisition proceedings was held to be invalid, and the notice issued under Section 269D was quashed. The acquisition order was declared bad in law and without jurisdiction, resulting in the appeals being allowed.