1988 (5) TMI 79 - AT - Income Tax

Issues Involved:
1. Applicability of Circular No. 455, dated 16th May 1986.
2. Validity of initiation of acquisition proceedings under section 269D.
3. Determination of the "apparent consideration" and its impact on acquisition proceedings.
4. Compliance with procedural requirements and fair opportunity for hearing.
5. Binding nature of CBDT circulars on tax authorities.

Issue-wise Detailed Analysis:

1. Applicability of Circular No. 455, dated 16th May 1986:
The transferee-appellant contended that the Competent Authority failed to consider the instructions in Circular No. 455, which stated that acquisition proceedings under section 269C would not be initiated for properties with an apparent consideration of Rs. 5 lakhs or less. The Tribunal found that the circular, issued to achieve early finalization of proceedings under Chapter XXA, was binding on all tax authorities. The Tribunal held that the Competent Authority should have dropped the proceedings as the apparent consideration was below Rs. 5 lakhs, in compliance with the circular.

2. Validity of initiation of acquisition proceedings under section 269D:
The Tribunal had previously upheld the validity of the initiation of proceedings and the issuance of notice under section 269D. However, the Tribunal emphasized that the Competent Authority must comply with procedural fairness and provide a full and fair opportunity for hearing before passing any acquisition order. The Tribunal noted that the proceedings remained validly initiated but needed to be reassessed in light of the circular.

3. Determination of the "apparent consideration" and its impact on acquisition proceedings:
The apparent consideration stated in each instrument of transfer was Rs. 1,20,000, totaling Rs. 2,40,000 for both documents, which was below the Rs. 5 lakhs threshold set by the circular. The Tribunal reiterated that the apparent consideration, as defined in section 269A(a)(1), was the consideration specified in the instrument of transfer. The Tribunal concluded that the proceedings should be dropped as the apparent consideration was below the specified limit.

4. Compliance with procedural requirements and fair opportunity for hearing:
The Tribunal had previously set aside the Competent Authority's orders due to procedural deficiencies and lack of fair opportunity for hearing. The Tribunal directed the Competent Authority to provide a full and fair opportunity to all parties and to independently determine the fair market value. The Tribunal emphasized that the Competent Authority must comply with these procedural requirements before passing any acquisition order.

5. Binding nature of CBDT circulars on tax authorities:
The Tribunal highlighted the binding nature of CBDT circulars on all tax authorities, as established by the Supreme Court in K. P. Varghese v. ITO and other cases. The Tribunal noted that the circulars issued under section 119 of the Income-tax Act are binding even if they deviate from the provisions of the Act. The Tribunal concluded that the Competent Authority and the Commissioner were bound to follow the instructions in Circular No. 455 and drop the proceedings.

Conclusion:
The Tribunal quashed the acquisition proceedings based on the binding nature of Circular No. 455, which required dropping proceedings where the apparent consideration was below Rs. 5 lakhs. The Tribunal emphasized the importance of procedural fairness and compliance with CBDT circulars. The appeal of the transferee-appellant was allowed, and the order of the Competent Authority dated 29-1-1988 was quashed.

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