1988 (5) TMI 82 - AT - Income Tax

Issues Involved:
1. Applicability of CBDT Circular No. 455, dated 16th May 1986.
2. Validity of acquisition proceedings initiated under Section 269D of the IT Act.
3. Competent Authority's adherence to procedural requirements.
4. Impact of subsequent legislative changes on ongoing proceedings.

Issue-wise Detailed Analysis:

1. Applicability of CBDT Circular No. 455, dated 16th May 1986:
The transferee-appellant contended that the Competent Authority failed to consider the instructions in the CBDT Circular No. 455, dated 16th May 1986. The Circular stated that acquisition proceedings under Section 269C would not be initiated for immovable properties with apparent consideration below Rs. 5 lakhs and that ongoing proceedings should be dropped if the apparent consideration was below this threshold. The Tribunal noted that the Circular was binding on all officers under Section 119 of the IT Act, as supported by the Supreme Court in K.P. Varghese vs. ITO (1981) and the Karnataka High Court in B.M. Marappa vs. IAC (1986). Consequently, the Tribunal determined that the Competent Authority should have dropped the proceedings in compliance with the Circular.

2. Validity of acquisition proceedings initiated under Section 269D of the IT Act:
The Tribunal upheld the validity of the initiation of proceedings and the notice issued under Section 269D, as previously adjudicated in its order dated 30th October 1985. The Tribunal emphasized that the proceedings were initiated based on the Competent Authority's belief that the apparent consideration was understated. However, the Tribunal clarified that the acquisition proceedings should have been dropped due to the apparent consideration being below Rs. 5 lakhs, as mandated by the CBDT Circular.

3. Competent Authority's adherence to procedural requirements:
The Tribunal highlighted that the Competent Authority had twice failed to comply with procedural requirements, leading to the setting aside of its orders. The Tribunal's previous orders emphasized the need for a full and fair opportunity for the parties to be heard and for an independent determination of the fair market value. Despite these directives, the Competent Authority did not follow the CBDT Circular, which required dropping the proceedings if the apparent consideration was below Rs. 5 lakhs.

4. Impact of subsequent legislative changes on ongoing proceedings:
The Tribunal considered the legislative changes introduced by the Finance Bill of 1986, which proposed discontinuing acquisition proceedings for transfers made after 30th September 1986. The Tribunal noted that the CBDT Circular aimed to expedite the finalization of pending proceedings by setting a threshold of Rs. 5 lakhs for apparent consideration. The Tribunal concluded that the Competent Authority should have adhered to the Circular and dropped the proceedings, as the apparent consideration in the present case was Rs. 2,40,000, well below the Rs. 5 lakhs threshold.

Conclusion:
The Tribunal quashed the acquisition proceedings based on the CBDT Circular No. 455, dated 16th May 1986, which mandated dropping proceedings if the apparent consideration was below Rs. 5 lakhs. The Tribunal emphasized that the Competent Authority and the Commissioner were bound to follow the Circular, and the proceedings should have been dropped accordingly. The appeal of the transferee-appellant was allowed.

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