1988 (5) TMI 86 - AT - Income Tax

Issues Involved:
1. Validity of the assumption of jurisdiction by the competent authority.
2. Validity of the acquisition proceedings.
3. Applicability of presumptions under Section 269C(2) of the IT Act.
4. Compliance with statutory requirements for service of notice under Section 269D(2).
5. Determination of fair market value.
6. Impact of CBDT Circular No. 455 on acquisition proceedings.
7. Separate consideration of transfers by individual transferors.

Detailed Analysis:

1. Validity of the Assumption of Jurisdiction by the Competent Authority:
The competent authority initiated acquisition proceedings based on the belief that the fair market value (FMV) of the property exceeded the apparent consideration by more than 25%, suggesting tax evasion. However, the court found no substantial evidence to support this belief, as required under Section 269C(1) of the IT Act. The competent authority's belief was based on an Inspector's report, which lacked comparable cases and relied on ad hoc estimates. The court emphasized that the competent authority must have concrete evidence to justify the initiation of proceedings.

2. Validity of the Acquisition Proceedings:
The court ruled that the initiation of acquisition proceedings was invalid due to the lack of evidence supporting the competent authority's belief that the consideration was understated with the object of tax evasion. The court noted that presumptions under Section 269C(2) do not apply at the stage prior to the initiation of proceedings. Therefore, the entire acquisition proceedings were quashed.

3. Applicability of Presumptions under Section 269C(2):
The court held that the presumptions under Section 269C(2) do not apply at the stage anterior to the initiation of acquisition proceedings. This view was supported by judicial pronouncements from various High Courts, including Gujarat, Calcutta, Bombay, and Punjab and Haryana. The court concluded that the competent authority could not rely on these presumptions to justify the initiation of proceedings.

4. Compliance with Statutory Requirements for Service of Notice under Section 269D(2):
The court found that the mandatory requirement of serving notice under Section 269D(2)(a) on each transferor was not met. The absence of such notice rendered the proceedings void. The court emphasized that the service of notice is crucial for ensuring that the principles of natural justice are upheld.

5. Determination of Fair Market Value:
The court noted that the determination of FMV by the Inspector was based on local knowledge and lacked concrete evidence. Although the competent authority could form a prima facie opinion on FMV, the absence of evidence to support the belief that the consideration was understated for tax evasion rendered the proceedings invalid.

6. Impact of CBDT Circular No. 455 on Acquisition Proceedings:
The court referred to CBDT Circular No. 455, which directed that acquisition proceedings should be dropped if the apparent consideration of the immovable property was below Rs. 5 lakhs. The court held that the properties transferred by transferors 3, 4, and 5, each with an apparent consideration below Rs. 5 lakhs, should not have been subjected to acquisition proceedings. The court quashed the proceedings against these transferors based on the circular.

7. Separate Consideration of Transfers by Individual Transferors:
The court emphasized that each transferor had transferred specific properties with separate consideration. Therefore, the initiation of a single proceeding for all transfers was invalid. The court held that separate acquisition proceedings should have been initiated for each transferor. The court also noted that the properties transferred by transferors 3, 4, and 5 should have been excluded from acquisition proceedings due to the apparent consideration being below Rs. 5 lakhs.

Conclusion:
The court annulled the order of the competent authority dated 7th March 1988, quashing the entire acquisition proceedings. The court emphasized the need for concrete evidence to support the competent authority's belief in tax evasion and the importance of complying with statutory requirements for serving notice. The court also highlighted the impact of CBDT Circular No. 455 in excluding properties with apparent consideration below Rs. 5 lakhs from acquisition proceedings.

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