1986 (12) TMI 107 - AT - Income Tax

Issues Involved:

1. Initiation of acquisition proceedings under Section 269C of the Income Tax Act, 1961.
2. Determination of the fair market value of the property.
3. Acceptance of valuation reports from different sources.
4. Legal presumption of understatement of consideration.
5. Burden of proof regarding the understatement of consideration.

Detailed Analysis:

1. Initiation of Acquisition Proceedings under Section 269C of the Income Tax Act, 1961:

The Competent Authority initiated acquisition proceedings under Section 269C of the IT Act, 1961, based on the belief that the property was transferred for an apparent consideration that was less than its fair market value. The Competent Authority relied on four sale instances of land at Frazer Road and referred the valuation to the Valuation Cell of the Department. The Valuation Officer estimated the value of the property at Rs. 2,26,411, while the apparent consideration mentioned in the transfer deeds was Rs. 1,96,000.

2. Determination of the Fair Market Value of the Property:

The Competent Authority did not accept the Valuation Officer's report and instead relied on the Inspector's report, which valued the land at Rs. 1 lakh per katha. This led to a valuation of Rs. 4,43,051 for the entire property, with 1/4th of the fair market value being Rs. 1,10,763 against the declared Rs. 49,000. The assessee argued that the average rate of sale instances taken together worked out to Rs. 72,000 per katha, and after allowing a 25% reduction for being off Frazer Road, the cost would come to Rs. 54,000 per katha.

3. Acceptance of Valuation Reports from Different Sources:

The assessee provided instances of the same plot of land, arguing that the Competent Authority should have considered these sale instances. The Competent Authority, however, preferred the Inspector's valuation over the Valuation Cell's report. The Tribunal found that the Competent Authority did not provide cogent reasons for not following the Valuation Cell's report, which should be considered the opinion of an expert.

4. Legal Presumption of Understatement of Consideration:

The Tribunal examined the legal presumption under Section 269C(2) of the IT Act, which states that if the fair market value exceeds the apparent consideration by more than 25%, it shall be conclusive proof that the consideration has not been truly stated. The Tribunal noted that the Competent Authority could resort to this presumption to initiate proceedings if the other requirements are satisfied. However, the Tribunal found that the market value of the property was not more than 25% higher than the stated consideration in the transfer deed.

5. Burden of Proof Regarding the Understatement of Consideration:

The assessee argued that there was no material evidence to show that something more than the stated consideration had passed between the transacting parties. The Supreme Court in K.P. Verghese vs. ITO held that the burden of proving understatement of consideration lies with the Revenue. The Tribunal agreed with the assessee's contention that there was no basis for the Competent Authority to believe that the transferor had an object of tax evasion without concrete evidence.

Conclusion:

The Tribunal concluded that the Competent Authority was not justified in initiating acquisition proceedings as the market value of the property was not more than 25% higher than the stated consideration. The Valuation Cell's report should be accepted, and proper deductions for the location and situation of the land should be allowed, bringing the valuation closer to the apparent consideration stated in the transfer deed. The Tribunal canceled the order of the IAC (Acq.) and allowed the appeals.

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