1992 (2) TMI 182 - AT - Income Tax

Issues Involved:
1. Timeliness of Acquisition Proceedings
2. Material Evidence for Understatement of Consideration
3. Validity of Notices Issued
4. Determination of Fair Market Value

Detailed Analysis:

1. Timeliness of Acquisition Proceedings:
The appellants contended that the acquisition proceedings were initiated beyond the time limit specified under section 269D of the Income-tax Act. The agreement of sale was registered on 16-11-1985, and the notice of acquisition was published in the Official Gazette on 4-10-1986. According to the first proviso to section 269D(1), the acquisition proceedings should have been initiated within nine months from the end of the month in which the instrument of transfer was registered, i.e., by 31-8-1986. The Tribunal held that the initiation of acquisition proceedings was barred by limitation and consequently invalid in law. This rendered the order of acquisition under section 269F(6) void.

2. Material Evidence for Understatement of Consideration:
The appellants argued that there was no material or evidence to show that the consideration for the transfer was not truly stated with the object of tax evasion. The Tribunal referenced the Supreme Court's judgment in K.P. Varghese v. ITO, which requires proof that the consideration was understated and that the assessee received more than what was declared. The Tribunal found that the Competent Authority relied solely on the fair market value exceeding the apparent consideration by more than 25% without any material evidence of actual higher consideration being paid. This reliance on statutory presumptions was deemed invalid for initiating acquisition proceedings.

3. Validity of Notices Issued:
The appellants contended that the notices issued were invalid due to the use of the conjuncture "and/or" in referring to the twin objects of tax evasion or concealment of income. The Tribunal upheld this contention, citing the Bombay High Court's judgments in Udharam Aildas Thadani and Ashok Madhav Chitaley, which held that the requisite formation of belief or opinion was a jurisdictional fact. The use of "and/or" indicated ambiguity in the Competent Authority's belief, rendering the initiation of proceedings defective.

4. Determination of Fair Market Value:
The Departmental Valuation Officer (DVO) valued the property at Rs. 70.55 lakhs, relying on sale instances of properties that were not comparable to the subject property. The Tribunal noted several factors distinguishing the subject property from the cited instances, such as location, lease tenure, and lack of independent facilities. The Tribunal criticized the Competent Authority for ignoring comparable sale instances provided by the appellants in the same building and adjacent buildings, which indicated lower fair market values. The Tribunal concluded that the Competent Authority failed to establish that the fair market value exceeded the apparent consideration by more than 15%, as required under section 269C(1).

Conclusion:
The Tribunal annulled the acquisition order under section 269F(6), finding that the acquisition proceedings were initiated beyond the statutory time limit, lacked material evidence of understatement of consideration, were based on invalid notices, and improperly determined the fair market value of the property. The appeals were allowed.

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