2008 (4) TMI 462 - HC - Income Tax

Purchase of Immovable property- It is essential that the Appropriate Authority should first determine the fair market value of the property in question in the light of the attending circumstances because without determining the fair market value it is not only difficult but impossible to state that the apparent consideration is lower than the market value by 15 percent. or more. Held that- the appropriate authority had not fixed any fair market value. The Appropriate Authority had not given any credence to the valuation report submitted by the petitioner as well as the comparable sale instances referred to by the petitioner. The Appropriate Authority ought to have furnished the copy of the valuation report to the petitioner which was admittedly not done in this case. Hence, the order was clearly violative of the principles of natural justice. The order of pre-emptive purchase was not valid.

Issues:
1. Violation of principles of natural justice.
2. Fair opportunity of being heard.
3. Determination of fair market value.
4. Ignoring factual circumstances.
5. Onus of establishing undervaluation for tax evasion.
6. Arbitrary and illegal actions by authorities.
7. Non-furnishing of valuation report to petitioners.
8. Failure to fix fair market value.
9. Unsustainability of the order.

Analysis:
1. The petitioners challenged an order passed by the Appropriate Authority under section 269UD(1) of the Income-tax Act, 1961, alleging violation of natural justice principles. The petitioners contended that they were not provided with a copy of the valuation report despite multiple requests, which was crucial for their case. The lack of fair hearing before the order was also highlighted, citing the judgment in C. B. Gautam v. Union of India [1993] 199 ITR 530 (SC).

2. The petitioners argued that the order was passed without determining the fair market value of the property, which is a legal requirement under section 269UD of the Act. They claimed that the authorities ignored various instances and factual circumstances presented by them to support the valuation they had adopted. The petitioners emphasized that establishing undervaluation for tax evasion purposes was the responsibility of the authorities, as per legal precedents.

3. The counsel for the petitioners pointed out the arbitrary and illegal actions of the authorities, citing instances where lower rates were accepted for similar properties in the same area. The petitioners' submissions of comparable instances and valuer's report were allegedly disregarded without proper consideration. The lack of fair market value determination by the authorities was a key argument in challenging the validity of the order.

4. The court noted that the authorities failed to fix a fair market value for the property in question, which was essential before alleging undervaluation. The importance of determining fair market value as per attending circumstances was highlighted, referencing the case of Vimal Agarwal v. Appropriate Authority [1994] 210 ITR 16. The court emphasized that without establishing fair market value, claims of undervaluation could not be substantiated.

5. The court found that the impugned order lacked a basis as the fair market value was not determined, rendering the allegation of undervaluation unsustainable. The failure to furnish the valuation report to the petitioners was deemed a violation of natural justice principles. The court also noted discrepancies in valuation approaches for other properties in the area, indicating inconsistencies in the authorities' actions.

6. Ultimately, the court ruled in favor of the petitioners, quashing the impugned order based on the violations of natural justice, failure to determine fair market value, and inconsistencies in valuation practices. The court held that the authorities' actions were arbitrary and unsustainable in law, granting relief to the petitioners in accordance with their prayers.

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