2008 (9) TMI 515 - HC - Income Tax

Purchase of immovable property- The petitioner has challenged the impugned order under section 269UD(1) of the Income-tax Act, 1961 (for short IT Act ) and all actions arising out of the same. Held that- agreement was executed in the year 1993 whereas sale instance relied upon by the appropriate authority was in 1994 and in a different locality. No copy of any documents relating to the sale instance, even if any, was furnished to the petitioner. There was no material to justify the conclusion that the property had been undervalued. There was no mention that there was any intention to evade tax. Thus, the order of pre-emptive purchase was not valid.

Summary

Issues:
Challenge to impugned order under section 269UD(1) of the Income-tax Act, 1961 and actions arising out of the same.

Analysis:

Issue 1: Challenge to Impugned Order
The petitioner challenged the impugned order under section 269UD(1) of the Income-tax Act, 1961, and all actions arising from it. The property in question was a Malik Makbuja plot of land transferred by will. The petitioner's bid for purchase was accepted by respondent No. 2 society, and an agreement was executed in favor of the petitioner. However, a show-cause notice was issued under section 269UD(1A) of the Income-tax Act, leading to the filing of a writ petition against the orders dated March 25, 1994. The court granted a stay of possession and ordered to maintain status quo.

Issue 2: Principles of Natural Justice
The court found the show-cause notice dated February 25, 1994, to be vague, lacking material or sale instance details. This was deemed a breach of natural justice principles, depriving the parties of an adequate opportunity to respond. The court cited various cases where similar notices and actions were quashed due to insufficient details provided to the parties.

Issue 3: Undervaluation of Property
The court noted that the sale instance relied upon was from 1994, while the agreement in question was executed in 1993. It was argued that the reliance on a different property's market value from another locality for determining undervaluation was incorrect. The court emphasized the need for establishing fair market value under section 269UD(1) of the Income-tax Act and found the authority failed to justify undervaluation or tax evasion allegations.

Issue 4: Compliance with BPT Act
Considering the property was trust property, proper valuation was crucial. The court highlighted that once the competent authority sanctioned the sale under the Bombay Public Trusts Act, challenging the valuation required strong contra material. Citing a Gujarat High Court case, the court emphasized the importance of proper valuation and objections process in cases involving trust properties.

Conclusion:
After considering all aspects and relevant legal precedents, the court allowed the petition, quashed the impugned notice and actions arising from it. The judgment was in favor of the petitioner, granting relief in terms of the prayer clauses without any order as to costs.