2005 (9) TMI 39 - HC - Income Tax

This petition is directed against the order passed appropriate authority, appointed by the Central Government under section 269UB, exercising the right of pre-emptive purchase under section 269UD(1) of the property in question owned by petitioners Nos. 2 and 3 for the apparent consideration of Rs. 24,00,000 - Learned counsel appearing for the Revenue could not dispute this fact that NOC was issued in respect of two transactions of apartments located in the very same building in which the subject apartment is situated. If that be so, in our view no useful purpose will be served by remanding the matter with direction to the appropriate authority for de novo hearing. The impugned order, thus, suffers from illegality on more than one count. In that view of the matter, the impugned order cannot stand the scrutiny of law. In the result, the impugned order at annexure F is quashed and set aside.

Summary

Issues Involved:
1. Legality of the preemptive purchase order under section 269UD(1) of the Income-tax Act, 1961.
2. Validity and adequacy of the show-cause notice issued to the petitioners.
3. Consideration of comparable sale instances by the appropriate authority.
4. Alleged violation of principles of natural justice.
5. Adequacy of the opportunity given to the petitioners to rebut the presumption of tax evasion.

Issue-wise Detailed Analysis:

1. Legality of the preemptive purchase order under section 269UD(1) of the Income-tax Act, 1961:
The petitioners challenged the order dated April 27, 1993, by the appropriate authority exercising the right of preemptive purchase of the property for Rs. 24,00,000. The petitioners argued that the order was erroneous, illegal, and lacked proper application of mind. The court found that the appropriate authority's decision was based on non-comparable sale instances and failed to consider the petitioners' submissions adequately.

2. Validity and adequacy of the show-cause notice issued to the petitioners:
The show-cause notice dated April 13, 1993, was criticized for being vague and not disclosing any relevant material or reasons for the prima facie belief that the property was significantly undervalued. The court agreed with the petitioners, stating that the notice did not provide the petitioners with a fair opportunity to understand the case against them, thereby violating section 269UD(1) of the Act and principles of natural justice.

3. Consideration of comparable sale instances by the appropriate authority:
The petitioners highlighted a sale instance from February 3, 1993, in the same locality, which was allegedly ignored by the appropriate authority. The court noted that the respondents did not consider two identical and contemporary transactions in the same building, "Miranda Apartment," where NOCs were issued for lower sale prices. This failure to consider relevant evidence rendered the impugned order factually and legally flawed.

4. Alleged violation of principles of natural justice:
The court observed that the vague show-cause notice and the inadequate opportunity to rebut the presumption of tax evasion constituted a gross violation of the principles of natural justice. The court cited the case of Nirmal Laxminarayan Grover to support the petitioners' argument that the absence of material disclosure in the notice denied them a real opportunity to contest the authority's tentative view.

5. Adequacy of the opportunity given to the petitioners to rebut the presumption of tax evasion:
The court found that the four-day period given to the petitioners to respond to the show-cause notice was insufficient. Additionally, the respondents failed to disclose any material or reasons for the presumption of tax evasion, further denying the petitioners a reasonable opportunity to rebut the presumption. This inadequacy warranted the acceptance of the petitioners' contention that they were denied a fair hearing.

Conclusion:
The court concluded that the impugned order dated April 27, 1993, suffered from multiple legal and procedural errors, including the violation of natural justice and failure to consider relevant evidence. Consequently, the order was quashed and set aside, and the writ petition was allowed with no order as to costs.