2005 (9) TMI 41 - HC - Income Tax

This petition is directed against the order passed by the appropriate authority under section 269UD(1). By the said order, the appropriate authority has held that the apparent consideration in respect of the property agreed to be sold by the petitioners to respondent No. 5 was less than the market value by 15 per cent, or more and accordingly ordered preemptive purchase of the said flat. - In the present case, even if it is accepted that the order passed under section 269UD(1) is proper, in view of the failure on the part of the appropriate authority to tender the apparent consideration within the period set out in section 269UG of the Act, it has to be held that the order passed under section 269UD(1) of the Act stood abrogated and the property has revested in the petitioners. Thus, viewed from any angle, the impugned order passed under section 269UD(1) cannot be sustained.

Summary

Issues:
Challenge against order under section 269UD(1) of the Income-tax Act, 1961 regarding undervaluation of property for preemptive purchase.

Analysis:
The petitioners, a private limited company and its director, entered into an agreement to sell a flat to a respondent for a lump sum price. The appropriate authority initiated proceedings under section 269UD(1A) of the Income-tax Act, 1961, alleging undervaluation based on comparisons with other properties. The petitioners argued against this, citing differences in location and amenities of the properties used for comparison. The authority ordered preemptive purchase due to apparent undervaluation, leading to the petition challenging the order.

The petitioners contended that the authority erred in relying on comparisons with a different property and that the properties they cited for comparison were more relevant due to their proximity and pricing. They also argued that the Central Government failed to tender the apparent consideration within the prescribed period, as required by section 269UG of the Act. The respondents supported the authority's decision, highlighting the incomplete status of the property at the time of the purchase order.

The court, after considering the arguments, referenced the precedent set by the apex court in C.B. Gautam v. Union of India, establishing the criteria for presuming undervaluation. It found that the authority's basis for undervaluation was flawed as the properties used for comparison were not comparable due to differences in amenities. The court also noted that the properties cited by the petitioners for comparison were more relevant and that the authority's rejection of these instances based on a time gap was unfounded. Additionally, the court emphasized the obligation under section 269UG to tender the apparent consideration within the specified period, which the Central Government failed to do in this case.

Consequently, the court quashed and set aside the order under section 269UD(1) of the Income-tax Act, ruling in favor of the petitioners. The failure to tender the apparent consideration within the prescribed period led to the revesting of the property in the petitioners. The court's decision was based on the lack of justification for undervaluation and the failure to comply with the statutory obligation to tender the consideration within the specified timeframe.

The petition succeeded, and the court made the rule absolute in favor of the petitioners, with no order as to costs.