2011 (12) TMI 145 - HC - Income Tax

Preemptive purchase by the Central Government u/s 269 UD (1) alleged undervaluation of property - cost of construction of flat to be received in lieu of consideration taken and its fair market value ignored while valuing property resulting in undervaluation Petitioners agreed to give possession of the subject property on compliance with the obligations of the Transferee under the Agreement by Appropriate Authority - Appropriate Authority has not tendered the payment to the owners and amount was deposited by the Central Government in the P.D. Account of Appropriate Authority prior to the passing of the impugned orders - Difference in total consideration valued and as stated in order to be payable to transferor - Held that - By ignoring fair market value of flat during valuation, there was an inherent flaw in the valuation of the said property by the Valuation Officer. Appropriate Authority has mechanically accepted the valuation and on this count alone the impugned orders would stand vitiated. Further Section 269 UF (1) stipulates consideration for such purchase, an amount equal to the amount of the apparent consideration. There was complete non application of mind on the part of the Appropriate Authority in stating in the impugned order that the amount payable was Rs.18,68,430/ when the apparent consideration was admittedly Rs.25,14,480/. Quantum of deposit is invalid Moreover, neither dispute was to title of property nor to the persons who should receive the payment, thereby, conditions mentioned in 269UG(2) and 269UG(3) are not satisfied which permit the Central Government to deposit the purchase price with the Appropriate Authority (instead of tender to the owners). Therefore, the deposit made in the P.D. account of the Appropriate Authority by the Central Government was impermissible and not in accordance with law. 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 is revested to the Petitioners. - Decided in favor of assessee.

Issues Involved:
1. Validity of the orders passed by the Appropriate Authority under Section 269UD(1) of the Income Tax Act, 1961.
2. Determination of the fair market value and apparent consideration of the property.
3. Compliance with the statutory requirement of tendering the amount of consideration.
4. The impact of failure to tender the consideration on the validity of the acquisition order.
5. Revesting of the property to the original owners due to non-compliance with statutory provisions.

Issue-wise Detailed Analysis:

1. Validity of the Orders Passed by the Appropriate Authority:
The petitions challenge two orders dated 23rd October 2009, passed by the Appropriate Authority, Mumbai, under Section 269UD(1) of the Income Tax Act, 1961. The orders held that the difference between the fair market value and apparent consideration of the property was more than 15%, making it a fit case for preemptive purchase by the Central Government.

2. Determination of the Fair Market Value and Apparent Consideration:
The Appropriate Authority issued show cause notices alleging significant undervaluation of the property. The valuation report calculated the rate per sq. ft. FSI as Rs. 932 for Pandharinath and Rs. 929 for Dattaram. The petitioners argued that the Appropriate Authority should have considered the market value of the flats to be provided under the agreements, not just the construction cost. The Division Bench previously noted inconsistencies in the valuation and apparent consideration, leading to the remand of the matter for fresh hearing.

3. Compliance with the Statutory Requirement of Tendering the Amount of Consideration:
The Central Government failed to tender the consideration amount to the owners within the stipulated time. Instead, the amount was deposited in the P.D. Account of the Appropriate Authority. According to Section 269UG(1), the consideration must be tendered to the entitled persons within one month from the date of vesting of the property in the Central Government.

4. The Impact of Failure to Tender the Consideration on the Validity of the Acquisition Order:
The Court found that the deposit made by the Central Government in the P.D. Account was not in accordance with law. The Appropriate Authority's decision to condition the tender of payment on the owners handing over possession was impermissible. The failure to tender the amount as required by Section 269UG(1) resulted in the automatic abrogation of the acquisition order under Section 269UH, causing the property to revest in the original owners.

5. Revesting of the Property to the Original Owners Due to Non-compliance:
The Court concluded that the impugned orders were perverse and suffered from non-application of mind. The Central Government's failure to tender the consideration amount within the prescribed period led to the abrogation of the acquisition orders and revesting of the property in the owners.

Conclusion:
The petitions were allowed, and the orders of the Appropriate Authority dated 23rd October 2009 were set aside. The property stood revested in the original owners due to the Central Government's failure to comply with the statutory requirements of tendering the consideration amount.

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