2016 (6) TMI 204 - HC - Income Tax

Acquisition of property - The fair market value of the property in question was determined at ₹ 73,72,495/- and since it exceeded the declared consideration by 30.48%, the conditions of Section 269 UD were held to be satisfied. - Rejection of bid - whether the ITD was agreeable to re-auction the property - Held that - Respondent No. 3 for rejecting the bid of the Petitioners by the order dated 4th October, 2013 by the CCIT are several. One was that the sale was never confirmed on account of the interim order of this Court. The second was that by the letter dated 11th October 2004, the bidders, in fact, requested for refund of the earnest money along with interest @ 12% per annum. Thirdly, although the ITD had requested the Court to confirm the sale, the Court did not. In its order dated 27th September 2012, the Court enquired whether the ITD was agreeable to re-auction the property. The CCIT contends that the Petitioners were aware of the interim order dated 14th February 1995 and despite that participated in the auction. Fourthly, it is pointed out that while adjusting the value using the cost inflation index the price of the property in 2013 would be ₹ 5.07 crores. Further using the cost inflation index the original sale consideration worked out to ₹ 2.04 crore in 2013. It is mentioned that the present value on balance consideration using the cost inflation index worked out to ₹ 4,48,65,348. It is further pointed out that a re-auction is required to discover the current market price. Lastly a reference is made to the terms and conditions in terms of which the CCIT has a right to reject any bid. Reference is also made to Clause 15 of the terms and conditions of the auction under which a bidder is required to pay 25% of the bid amount, i.e. ₹ 35 lakh, within thirty days, i.e. by 16th March, 1995. The CCIT concludes that the earnest money ought to be refunded to the Petitioners in terms of Clause 11 of the terms and conditions of the auction. The only relief that can be granted to the Petitioners is to direct the ITD to return the earnest money to the Petitioners forthwith and in any event not later than four weeks from today. However, considering that the Petitioners bid was rejected only in 2013, nearly 18 years after the bid it was first made, it appears to be reasonable to direct the ITD to refund to the Petitioners the earnest money of ₹ 16.25 lakhs deposited by them together with interest @ 12 per cent per annum from 15th February 1995, till the date of the refund, which shall not be later than four weeks from today.

Summary

Issues Involved:
1. Confirmation of the sale of property.
2. Determination of fair market value.
3. Validity of the pre-emptive purchase order.
4. Rights of successful bidders in public auctions.
5. Refund of earnest money with interest.

Issue-wise Detailed Analysis:

1. Confirmation of the Sale of Property:
The petitioners participated in an auction held on 15th February 1995 and offered the highest bid of ?1.4 crores. Despite depositing 25% of the reserve price, the sale was not confirmed due to the pendency of WP (C) No. 524/1995. The court noted that the petitioners were always ready and willing to pay the balance amount but were unable to do so due to the writ petition by Mr. Raghbir Singh. The court ultimately held that the petitioners could not insist on the confirmation of the sale in their favor as there was no formal acceptance of their bid, in line with the legal position explained in U.P. Avas Evam Vikas Parishad v. Om Prakash Sharma.

2. Determination of Fair Market Value:
The Appropriate Authority determined the fair market value of the property at ?73,72,495, which exceeded the declared consideration by 30.48%. The court upheld this determination, noting that adjustments for the time gap and FAR were reasonable, although they might be considered high. The court found no plausible explanation for the large gap between the declared consideration and the fair market value, affirming the pre-emptive purchase order.

3. Validity of the Pre-emptive Purchase Order:
The petitioners challenged the pre-emptive purchase order under Section 269 UD (1) of the Income Tax Act, 1961. The court upheld the order, stating that the sale consideration did not represent the fair market value and the conditions of Section 269 UD were satisfied. The property vested in the Central Government and was put to public auction.

4. Rights of Successful Bidders in Public Auctions:
The court referred to the Supreme Court's decision in U.P. Avas Evam Vikas Parishad, which stated that bidders in public auctions have no vested right to demand the transfer of property unless their bid is formally accepted. The court emphasized that the auction was only an invitation to offer, and no concluded contract came into existence without formal acceptance.

5. Refund of Earnest Money with Interest:
The petitioners sought a refund of the earnest money deposited, citing a letter dated 11th October 2004. The court directed the ITD to return the earnest money of ?16.25 lakhs along with interest at 12% per annum from 15th February 1995 till the date of refund. The court found it reasonable to grant this relief considering the long delay in rejecting the petitioners' bid.

Conclusion:
The court dismissed the petitioners' demand for confirmation of the sale but directed the ITD to refund the earnest money with interest, acknowledging the prolonged delay in resolving the matter. The court upheld the pre-emptive purchase order and emphasized the need for a re-auction to determine the current market value of the property.