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TMI Blog1986 (11) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... and the said extent was surrounded by Road Nos. 7, 8 and 9 of Banjara Hills. The said site originally belonged to HEH the Nizam of Hyderabad, Sir Mir Osman Ali Khan Bahadur. The late Nizam transferred this property to a trust known as ' Barkat Villa ' (' the trust ') on 21-3-1958 and the value of the entire premises was shown in the trust deed at Rs. 1,74,000. One Dr. Zahir Ahmed purchased the whole property from the trust for a consideration of Rs. 2 lakhs under registered document No. 2310 of 1967 dated 28-6-1967. Dr. Zahir Ahmed transferred portions of the site and houses therein to his wife and others from time to time. Dr. Zahir Ahmed thus, alienated a major portion of the property already retaining only 2509.7 sq. yds. of land with a single-storeyed building with a built-up area of 2122 sq. ft. including servants' quarters, etc. This property was purchased by the appellants herein from Dr. Zahir Ahmed for an apparent consideration of Rs. 4,50,000 under a registered sale deed dated 17-6-1983. The document was actually registered on 18-6-1983 in the office of the Joint Sub-Registrar and it was registered as document No. 3631 of 1983. A copy of the sale deed was provided at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived ' reason to believe ' that the apparent consideration is less than the fair market value of the property and the consideration agreed to between the two parties to the document had not been truly stated in the instrument of transfer. The competent authority thereupon initiated proceedings under section 269C of the Act. Further, the competent authority also found that the difference between the apparent consideration and the fair market value as gathered from the inspector's report submitted to him was Rs. 1,39,800 or 31 per cent of the stated consideration in the impugned sale deed. The competent authority recorded in his order sheet dated 14-2-1984 that he had reason to believe that there is understatement of sale consideration in the impugned sale deed and such understatement has been prompted with the object of facilitating reduction or evasion of liability of the vendor or facilitating concealment of income or wealth of the vendees for purposes of their income-tax or wealth-tax assessments. He further stated in his order sheet referred to above that in view of the difference between stated consideration and fair market value being more than 31 per cent of the former, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the property bearing H.No. 8-2-583/2 at Road No. 7, Banjara Hills, Hyderabad, by S/Shri Roop Karan, Naresh Kumar and Rajendra Prasad as on 17-6-1983 for acquisition purpose : (Rates based on 1976 plinth area rates) Rs. 1. Main building, load bearing structure, single storeyed 175.50 sq. m. at Rs. 275.00 sq. yd. 48,263 2. Services at 30 per cent 14,479 3. Extra for superior quality fittings at 10 per cent 1,448 4. Out houses, garage 42.73 sq. metre at Rs. 235 per sq. m. 10,042 5. Services at 10 per cent 1,004 6. House (open tank) LS 3,000 7. Compound wall 289 metres at Rs. 63.63/metre 18,389 ---------------------- 96,625 8. Add : For increase in cost index at 191 per cent 1,84,554 ---------------------- 2,81,179 90 9. Deduct : Depreciation -------- 12=18 per cent (--) 50,612 60 --------------------- 10. Net value of structures 2,30,567 11. Land value : 2509.07 sq. yds. at Rs. 400 per sq. yd. 10,03,628 ---------------------- 12. Fair market value of the property 12,34,195 or say 12,34,000 ---------------------- A copy of the above report of the Valuation Officer was forwarded to the appellants by the competent authority by his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said revised valuation report was furnished at pages 40 to 43 of paper book No. 1 and at page 43 the particulars of valuation of the building and the land in the impugned property were given along with their estimated values in the revised valuation report as follows : Revised Valuation Report of the property bearing No. 8-2-583/2 on road No. 7, Banjara Hills : Hyderabad as on 17-6-1983 Rs. 1. Main building 2122 sq. ft. or 197.14 sq. ms. at Rs. 275 per sq. m. 54,213 2. Services at 22.5 per cent 12,193 3. Out-houses, garrages 42.75 sq. ms. at Rs. 235/m, 10,042 4. Compound wall 100/2 metres at Rs. 63.63 per metre 3,182 ---------------------- 79,634 Add : For increase of cost index at 191 per cent 1,52,100 ---------------------- 2,31,734 45,188 ------------------------ 90 Deduct : Depreciation at ------- x 13= 19.5 per cent 1,96,456 60 Deduct : Amount spent by the purchaser for Immediate repairs 30,000 ------------------------ 1,56,546 Land For 2129.07 sq. yds. at Rs. 150 per sq. yd. 3,19,360 For 380 sq. yds. (passage) at Rs. 100 per sq. yd. 34,000 ------------------------ Total 5,13,906 or say 5.14 lakhs ------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad No. 1, total area 2500 sq. yds. 6,25,000 ------------------------ 10,00,000 ------------------------ The locality in which this property stands is in a well commanding position and in fact later a five-star hotel is being constructed in the said site. (b) Property H. No. 8-2-413, in Road No. 5, Banjara Hills Date of deed of conveyance : August 1982 purchased by Shri Suresh Mehra others amount Rs. 5,00,000 Property with building and land Old building portion value as on the Rs. date of sale 2,00,000 Land 3,00,000 ------------------------ 5,00,000 ------------------------ The land rate works out to Rs. 76 per sq. yd. (c) Property H. No. 8-2-316, 8-2-316/3/3, Road No. 4, Banjara Hills Date of deed of conveyance 6-5-1984 purchased by Shri S.N. Bhalla ; amount Rs. It is a new building 3,60,000 Land value for 560 sq. yds. 60,000 ------------------------ 3,60,000 ------------------------ In this case the land rate works out to Rs. 100 per sq. yd. (d) Property H. No. 8-2-583/1, Road No. 8 Banjara Hills Date of deed of conveyance 7-3-1984 purchased by Ramesh Prasad others Building value 2,00,000 Land 1985 sq. yds. 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l value of the property comes to Rs. 6,15,861 or Rs 6,15,000 in round figures. The competent authority states about this sale that though the sale deed was registered in August 1982 an agreement was entered into in October 1981 itself and an advance of Rs. 4 lakhs was paid on the date of the agreement. He further states that when the valuation cell estimated the value of the building at Rs. 72,640 the vendees under the sale deed put its value at Rs. 2 lakhs and revised the land rate correspondingly. The admitted land rate works out to Rs. 135 per sq. yd. in October 1981 and the competent authority states that it is too low to be accepted. 10. The third case relied upon by the appellants and taken up for consideration by the competent authority was a sale instance of the property situated at Road No. 4, Banjara Hills bearing D. No. 8-2-316/3/12 for a consideration of Rs. 3,60,000. The sale deed was registered on 26-5-1984. The Valuation Officer estimated the land rate at Rs. 225 per sq. yd. Though the registration took place in May 1984 an amount of Rs. 1,80,000 was paid as earnest money on 9-9-1983 states the competent authority in his impugned orders. He did not further comment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation Officer was made by the Controller, RBI, Exchange Department, Bombay, under section 3(1) of the Foreign Exchange Regulation Act, 1947. The District Valuation Officer was requested to estimate the value of the property sold by Shri JPL Gwynn to Shri K.K. Bhatia. The stated consideration under the sale deed was Rs. 10.80 lakhs. However, the Valuation Officer valued the property at Rs. 11.81 lakhs which yielded a rate of Rs. 303 per sq. yd. The District Valuation Officer valued this property as on 25-2-1984. Shri K.K. Bhatia had submitted the valuation report by a registered valuer. In the said valuation report the registered valuer valued the building at Rs. 4,45,873 and the land at Rs, 200 per sq. yd. valued at Rs. 4,48,666. Thus the total value of the property came to Rs. 8.95 lakhs. It was the case of the appellants before us that Shri K. K. Bhatia paid a fancy price for the said property inasmuch as he had paid an extra amount of Rs. 3 lakhs as he was very much particular of purchasing the property of Shri JPL Gwynn. However, this contention was negatived by the competent authority and held that in the said case the land rate worked out to Rs. 303 per sq. yd. as on 25-2-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reason that when the agreement was sent for examination of Government Examiner of Questioned Documents he had opined in his reports dated 15-7-1985 and 19-8-1985 that the signature of Shri Naresh Kumar on the agreement is genuine and not forged. It was argued before the competent authority that when raid took place on 24-3-1984 in the house of Dr. Zahir Ahmed the income-tax officials in the raid were not able to lay their hands on this alleged agreement and, therefore, in all probability this agreement was subsequently concocted. This argument was brushed aside by the competent authority stating that after all it may not be possible for the department to lay their hands on each and every paper which may be ultimately proved to be relevant. The competent authority also duly took note of the fact that after renovation and remodelling the building Shri Naresh Kumar disclosed the market value of his one-third share in the property at Rs. 7.50 lakhs as on 26-12-1984 when he applied for a bank loan to Andhra Bank Ltd. Accordingly, the total value of the property would come to Rs. 22.50 lakhs. This is possible only when the cost of reconstruction/remodelling is added to the fair market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edominantly a residential area except one or two star hotels and commercial pockets. He further states that Road No. 1 is more important than other roads in Banjara Hills area except that it is main road with plenty of future commercial potentialities. In fact, Road No. 12 is considered much more posh residential locality and had gained prominence over the years because the earliest construction activity of that area started there. The competent authority further stated as follows : " Even after the State Government have revised the land rates as on 1-5-1985, except Road No. 1 where the rate has been increased to Rs. 600 from Rs. 150, and in Road No. 12 after the house of one Shri Prasad where the rate is increased to Rs. 160 from Rs. 40, the rate that is fixed for all the roads in Banjara Hills is only Rs. 225. This fact shows that the land value in Banjara Hills is generally the same, even after the revision, on all the roads." The competent authority took into consideration the District Valuation Officer's report while valuing Shri JPL Gwynn's property and arrived at the land value of Rs. 303 per sq. yd. or Rs. 360 per sq. metre as on 25-2-1984. The competent authority state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eror to pay and facilitating concealment of any income of the transferee. Ultimately be had held that he was satisfied that this was a fit case where the provisions of Chapter XX-A which dealt with acquisition of immovable properties are squarely attracted and, therefore, while exercising his powers as competent authority he ordered acquisition of this impugned property under section 269F(6). The competent authority passed his impugned order on 31-3-1986. 16. The present appeals are filed against the orders of acquisition passed by the competent authority. The contentions raised by these appellants are common and they may be stated as under : 1. The initiation of acquisition proceedings themselves was bad in law as there was no material whatsoever which could have prompted the competent authority to believe that the fair market value of the impugned property was higher than the apparent consideration and that the stated consideration was not a true consideration. 2. The Inspector's report dated June 1983 does not form a valid basis for initiating the acquisition proceedings, inasmuch as, it is not sufficient material in the eye of law to clothe the competent authority with ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the appeals should be allowed. 17. We have heard Shri C. S. Aggarwal and Shri N. Laxminarayan, the learned advocates appearing for the appellants and Shri C. Satyanarayana, the learned senior departmental representative. On behalf of the appellants two paper books, one containing 164 pages and the second containing 29 pages were filed. On behalf of the department, copy of the statement of Dr. Zahir Ahmed recorded on 24-3-1984, copy of the alleged agreement of sale dated 1-5-1985 entered into by Jay Bee Hotels and Theatres (P.) Ltd. in favour of Venkatarama Hotels Ltd., copy of the inspector's report dated June 1983, extract of the order sheet of the IAC (competent authority) dated 14-2-1984, extract of the Commissioner's note file dated 27-3-1986 and the order dated 19-6-1984 passed by the ITO against Dr. Zahir Ahmed under section 132(5) of the Act and the list of articles sold by Shri J.P.L. Gwynn for Rs. 61,000, were filed. 18. Now let us take up for consideration the question whether acquisition proceedings under section 269C were validly started. According to the assessees except the inspector's report of June 1983, there is no material on record on the basis of which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Properties Ltd. [1981] 131 ITR 380 (Cal.). 19. Shri C. Satyanarayana, the learned departmental representative strongly contended firstly that the inspector who had submitted his inquiry report in June 1983, is a well experienced officer and his estimation of immovable properties should be given due credit and cannot be brushed aside easily. Further, he contended that the inquiry report is supplemented by the valuer's report, the affidavit of Dr. Zahir Ahmed the agreement dated 6-4-1983 and the affidavit of Smt. Razia Begum dated 11-5-1984 which all go to prove that the initiation of proceedings under section 269C(1) is quite valid and cannot be questioned. He admits no doubt that all the material is subsequent to initiation of proceedings but still all the said material can be relied upon. Shri C. S. Aggarwal strongly opposed this contention and submitted that no fresh material which was not existing at the time of initiation of proceedings but which was later secured into the record can be looked into for purposes of determining whether initiation of proceedings in the first instance is justifiable on the part of the competent authority or not and in support of his contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts stated above. The reasons for the formation of the belief must have a rational and direct connection with the material coming to the notice of the competent authority, though the question of sufficiency or adequacy of the material is not open to judicial review." Even assuming for a while that the inspector who visited the place was competent to say about the estimated value of the impugned property still he did not say even one word about the intention of the parties or the motive of the parties in making untrue statements about the sale consideration in the deed of sale. However, from the order sheet of the competent authority he stated as follows : " I have reason to believe that there is an understatement of the sale consideration in the sale deed and that such an understatement has been prompted by the object of facilitating the reduction or evasion of tax liability of the vendor or facilitating the concealment of the income or wealth of the vendee for the purpose of their income-tax or wealth-tax assessments. It is also worth noting that the estimated fair market value of Rs. 5,89,800 exceeds the total apparent consideration of Rs. 4,50,000 by a margin of more than 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial can be looked into and relied upon the Calcutta High Court decision in East Coast Commercial Co. Ltd.'s case. In the said decision the following is held : ". . . Thus, if any additional reasons were disclosed by the ITO in his affidavit before the Court in support of his action in reopening the assessment on which the Court might be satisfied as to the validity of the proceedings, that would not, in our opinion, validate the proceedings, if the reasons recorded under clause (iii) of the first proviso to section 34(1) of the old Act or section 148(2) of the new Act were not sufficient for the initiation of the proceedings or for the grant of a sanction by the Board or the Commissioner, as the case might be. . . ." Therefore, in view of the above, we hold that the subsequent material gathered by the competent authority to justify the acquisition cannot be made use of for initiating the acquisition proceedings themselves. 23. Now let us come to the next contention whether the presumptions under section 269C(2) can be availed of at the time of initiation of proceedings. There is a catena of decisions stating that it is not permissible. The Gujarat High Court in Smt. Vimla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plier in order to arrive at the fair market value of the impugned property in that case. However, as can be seen from the inspector's report of June 1983, there is not even one sale instance cited and, therefore, the value arrived at by the inspector in his report should be stated to be based upon theoretical considerations, if we are permitted to use the language of the Delhi High Court decision. Therefore, that is another additional reason to hold that there is no objective material available with the competent authority before starting acquisition proceedings. 25. Now let us consider the merits of the case. Whether there are any valid ground on which the agreed consideration was Rs. 12 lakhs but not the stated consideration of Rs. 4.50 lakhs. In order to substantiate this contention the first piece of evidence relied upon by the department was the agreement dated 6-4-1983. This agreement was found to have been written on a writing pad. Copy of the agreement is provided at pages 44-45 of the paper book. Though it was stated to be dated 6-4-1983 it was said to have been filed before the competent authority on 2-9-1985---almost one year and seven months after the initiation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s version was that the excess of Rs. 7.50 lakhs went into construction of his house what prompted him to state a false figure of consideration in the sale deed. Had he constructed the house or purchased rural bonds with the same consideration, in either case he would have got exemption from income-tax. On 15-6-1983 Dr. Zahir Ahmed filed an affidavit before the Income-tax Department stating that the real consideration was only Rs. 4.50 lakhs for obtaining a clearance certificate under section 213A of the Act. The order passed against Dr. Zahir Ahmed under section 132(5) dated 19-6-1984 was filed before us. As can be seen from the said order that by 11-5-1984, i.e., the date of his affidavit 132 proceedings were pending before the ITO and the ITO himself found that for the purposes of getting clearance certificate under section 213A Dr. Zahir Ahmed filed another affidavit dated 15-6-1983 and he found a direct conflict between the affidavits dated 15-6-1983 and 11-5-1984. Shri Naresh Kumar, one of the appellants before us was also examined in the proceedings under section 132 before the ITO. He denied having paid any ' on money '. The ITO held as follows : " Denial of the vendee abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his affidavit that he was in a psychological shock, that he made a statement before the department while he was in a state of shock and he still did not recollect what he actually stated before the department appears to be a mere make believe statement and devoid of truth. Dr. Zahir Ahmed was examined as well as cross-examined and the particulars of his examination and cross-examinations were furnished at pages 55 to 66 of the paper book No. 1. From the answers given to the questions in the cross-examination made on behalf of the appellants herein he himself admitted that he was a Secretary to the Government of Nizam in Home Department before Police Action in 1948. Later he worked as a Development Commissioner in 1952 and he retired in 1957. Questioned, whether he held the post of High Commissioner in UK on behalf of the Government of India, he answered that he was deputed as a Special Officer on behalf of the Government of Hyderabad after Police Action and he was also an Ambassador of Government of India in Saudi Arabia. He also worked in United Nations Organisation. For a person who held such high posts for a very long time in his career we fail to understand how the presence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree months ago to Shri Naresh Kumar, that he was paid in cash only when he had sold furniture, etc., to the tune of Rs. 30,000 and the vendees of the furniture paid him in cash and that all the cash was kept in one place that he did not have any other cash except what he stated above and what the authorised officers found in his almirah. Therefore, it is seen that the cash of Rs. 90,000 found in his almirah, according to his earliest version, was traceable to the sale of gold ornaments, chandeliers and hundis as well as to the sale of furniture. In the cross-examination of Dr. Zahir Ahmed he stated that the price declared in Form No. 34A was Rs. 4.50 lakhs. A specific question was asked to Dr. Zahir Ahmed and the answer to the said question is as follows : Question : The sale deed was executed by you on 17-6-1983 and the raid was conducted on 24-3-1984 and during this 9 months' period why did you not approach the taxation authorities to make it clear that you have received a sum of Rs. 12 lakhs and not Rs. 4.5 lahks ? Why did you keep quiet for 9 months ? Answer : Shri Naresh Kumar has stated that he has accounted only Rs. 4.50 lakhs and requested me to wait for the due date fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Krishna Ayer AIR 1915 Mad. 868, K.S. Narasimhachari v. Indo Commercial Bank Ltd. AIR 1965 Mad. 147, followed in Lala Singh v. Basdeo Singh AIR 1923 All. 429 as well as the Calcutta High Court decisions in Annada v. Hargobinda 27 CWN 495, etc., the law is stated as under : " Evidence cannot be admitted to vary the provisions of the sale and as to the amount fixed as consideration, e.g. where the price as fixed in the deed is Rs. 35,000 evidence of an oral contract that the amount was really Rs. 36,000 cannot be given. Though want of consideration or failure of consideration or difference in the kind of consideration may be proved, evidence to vary the amount of consideration in a registered sale deed is inadmissible." In view of the above, we hold that the affidavit version of Dr. Zahir Ahmed dated 11-5-1984 is not a believable or permissible version inasmuch as there was no reason to hold that his earlier version on the date of raid, i.e., 24-3-1984 was vitiated for allegedly giving the statement in a confused state of mind. Further, we also hold that the later version of Dr. Zahir Ahmed was a self-serving statement and it is a statement which secures him more profit when belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for purchase from the GPA Shri Krishnaswamy, IAS. He agreed to purchase the house property for Rs. 10.80 lakhs in March 1984. He knew that he was paying excess price of Rs. 2-3 lakhs. But in view of his earlier unhappy experience in the purchase of house property in the Banjara Hills area and in view of urgency to purchase the property for residential purpose with a clear title and good location (being a corner plot and large area of 2,243 sq. yds.). He purchased the property though by paying higher price of Rs. 2.50 lakhs when compared to similar property. Shri Bhatia filed a valuation report by the valuer Shri T.K. Mohan Rao who valued the property at the instance of Shri Gwynn. The valuer estimated the property as on 25-2-1984 as follows : Rs. Value of the building 4,45,873 Value of land of 2,243.33 sq. yds. 4,48,666 ------------------------ 8,94,539 or 8,94,000 ------------------------ It is no doubt true that this property was valued under section 131(1) of the Foreign Exchange Regulation Act, 1947 and the Valuation Officer valued it at Rs. 11.81 lakhs. Therefore, it could easily be seen that there is excess price of 2-3 lakhs involved in this purchase fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Smt. Razia Begum's property was situated just adjacent to the property in question. Copy of the sale deed is dated 5-3-1984. It is 1,980 sq. yds. of land with a house bearing Municipal No. 8-2-583/2. The stated consideration of that sale was Rs. 4 lakhs. The said sale almost took place one year after the sale under consideration before us. It is no doubt true that the sale of Smt. Razia Begum's property also is the subject-matter of acquisition. According to Smt. Razia Begum and her affidavit dated 11-5-1984 the sale consideration was Rs. 11.75 lakhs but not Rs. 4 lakhs as stated in the sale deed. For the assessment year 1984-85 the ITO in the case of Shri Ramesh Prasad, one of the vendees from Smt. Razia Begum thoroughly gone into the question whether the stated consideration was true consideration and whether there was any necessity to add the difference between Rs. 11.5 lakhs and Rs. 4 lakhs as unexplained income of Shri Ramesh Prasad and others. In that connection the affidavit of Smt. Razia Begum, the statement given by her at the time of search of her premises and lot of other evidence were examined. As already stated the assessment order is provided from pages 93 to 157. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 269F(6) is received and put up for kind perusal. The property in question is transferred on 23-6-1983 for an apparent consideration of Rs. 4,50,000 and the Gazette publication under section 269D was made on 24-3-1984, i.e. within the statutory time limit. The case was referred to the valuation cell and the value was reported at Rs. 12,34,000 by the Valuation Officer vide his letter dated 20-11-1984. Objections have been called for from the transferees and they have all been met in the draft order. In the course of search and seizure, it came to light that the real consideration for transfer of the property in question was Rs. 12,00,000. The secret sale agreement, dated 6-4-1983 to this effect has also come to light. The IAC has also worked out the fair market value on the basis of comparable cases and arrived at the fair market value at Rs. 11,15,000. As the fair market value is far more than 15 per cent of the apparent consideration proceedings initiated by the IAC are in order. Approval may therefore be accorded under section 269F(6). For orders... Sd/ ITO Hqrs. I Approval accorded under section 269F(6) Sd/--P.R. Rao, Commissioner, 27-3-1986. In view of what we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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