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TMI Blog2010 (7) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... no material much less tangible material and the competent authority was going by general perception - When the very basis of fixing the said market value is erroneous and without any foundation, raising such an argument that the value fixed is more than 25 per cent. would be clearly preposterous - Appeal is dismissed - 3 of 1988 - - - Dated:- 20-7-2010 - SIKRI A. K., REVA KHETRAPAL MS., JJ. JUDGMENT A. K. Sikri J.- 1. Respondent No. 1 herein had purchased a property bearing No. L-7, Green Park Extension, New Delhi, from M/s. Shebang Private Limited for a consideration of Rs. 16 lakhs, vide sale deed registered on June 19, 1985. The land area under this property is 187 sq. yards, which is equivalent to 156 sq. mtrs. The total constructed area on various floors, at the time of purchase, was 445 sq. mtrs., which included basement, ground floor, mezzanine floor, first floor and the barsati floor. The property was open on three sides. 2. The respondent gave intimation about the purchase of this property to the income-tax authorities in Form No. 37G. After receiving this information, the Income-tax Officer sent a preliminary notice dated July 22, 1985, to the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct inasmuch as there was no basis for determining the fair market value of the property and the "reasons to believe" as recorded by the competent authority were without any basis and/or material on record. This objection of the respondent has prevailed with the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal, while accepting certain other grounds also, set aside the order passed by the competent authority, vide its order dated December 21, 1987. It is this judgment of the Tribunal which is in appeal before us. 3. Since there is a challenge to the very initiation of the proceedings on the ground that the approach of the competent authority in its reasons to believe was manifestly incorrect and opposed to law, it would be apposite to refer to and deal with this aspect, in the first instance. 4. Before coming to the reasons recorded by the competent authority, we would like to take note of certain relevant provisions of the Income-tax Act. Chapter XX-A contains the provisions under which "acquisition of immovable properties in certain cases of transfer to counteract evasion of tax". To put in a nut-shell, if the competent authority, which is appointed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket value of the property exceeds the apparent consideration therefor by more than fifteen per cent. of such apparent consideration. (2) In any proceedings under this Chapter in respect of any immovable property,- (a) where the fair market value of such property exceeds the apparent consideration therefor by more than twenty-five per cent. of such apparent consideration, it shall be conclusive proof that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer ; (b) where the property has been transferred for an apparent consideration which is less than its fair market value, it shall be presumed, unless the contrary is proved, that the consideration for such transfer as agreed to between the parties has not been truly stated in the instrument of transfer with such object as is referred to in clause (a) or clause (b) of sub-section (1)." 6. It is clear from the bare reading of these provisions that before initiating the action, the competent authority has to record its satisfaction, namely, "reasons to believe" about the fair market value of such property. It is subsection (2) of section 269C whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready, that the first stage is preparatory to the initiation of a proceeding which is yet to be initiated. Really, in the first stage, the competent authority discharges some administrative functions in the matter of formation of belief on the subjective satisfaction on the basis of certain materials. When, how-ever, a proceeding is initiated, he proceeds judicially. We may consider the question from another point of view. Under sub-section (1) of section 269C, the competent authority must have reason to believe certain facts as mentioned in sub-section (1). The formation of belief must be on the basis of some materials the sufficiency of which cannot be questioned. The competent authority has not to come to any firm finding about any of the matters under sub-section (1) on evidence. He has only to form his belief on materials that may be available to him for initiating proceedings for acquisition. At that stage, he is alone and has no opportunity to hear the transferor or the transferee or to receive any evidence. It is only after the service of notice, the transferor or the transferee files objections, valuation of the property is made and evidence is adduced. The competent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 49.50 sq. mtrs. of barsati floor. The construction has been completed only in 1985. Hence, no depreciation is being allowed. In the report of the approved valuer also, no depreciation has been allowed. The property is residential-cum-commercial in nature and for valuing land 156.33 sq. mts. rate of Rs. 9,000 per sq. mtr. is being adopted. At this rate the value of the land itself comes to Rs. 14,06,970. The residential property bearing F-66A, Green Park was sold in September, 1985, at the rate of Rs. 4,600 per sq. mtr. It is well known that the rate of land of semi-commercial property almost twice as much as that of residential properties. Considering the time gap with reference to the sale instance mentioned above the rate of Rs. 9,000 per sq. mtr. is quite reasonable. The value of basement is taken at Rs. 1,880 per sq. mtr. the value of the ground floor is taken at Rs. 1,720 per sq. mtr. the value of the ground floor is taken at Rs.1,080 per sq. mtr. and the value of the first floor and the barsati floor is taken at Rs. 1,500 per mtr. At these rates the value of the basement floor works out to Rs. 2,49,400 value of the ground floor works out to Rs. 28,758 and the value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied upon. The Assessing Officer has gone by general impression which is clear from the fact that he has used the expression "it is well known that the rates of land of semi-commercial property are almost twice as much as that of residential properties". 10. In Asoke Kumar Sen v. ITO [1981] 132 ITR 707, this court had an occasion to interpret the expression "if the Income-tax Officer has reason to believe" appearing in section 147(a) of the Act. The court was of the opinion that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act under that section on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The powers under that section were treated as not plenary in nature but subject to judicial review. The court set aside the order when it found that the Income-tax Officer had merely stated his belief but had not set out any material on the basis of which he formed such belief. In the present case, the nature of exercise carried out by the competent authority is identical. 11. We have already delineated above the scheme contained in Chapter XX-A dealing with the acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the plot, such initiation should not depend on a theoretical calculation. The market value is not determined by theoretical considerations. What has to be seen is the value in the market and not the value calculated in an abstract manner by applying a multiplier to some unknown sale in July, 1981. Neither the nature of the sale nor the nature of the property is mentioned in either of the valuation reports. It is also not clear as to why any multiplier at all has been applied to the said valuation of Rs. 2,500 per sq. yard. The basis of the calculation is, therefore, not apparent at all." 13. Even the Supreme Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 has approved the aforesaid approach. In fact, the apex court went one step further by observing that the material on the basis of which the competent authority has to form an opinion should be "tangible material" on the basis of which the competent authority has "reason to believe" that the sale consideration is bogus. The Supreme Court was also of the view that the expression "reason to believe" in section 147 of the Act (the provision which relates to reopening of the assessment on the same ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be the basis of arriving at the fair market value. As mentioned above, when the task or the assignment given to the competent authority is to arrive at the fair market value as defined in clause (d) of section 269A of the Act, it becomes his bounden duty to arrive at that value on the basis of some relevant and tangible material and not on the basis of the perceptions. 15. Ms. Rashmi Chopra submitted that the reason for making the observation that the value of residential-cum-commercial property is almost twice as much as that of residential properties is based on circle rates. She was not able to point out as to whether these circle rates were published at the time when the impugned reasons to believe were recorded. In any case, she was not able to show the rates of "residential-cum-commercial properties". What is shown is that the rates of commercial (fully commercial) properties would be twice than that of residential properties. Moreover, a distinctive feature in the present case, which needs to be noted, is that the property in question falls in residential area. It is a shop plot where the ground floor is sanctioned for the purpose of shop and the first floor is app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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