9911796707
TMI Blog1997 (12) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... me of execution of the first agreement and further sum of Rs. 25,00,000 was paid leaving a balance of Rs. 4,86,847.50 and the possession of the said eight flats was also given to the bank. The said agreement is the subject-matter of the first Writ Petition No. C. O. 8664(W) of 1994. The agreement for purchasing the remaining eight flats on the third and fourth floor and car parking of the said building was entered into with respondent No. 7 on May 27, 1994, which provided for a total consideration of Rs. 39,10,130 out of which the petitioner paid a sum of Rs. 9,77,532.50 being 25 per cent. of the total consideration on the date of execution and the balance sum of Rs. 27,37,091 was payable in two instalments at the time of taking possession and Rs. 1,95,506.50 was payable at the time of conveyance. Possession of the said flats, however, was not given to the petitioner. The said agreement is the subject-matter of the second writ petition being C. O. No. 12142(W) of 1994. In terms of the requirement of Chapter XXC of the Income-tax Act, the petitioner and respondent No. 7 filed Form No. 37-I in respect of the agreement dated April 21, 1994, and officers of respondent No. 1 inspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as worked out at Rs. 697 per sq. ft. after allowing a discount of 5 per cent. for non-availability of certain amenities, but the records of the said Case No. 1028 were not disclosed. From inspection of the valuation report it appeared that the Case No. 1028 was in respect of purchase of 18 flats with 15 car parking spaces along with undivided proportionate share in the land, etc., by the Small Industries Development Bank of India (hereinafter referred to as SIDBI) in premises No. 340, Netaji Subhas Chandra Bose Road, Tollygunj, Calcutta. Respondent No. 7 was, however, not furnished with the copy of the agreement for sale in the said case; but from inspection, it, however, transpired that in determining the alleged fair market value respondent No. 1 had taken into consideration three sale instances of flats, two of which relating to sale of flats in premises No. 8/2A, Alipore Park Road, Calcutta, and the other relating to premises No. 34, Allenby Road, Calcutta, both of which were centrally located in posh areas and the fair market value of Rs. 734 per sq. ft. was arrived at by averaging the sale price in the said three sale transactions after making such adjustments. Respondent No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis on which the same was worked out by the respondent nor any materials upon which reliance has been placed by the respondents for coming to their aforesaid tentative finding was arrived at were disclosed. By letter dated September 7, 1994, the petitioner through his learned advocate asked for copies of the materials and documents including valuation report, agreement, etc., on the basis of which the said notice was issued. No reply, however, was received from the respondent and the petitioner before the respondent on September 15, 1994, that is the date fixed for hearing, participated in the proceeding without prejudice to its rights and contentions. At such hearing the prayer for furnishing of the aforesaid documents was reiterated. On September 16, 1994, the petitioner was furnished with copies of the valuation report in respect of the agreement dated April 21, 1994, and May 27, 1994, and a calculation of the effective apparent consideration in Case No. 1028 relating to purchase of 18 flats in premises No. 340, Netaji Subhas Chandra Bose Road, Tollygunj, Calcutta, by the Small Industries Development Bank of India (hereinafter referred to as "SIDBI") under an agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erference is called for under the facts and circumstances of this case; there is no violation of principles of natural justice in as much as all relevant materials and documents on the basis of which the finding was arrived at were disclosed to the petitioner. It has also been contended that in course of hearing no complaint as to the violation of natural justice was made; on the contrary, the vendor, being respondent No. 7, has accepted the order and he has not challenged the same before this court but has applied for payment of consideration money. Respondent No. 7 being the vendor has not addressed the court challenging the legality and propriety of the impugned order passed by respondent No. 1 on the contentions that respondent No. 7 is not prejudiced by the impugned order in the writ petition although it was asserted that the respective consideration as stipulated in the two agreements are the real and effective consideration payable by the petitioner-bank to respondent No. 7. Respondent No. 7, however, has submitted that it is entitled to interest on the consideration money and accordingly whether the property is purchased by the respondent or by the bank, the court shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are under challenge in the two writ petitions, it appears to this court there has been a violation of the principles of natural justice and denial of opportunity of hearing right from the initiation of the proceeding in question. It is true that in the case of both the agreements, the petitioners have been issued the show-cause notices calling upon them as to why such pre-emptive order shall not be passed. But it appears to this court that in each of the show-cause notices it has merely been stated that the market value of the subject property has been worked out to be higher than the apparent consideration, without disclosing, however, in the said show-cause notice what is the basis of such presumption or tentative finding and what are the materials on which such a tentative finding has been arrived at. No materials or document on the basis of which such a tentative finding was arrived at or the reason in support of such tentative finding also were furnished to the petitioners in each of the cases along with the show-cause notice. It has been held by the apex court that such an order of compulsory purchase and passed by the appropriate authority under the aforesaid prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asic requirement of giving reasonable opportunity of showing cause against the pre-emptive order for compulsory purchase. In this connection, the observations of the Bombay High Court in the aforesaid decision made in paragraph 42 (page 594 of 223 ITR) of the judgment are worth quoting hereunder : "When an obligation is cast upon an authority to give a notice to show cause before reaching any final conclusion against the person affected by its action, the purpose and the requirement of such a show-cause notice is two-fold (i) the notice must get an opportunity to meet the case against him and (ii) he must have an opportunity to set forth his own case to show why an order adverse to him should not be passed. In this regard, de Smith in his Judicial Review of Administrative Action (Fourth Edition) has observed at page 196 as follows : 'Natural justice generally requires that persons liable to be directly affected by proposed administrative acts, decisions or proceedings be given adequate notice of what is proposed so that they may be in a position--- (a) to make representations on their own behalf; or (b) to appear at a hearing or inquiry (if one is to be held); and (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made by the petitioner at the relevant stage in the course of the proceeding itself, the writ court should not entertain such complaint. It was also sought to be contended by the respondent in their affidavit that there cannot be any violation of the principles of natural justice as the comparable properties were inspected jointly by the petitioner and the appropriate authority. It has been further submitted by learned counsel appearing on behalf of the respondents that since no complaint has been made of violation of principles of natural justice by the vendor whose property is being purchased and he has accepted the order, the same will indicate there has been no violation of natural justice. I am unable to accept such contentions of Mr. Pal, learned counsel appearing for the respondent. The Supreme Court in the case of C. B. Gautam v. Union of India [1993] 199 ITR 530, in no uncertain terms made it clear that both the vendors as well as the vendee were entitled to reasonable opportunity to show cause against the proposed order for pre-emptive purchase. In such view of the matter, where the vendor has accepted the order and has not made any complaint, that can hardly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applicable under the facts and circumstances of this case. On a perusal of the impugned order passed in the first writ petition it appears to this court that the entire approach of respondent No. 1 in passing the impugned order of pre-emptive purchase is erroneous. It appears that respondent No. 1 has proceeded in the entire matter in utter disregard of the principles of law settled by the Supreme Court in the aforesaid case of C. B. Gautam v. Union of India [1993] 199 ITR 530. In the said case, the Supreme Court has laid down in no uncertain terms that the power of the appropriate authority under the provisions of the Income-tax Act have to be exercised for the purpose of preventing tax evasion and not for finding out what should be the fair market value of the property in question. In fact it will appear from the said judgment that the learned Attorney-General appearing for the Revenue admitted before the Supreme Court that such power will be exercised only for the aforesaid purpose. In fact a relevant circular of the Revenue was also referred to which itself pointed out that such power would be exercised only for the aforesaid purpose and that no citizen will be harassed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. It was held by the Gujarat High Court in the said case that as there was no whisper in the order about the satisfaction of the authority as to whether the difference between the apparent consideration and the fair market value was on account of any attempt or intention to evade tax, the impugned order clearly falls short of the requirement that the power under section 269UD is to be exercised only in a case where the appropriate authority has arrived at the finding that the difference between the apparent consideration and fair market value is with a view to evade tax. The same view was reiterated by the Gujarat High Court in the case of Laboni Developers v. Appropriate Authority [1996] 219 ITR 284. The same view was taken by the Allahabad High Court in the case of Ashok Kumar Sood v. Dy. CIT [1995] 216 ITR 193. Not only has no finding in respect thereof been arrived at by respondent No. 1 in the impugned order, a perusal of the orders would also indicate that the very decision making process in respect of the impugned order is erroneous in as much as material and evidence were considered by the appropriate authority not with the view to finding out whether there has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropriate authority proceeded mechanically for the purpose of finding out whether the fair market value is more than 15 per cent. or higher than the apparent consideration. The entire evidence and materials have been appraised by the respondent and the valuation has been sought to be arrived at some time applying tests with mathematical precision with the anxiety for finding out whether the fair market value is more than 15 per cent. or higher than the apparent consideration, completely overlooking that the mere fact that market value is found to be 15 per cent. or more higher than the apparent consideration will not automatically establish that there is an attempt at evasion of tax particularly when there can be reasonable difference of the assessment of fair market value from one person to another. I am unable to accept the contentions of Mr. Pal learned counsel appearing for the respondent that the aforesaid decision of the Gujarat High Court is based on a misconstruction of the ratio of the decision of the Supreme Court in the case of C. B. Gautam [1993] 199 ITR 530 and is contrary to the decision of this court in the case of Associated Cement Cos. Ltd. v. Appropriate Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en to the courts to examine also whether an order has been passed in consonance with section 269UD. It was also held in the said judgment (page 293 of the report) that while it is not for the writ court either to reappraise evidence adduced before the appropriate authority or to interfere with any finding out of fact unless the appropriate authority had taken into account irrelevant factors or ignored relevant factors, the court can interfere if the appropriate authority acted so unreasonabily that no authority properly instructed in the law would have reached such a conclusion. The same view has been taken by the Allahabad High Court in the aforesaid case of Ashok Kumar Sood v. Deputy CIT [1995] 216 ITR 193. In the light of the aforesaid principles of law, if the impugned orders passed in both the cases are examined, the contentions raised on behalf of the petitioner that the appropriate authority has come to a finding considering irrelevant materials and taken into consideration extraneous materials which make the order perverse, cannot be said to be unjustified. While determining the correct market value the appropriate authority worked out the price in SIDBI's case at Rs. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 (at page 73 of the first writ petition) of the said agreement and paragraphs 2 and 3 of section 6(B) of the third schedule of the said agreement (at page 83 of the first writ petition) very much provided for provision of generator at extra cost. It is not disputed that such agreement was filed along with Form No. 37-I. The refusal of the respondents, therefore, to take into consideration the cost of generator is perverse and clearly exposes the failure of the appropriate authority to take into consideration the various terms of the agreement while determining the apparent consideration. Non-consideration of the aforesaid provisions of the agreement clearly amounts to non-consideration of relevant materials on record because of which the impugned order is vitiated. In the first impugned order (para 4.4) the appropriate authority rejected the contentions of the petitioner as to the difference of price with the SIDBI's property, inter alia, on the ground that no free car parking had been provided to the petitioner, but accepted the same in paragraph 4 in the second order and allowed deduction of 2 per cent. The petitioner had no opportunity to raise such points, before the appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asion of tax. In fact, in the second order also, there is no finding of the appropriate authority in respect thereof at all like the first order for which also the second order is vitiated. Like the first order again relevant materials and evidence were ignored and irrelevant matters were taken into consideration which makes the second order also perverse. As it will appear from paragraph 3.16 to paragraph 3.18 of the impugned order passed in the second order the appropriate authority after recording the petitioner's contentions regarding difference in external finishing, provisions of water tank, sanitary fittings in bath-room power plug points, electronic bell and furniture and fittings, etc., did not make any deduction in respect thereof on the ground that the financial factor of the same was negligible, totally disregarding the report dated 27th September, 1994, submitted by the petitioner of a chartered engineer and class-A registered valuer. In fact, the said report is certainly a piece of evidence which the petitioner is entitled to produce before the appropriate authority for rebutting the presumption contained in the show-cause notice and, therefore, the appropriate au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been such increase at the rate of 1.5 per cent. per month, but merely on surmises and conjecture and the same is, therefore, wholly arbitrary. That apart the appropriate authority in presuming such price rise also did not take into consideration at all the fact that while the date of the SIDBI's agreement is March 31, 1994, that of the first agreement of the petitioner is April 21, 1994, and that of the second agreement is May 27, 1994, and the price were settled between the petitioner and respondent No. 7 some time in February/March, 1994, in view of the negotiations held between the parties and, therefore, it is not at all relevant that the second agreement was entered into on May 27, 1994, that is after the expiry of one month and 27 days after the agreement of the SIDBI. In terms of section 269UA(iii)(B) the apparent consideration is required to be determined as on the date of the agreement between the parties and consequentially such apparent consideration is to be determined with reference to the condition of the property as on the date of the agreement. The appropriate authority in the second order, however, did not take into consideration the fact that on the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of both the orders as pointed out hereinbefore, unfortunately reveals that right from the issue of the show-cause notice as also passing of the final order there does not appear to be any indication anywhere that the requisite enquiry was made by the appropriate authority with a view to find out whether there has been any attempt of tax evasion. In fact no finding in respect thereof has been arrived at by the appropriate authority at all in the impugned order. On the contrary it will appear from the impugned orders as also from the impugned show-cause notice that the appropriate authority right from the beginning proceeded on the footing that as soon as the difference in such price is worked out to be more than 15 per cent., the same automatically gives right to the appropriate authority to exercise power under section 269UD of the Act for such pre-emptive purchase and the entire approach of the appropriate authority while exercising such power appears to have been made with an anxiety to establish that such price differentiation is more than 15 per cent. totally overlooking that there may be bona fide difference of opinion in the matter of such valuation the benefit of which cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Courts as also with the reasoning therein. The question, therefore, of remitting the matter back to the appropriate authority to give the appropriate authority an opportunity to proceed in accordance with law afresh cannot arise as after the expiry of the period of three months, the appropriate authority has no further jurisdiction to exercise such power of pre-emptive purchase. The only question which is now left to be determined by this court is as to whether respondent No. 7 being the vendor is entitled to interest on the amount of apparent consideration. Mr. Bhaskar Gupta, learned counsel appearing on behalf of the respondent, has submitted, inter alia, that since in respect of the first agreement the bank had made payment of Rs. 34,96,282,50 to respondent No. 7 leaving a balance of Rs. 4,88,847.50 outstanding and in respect of the second agreement the bank had made payment of Rs. 9,77,532.50 as part payment leaving a balance of Rs. 29,32,597.50 respondent No. 7 is entitled to interest on the aforesaid balance amount at the rate of 18 per cent. per annum, specially when it has not offered any resistance against such attempt on the appropriate authority for pre- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement between the parties did not provide for the same. It has been further submitted that it is also not correct to contend that respondent No. 7 has offered no resistance to such pre-emptive purchase inasmuch as in respect of the proceedings initiated in respect of both the agreements, respondent No.7 also very much contested the same by filing objections although the writ petition was not filed challenging the order. It has also been contended that in any event respondent No. 7 is not entitled to such interest inasmuch as in the course of writ proceedings he applied for a direction for payment of money by both the petitioner and the appropriate authority, but failed to get such order either before the trial court or even before the appeal court which was moved against refusal by the trial court to give such order and the appeal court actually directed handing over of possession of the flats in the second and third floors under the second agreement back to respondent No. 7 which was done. More or less the same submission has been made on behalf of the appropriate authority in opposing such prayer for interest. After considering the submission of the respective parties, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances of that particular case. In the said case, the Supreme Court while upholding the validity of Chapter XXC of the Act reading therein the requirement of natural justice held that since no opportunity to show-cause was given and the original time frame prescribed in Chapter XXC had already expired, the statement in Form No. 37-I should be treated as submitted on the date of judgment and the appropriate authority was directed to decide the matter afresh after compliance with principles of natural justice; under such circumstances since the Supreme Court was affording another opportunity to the appropriate authority a provision for payment of interest at the rate of 9 per cent. was made to the vendor who had retained possession of the property. In the case of Rajalakshmi Narayanan v. Margaret Kathleen Gandhi [1993] 201 ITR 681 also the Supreme Court directed payment of interest under the peculiar facts and circumstances of that particular case. In that case, the purchaser was put into possession by the owner on the basis that she would sell the property and with the price will purchase another property for which she entered into an agreement. The fact that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate authority another opportunity to decide the matter after compliance with the principles of natural justice and accordingly directed payment of interest. In my view, a vendor in the event of challenge before the court of law of the order of pre-emptive purchase passed by the appropriate authority at the disposal of such a proceeding cannot ask for interest as a matter of right and as pointed out by the Supreme Court in the case of Rajalakshmi Narayanan v. Margaret Kathleen Gandhi [1993] 201 ITR 681, such a question is to be decided under the facts and circumstances of each particular case considering the question of equity. In my view, it cannot also be overlooked while considering such question of payment of interest that an order by the appropriate authority under section 269UD of the Income-tax Act for pre-emptive purchase, is to be made for the purpose of preventing evasion of tax by the concerned parties. Under such circumstances, unless it is ultimately held by the court that the vendor is in no way responsible for delay in the completion of sale and he does not even object to such order of pre-emptive purchase but submits to the same, but the purchaser is so responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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