Bombay H.C : The respondent should first determine the ‘fair market value’ of the property in question in the light of the attending circumstances and without determining the fair market value it is not only difficult but impossible to state that the apparent consideration is lower than the market value by 15 per cent or more

High Court Of Bombay : Nagpur Bench

CIGEO Construction Co. (P) Ltd. vs. Appropriate Authority & Ors.

Section 269UD

Anoop V. Mohta & C.L. Pangarkar, JJ.

Writ Petn. No. 558 of 1995

29th August, 2008

Counsel Appeared :

M.G. Bhangde, for the Petitioner : A.S. Jaiswal, for the Respondents

JUDGMENT

Anoop v. Mohta, J. :

The petitioner has challenged an order dt. 24th Feb., 1995 passed under s. 269UD(1) of the IT Act (for short”Act”) and an order dt. 24th Feb., 1995 passed under s. 269UE of the Act by respondent No. 1, thereby ordered for pre- emptive purchase under Chapter XX-C of the Act and further to deliver possession of property plot No. 19, sheet No. 20/A, ward No. 4, Abhyankar Road, Dhantoli, Nagpur-12.

2. On 24th Nov., 1994 an agreement of development and sale of plot admeasuring 9708 sq. ft. entered between petitioner and respondent No. 3 for consideration of Rs. 40,00,000. Form No. 37-I was submitted by the petitioner and respondent No. 3 as per r. 48L of the Act (sic-Rules). On 10th Feb., 1995, notice under s. 269UD(1A) of the Act was issued to the petitioner and respondent No. 3, whereby the petitioner and respondent No. 3 were asked to remain present for hearing on 21st Feb., 1995. Notice dt. 10th Feb., 1995 was received by the petitioner at Nagpur. The petitioner submitted written submission in response to the above notice to the Appropriate Authority, clearly pointing out non-application of mind in issuing notice under s. 269UD(1A). The petitioner submitted additional written submissions. The petitioner was heard by the Appropriate Authority at Ahmedabad in absence of respondent No. 3, the transferor. On 24th Feb., 1995 the Appropriate Authority passed order under s. 269UD(1) and s. 269UE(2) for pre-emptive purchase. The instant writ petition is filed by the transferee petitioner before this Court. This Court granted stay to the order impugned i.e. order under s. 269UD(1) and s. 269UE(2) passed on 24th Feb., 1995.

3. After hearing both the parties, we have also found that a fair market value was not determined by respondent authority as required under the law. There is no mention about the fair market value of the property. There is also nothing recorded that apparent consideration is less than the fair market value by 15 per cent. There is force in the submission that unless fair market value of the PUC (property under consideration) is determined, there cannot be any declaration with regard to the aspect of undervaluation. In Mehta Mody & Co. vs. Appropriate Authority & Ors. (2008) 220 CTR (Bom) 353 : 2008 (4) Mh.L.J. 642, it is observed in para 9 as under : “9. Having regard to the aforesaid facts and circumstances of the case and after considering all the above submissions it is clear that in this matter the respondent No. 1 had not fixed any ‘fair market value’ at all. It is vital to note as has been held by this Court in case of Vimal Agarwal vs. Appropriate Authority & Ors. (1994) 121 CTR (Bom) 99 : (1994) 210 ITR 16 (Bom), that it is very essential that the respondent should first determine the ‘fair market value’ of the property in question in the light of the attending circumstances and without determining the fair market value it is not only difficult but impossible to state that the apparent consideration is lower than the market value by 15 per cent or more.”

4. It is necessary for the Department to give reasons to the defence and submissions raised by the petitioner before rejecting their case. Mere observation that prices of properties in Nagpur are rising rapidly is not sufficient. There is no percentage rise in rates stated and demonstrated on the record to arrive at a conclusion that the apparent consideration is 15 per cent less than the fair market value.

5. Even prior to this, in Barium Chemicals Ltd. & Anr. vs. Company Law Board & Ors. AIR 1967 SC 195 , the apex Court elaborated the abovesaid position in the following words : “The combined reading of s. 269UD(1A) and (1B) of the Act leaves no room of doubt that it is a question of objectively decision-making process by taking into consideration all relevant materials which have come before hearing authority and considering the rival aspects of the matter. Moreover, requirement of law is to specify the grounds on which the order of pre-emptive purchase is made. That obligation does not stop by merely rejecting the submissions made before it. Rejection of submissions made by the vendors or transferee or person interested in the property, does not lead to consequence that ground for making pre-emptive purchase exists. Sine qua non is that the reasons must exist on the material placed before it for supporting the action taken for preemptive purchase under s. 269UD of the Act. The order clearly falls short of this requirement.”

6. It is clear that the Appropriate Authority must come to a definite conclusion that undervaluation is by more than 15 per cent of the fair market value. [Sarwarben Temas Khambata & Ors. vs. Appropriate Authority (1995) 129 CTR (Guj) 355 : (1995) 216 ITR 850 (Guj); Surya Kiran Association vs. Appropriate Authority (1995) 129 CTR (Guj) 323 : (1996) 218 ITR 29 (Guj)]. These two judgments are based upon a Division Bench judgment of the Bombay High Court in Vimal Agarwal vs. Appropriate Authority & Ors. (1994) 121 CTR (Bom) 99 : (1994) 210 ITR 16 (Bom), followed in Mehta Mody & Co. (supra) also. In Vimal Agarwal (supra), the observations are as under :

“15. Moreover, in order to draw inference of undervaluation, it is necessary to determine first the fair market value of the property in question in the light of all the attending circumstances. Without doing so, it is not only difficult but impossible to say that the apparent consideration is lower than the fair market value by 15 per cent or more. The determination of the fair market value must be based on evidence on record. It cannot be a guesswork …..”

We have also noted that there is nothing mentioned about the intention to evade taxes with regard to undervaluation. The reasons and satisfaction of the Department are necessary to arrive at such a conclusion to pre- emptive purchase of the property [Mrs. Amarjit Thapar & Ors. vs. S.K. Laul, Chief Engineer & Ors. (2007) 212 CTR (Bom) 185 : (2008) 298 ITR 336 (Bom); Kishor Tulsidas Choksi & Ors. vs. Appropriate Authority & Anr. (2008) 215 CTR (Bom) 414 : (2008) 298 ITR 228 (Bom)]. The respondent authority failed to discharge its burden to demonstrate any such intention. There is even no material/proof of the same on the record to justify their action without recording such an intention to evade taxes. Even on merits, we have noted that the respondent authority failed to consider the detailed chart and comparative rates given by the petitioner to justify their case. There are no reasons either in show-cause notice and/or in the impugned orders while rejecting the details given by the petitioner. The petitioner, in their reply/written submission dt. 19th Feb., 1995, elaborated even on merits, which was not properly considered by the Authority before passing the impugned order.

In view of this, we are of the view that the impugned orders passed by the Appropriate Authority are illegal and invalid as the same were passed without determining a fair market value and proper material on record and without following basics as required and as explained above in various judgments before passing such orders of pre-emptive purchase.

In the result, the writ petition is allowed. The impugned orders of the Appropriate Authority are quashed and set aside. Rule is made absolute accordingly. No orders as to costs.

[Citation : 322 ITR 474]

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