Mehta Mody and Co. vs Appropriate Authority and Others

S. Radhakrishnan, J.—By this petition, the petitioners are challenging an order dated February 25, 1993, passed by the Appropriate Authority being respondent No. 1 herein u/s 269UD(1) of the Income Tax Act, 1961, hereinafter referred to as "the Act".

The brief facts are that the petitioners had entered into an agreement on April 11, 1989, to purchase the flat, viz., Flat No. 302, 3rd floor, at the Anjali Co-operative Housing Society Limited, situated at French Bridge, Opera House, Mumbai, for a total consideration of Rs. 17,85,000 and the petitioners had also made payment of Rs. 10 lakhs on the same day. On April 28, 1989, the balance amount was paid by the petitioners and the possession of the said flat was taken from the third respondent on the very same date. Thereafter, the petitioners had filed a statement in Form No. 37-1 under Chapter XX-C of the Act on May 9, 1989. The Appropriate Authority had called upon the petitioners to file certain particulars and the Department''s approved valuer had inspected the premises and thereafter the petitioners were asked to file certain particulars which were furnished by the petitioners.

It appears that again the re-inspection of the said flat was conducted by the officer of the first respondent on July 18, 1989. On July 20, 1989, i.e., on the very next day the petitioners'' representative informed the respondents that in the very same building a flat was sold at the rate of Rs. 2,750 per sq. ft. and even certain other comparable instances in the neighbouring building were also brought to the notice of the first respondent. It appears that without affording any opportunity of hearing, an order was passed by the first respondent on July 26, 1989, u/s 269UD(1) of the Act. The petitioners had challenged the same by filing Writ Petition No. 223 of 1989, and this court by an order dated December 16, 1992, had set aside the said order and directed the Authority to issue an appropriate notice before passing an order u/s 269UD(1) of the Act, relying upon the hon''ble Supreme Court''s decision in C.B. Gautam Vs. Union of India and Others, .

Pursuant to the said order, on January 1, 1993, respondent No. 1 issued a show-cause notice to the petitioners. It is pertinent to note that the respondents in the aforesaid show-cause notice, annexed as "reasons" the very same order dated July 26, 1989, which was set aside by this court. Thereafter, the petitioners had made various representations and had also requested the authority to furnish a copy of the valuer''s report dated May 22, 1989, which was relied upon by the respondents as referred in the notice. However, the same was never furnished by respondent No. 1 to the petitioners. Again, on February 22, 1993, the officer of respondent No. 1 informed the petitioners that they would conduct inspection of the said premises on February 23, 1993 between 4 p.m. to 6.30 pm., however till 7.15 p.m. nobody turned up for inspecting the flat, which fact was recorded by the petitioners by their letter dated February 24, 1993. On the very next day on February 25, 1993, the impugned order came to be passed by respondent No. 1 u/s 269UD(1) of the Act and the same was received by the petitioners on February 27, 1993, and thereafter the present petition has been filed challenging the same.

Mrs. Patel the learned Counsel for the petitioners has, firstly, submitted that the impugned order passed u/s 269UD(1) is in gross violation of the principles of natural justice inasmuch as respondent No. 1 had not furnished the copy of the valuation report dated May 22, 1989, which has been strongly relied upon by respondent No. 1, in spite of the several requests made in that behalf. Mrs. Patel, the learned Counsel for the petitioners has, secondly, contended that no fair opportunity of being heard was afforded to the petitioners before passing an order u/s 269UD(1) of the Act, and in support of this contention she has referred to and relied upon the judgment in the case of C.B. Gautam Vs. Union of India and Others, .

Mrs. Patel, the learned Counsel for the petitioners has also, thirdly, contended that ex facie the impugned order is bad in law inasmuch as the same has been passed without determining the "fair market value" of the property. The learned Counsel for the petitioners, fourthly, also pointed out that respondent No. 1 has totally ignored various instances and factual circumstances pointed out by the petitioners in support of the valuation adopted by the petitioners to be fair market value. In the light of the above, Mrs. Patel, the learned Counsel for the petitioners, has pointed out that respondent No. 1 has to first determine the market value of the flat as envisaged u/s 269UD of the Act, without which the provisions of Chapter XX-C cannot be invoked. Over and above, the learned Counsel Mrs. Patel has also emphasised that the respondent has not made out any case that the petitioners had attempted any tax evasion and that the onus of establishing that the undervaluation is with a view to evade tax was squarely on the respondents. In that context, the learned Counsel for the petitioners has referred to and relied upon two judgments of the Division Bench of this court, viz., the judgment dated October 29, 2007, passed in Writ Petition No. 527 of 1993 in the case of Manubhai Sakarchand Shah and Another Vs. S.K. Lal and Others, and the other judgment dated October 24, 2007 passed in Writ Petition No. 588 of 1993 in the case of Hiten Rashmikant Mehta and Swati Hiten Mehta Vs. Union of India (UOI) and Others, .

Referring to and relying upon the aforesaid decisions, the learned Counsel for the petitioners has submitted that there is gross violation of the principles of natural justice by respondent No. 1 by not furnishing the copy of the valuation report relied upon by respondent No. 1 dated May 22, 1989, in spite of the several requests made by the petitioners. Mrs. Patel contended that no fair hearing was given to the petitioner. On that behalf, Mrs. Patel has referred to and relied upon the judgment in the case of C.B. Gautam Vs. Union of India and Others, and the above mentioned judgment of our court in Manubhai Sakarchand Shah and Another Vs. S.K. Lal and Others, . Mrs. Patel, the learned Counsel for the petitioners, has brought to our notice that the action of respondents Nos. 1 and 2 is arbitrary and illegal since respondent 1 in respect of other premises in the neighbouring area as referred to in paragraph 61 of the petition as well as premises in the very same building referred to in pages 77 and 85 of the petition, the authorities had accepted the lower rate than the purchase price paid by the petitioners, though they were all during the same period. Mrs. Patel, the learned Counsel for the petitioners has also pointed out that the petitioners had brought to the notice of respondent No. 1 by their letters dated February 2, 1993 and February 8, 1993, various comparable instances as well as the petitioner''s approved valuer''s report, however, the same were not considered by respondent No. 1 properly, and merely brushed aside the same stating that they were not comparable. Under the aforesaid facts and circumstances, Mrs. Patel, the learned Counsel for the petitioners has submitted that the order passed by respondent No. 1 is unsustainable in law, hence should be quashed and set aside.

Mr. Sahadevan, the learned Counsel appearing on behalf of respondents Nos. 1 and 2, has sought to justify the impugned order. However, he was unable to controvert the submission made on behalf of the petitioners that the valuation report dated May 25, 1989 (on which the respondent-Department had relied upon) was never furnished to the petitioners. Mr. Sahadevan also could not dispute that no fair market value was fixed by respondent No. 1 in the above case.

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 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 the case of Vimal Agarwal Vs. Appropriate Authority and others, , 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.

A perusal of the impugned order, in the present case, clearly shows that the "fair market value" of the flat in question had not been determined at all, and, therefore, the purchase of the flat in question on the footing that there is undervaluation to the extent of 15 per cent, of the market value cannot be sustained at all, as the same is without any basis. Respondent No. 1 had relied on the valuation report prepared by their valuer. Respondent No. 1 ought to have furnished the copy of the valuation report dated May 22, 1989, to the petitioners which was also admittedly not done in this case. Hence, the impugned order is clearly violative of the principles of natural justice.

Similarly, in cases of other flats in the same building and the neighbouring area, the valuation has been adopted, which is in fact slightly higher than the apparent consideration paid in the case of flat purchased by the petitioners. Even respondent No. 1 has not given any credence to the valuation report submitted by the petitioners as well as the comparable sale instances referred to by the petitioners, without justifiable reasons. Non-consideration of the aforesaid relevant factors also vitiates the impugned order. Even the purported show-cause notice dated January 1, 1993, which relies on the earlier order dated July 26, 1989, which was already set aside by this court, shows a "pre-determined mind" to purchase.

Under the aforesaid facts and circumstances of the case, rule is made absolute in terms of prayer Clauses (a) and (b) with costs.