Shrikrishan Jindal and Others vs S.K. Laul and Others

J.P. Devadhar, J.—This petition is filed to challenge the order dated February 25, 1993, passed by the appropriate authority u/s 269UD(1) of the Income Tax Act, 1961 ("the Act" for short).

The facts relevant for the present petition are that by an agreement dated May 30, 1987, the petitioners agreed to purchase from respondent No. 4 Flat No. 111, situated at Warden Road, Mumbai - 400 026 for a consideration of Rs. 40 lakhs. On an application made in Form No. 37-I, the appropriate authority under the Income Tax Act passed a purchase order on August 20, 1987, u/s 269UD(1) of the Act without giving an opportunity of hearing to the petitioners.

Aggrieved by the said order, the petitioners filed Writ Petition No. 2891 of 1987 in this court. By an order dated December 17, 1992, the said petition was allowed by setting aside the order dated August 20,1987, and the appropriate authority was directed to decide the issue afresh in the light of the judgment of the apex court in the case of C.B. Gautam Vs. Union of India and Others, .

Thereafter, by a show-cause notice dated December 30, 1992, the petitioners were called upon to show cause as to why purchase order should not be -made u/s 269UD(1) of the Act. In the said show-cause notice, the appropriate authority referred to five sale instances noticed at Warden Road, between January, 1987, and April, 1987.

By its reply dated January 21, 1993, the petitioners objected to the flat being purchased u/s 269UD(1) of the Act on various grounds set out therein. In the said reply, it was, inter alia, contended that there was no undervaluation and in support of that contention the petitioners relied upon sale of Flat No. 5, Cote D. Azur Building, Warden Road, Bombay admeasuring 2,077 sq. ft. for Rs. 38,00,000 wherein N.O.C. has been granted on September 1, 1987. By the said reply the petitioners called upon the appropriate authority to furnish materials in respect of the sale instances referred to in the show-cause notice.

However, without furnishing the documents relating to the sale instances referred to in the show-cause notice, the impugned purchase order was passed on February 25, 1993. Challenging the said order the present petition is filed. On July 7,1993, the writ petition was admitted and the interim order was granted thereby restraining the respondents from taking any further steps in implementation of the impugned order.

Mr. Mistry, learned Counsel appearing on behalf of the petitioners submitted that the impugned order is liable to be quashed and set aside because, firstly, no fair market value of the flat has been determined so as to arrive at a conclusion that in the present case the undervaluation was to the extent of 15 per cent. Secondly, the advantages/disadvantages of the flat in question vis-a-vis the sale instances referred to in the impugned order have not been considered. Thirdly, neither a copy nor inspection of the materials relating to sale instances has been provided even though specifically asked and, fourthly, the sale instance pointed out by the petitioners have not been considered in the impugned order. In support of the above contentions Mr. Mistry relied upon a decision of this court in the case of Vimal Agarwal Vs. Appropriate Authority and others, .

Mr. Ashokan, learned Counsel appearing on behalf of the Revenue, submitted that prior to the decision of this court in the case of Vimal Agarwal Vs. Appropriate Authority and others, , it was not the practice adopted by the appropriate authority to determine the fair market value at any point of time. He submitted that the grievance of the petitioners that particulars of the sale instances relied upon by the Revenue have not been given to the petitioners has no merit, because it was open to the petitioners to visit the office of the appropriate authority and take inspection of the documents. In the light of the sale instances referred to in the impugned order, Mr. Ashokan submitted that the petition is liable to be dismissed.

On consideration of the rival submissions, we are clearly of the opinion that the impugned order suffers from serious infirmities and hence cannot be sustained. As held by the apex court in the case of C.B. Gautam Vs. Union of India and Others, the provisions of Chapter XX-C can be resorted to only when there is significant undervaluation in the agreement of sale with a view to evade tax. As held by this court in the case of Vimal Agarwal Vs. Appropriate Authority and others, 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. In the present case, admittedly the fair market value of the flat in question has not been determined as a result whereof it could not be said that there is undervaluation to the extent of 15 per cent.

Apart from the above, in respect of the sale instances referred to in the show-cause notice, the petitioners had specifically sought inspection of the documents but the same was not given. Failure to furnish relevant particulars of the sale instances relied upon by the Revenue constitutes breach of the principles of natural justice. Moreover, the impugned order has been passed without considering the merits or demerits of the sale instances pointed out by the petitioners.

In these circumstances, we have no option but to quash and set aside the impugned order passed u/s 269UD(1) of the Act.

Accordingly, rule is made absolute with no order as to costs.