Virendra vs Appropriate Authority and Others

Anoop v. Mohta, J.—The petitioner has challenged the impugned order u/s 269UD(1) of the Income Tax Act, 1961 (for short "IT Act") and all actions arising out of the same. Respondent No. 2 owns and possesses a Malik Makbuja plot of land bearing Plot No. 18, City Survey No. 252/2, Mouza Lendra, i.e., 10,000 sq. ft./929.03 sq. mtrs. together with the dwelling units in dilapidated condition in Shradhhanand Peth, Bajaj Nagar, Nagpur, Tehsil and District Nagpur. The said property came to be transferred in their favour by the will executed by one Dr. Balwant Govind Kane with full discretion to lease out the said property on rent or to sell it.

On 3-1-1991, respondent No. 2 society published advertisement in newspapers inviting bids for purchase of the suit property. On 16-1-1991 in pursuance of the above advertisement, nine bids were received. The bid of the petitioner for purchase of suit property for Rs. 16,00,000 was the highest. On 19-2-1991, by a resolution respondent No. 2 accepted the bid of the petitioner as it was the highest. On 4-5-1991, respondent No. 2 in writing communicated to the petitioner that his offer of Rs. 16,00,000 has been accepted by the managing committee of respondent No. 2 society. On 4-5-1991, the petitioner deposited Rs. 10,000 as earnest money. On 22-5- 1991, the petitioner deposited Rs. 3,90,000 by demand draft. As the above agreement was subject to permission of Charity ComMr. , Bombay, respondent No. 2 society applied to the Charity ComMr. u/s 36 of the Bombay Public Trusts Act (for short "BPT Act"), for permission to alienate the suit property. On 14-10-1992 the petitioner was called to remain present in the office of Charity ComMr. for discussion. On 28-10-1992 the petitioner appeared before the Charity ComMr. , through his counsel. The petitioner raised his offer to Rs. 18,00,000. On 5-8-1992 the Charity ComMr. passed an order granting necessary sanction/permission to sell the suit property to the petitioner for a consideration of Rs. 18,00,000. On 24/25-12-1993, an agreement to sell was executed in favour of the petitioner by respondent No. 2 society. On 29-12-1993 the petitioner and respondent No. 2 submitted Form 37-1 to the appellate (sic- Appropriate) authority. On 25-2-1994 a show-cause notice was issued to petitioner and respondent No. 2 u/s 269UD(1A) of the Income Tax Act. The petitioner and respondent No. 2 were asked to remain present on 22-3-1994 for hearing. On 21-3-1994 the petitioner and respondent No. 2 filed their reply to the show-cause notice. On 25-3-1994 the appellate (sic-Appropriate) authority passed order u/s 269UD(1) and Section 269UE(2) for pre-emptive purchase of the suit property. On 10-4-1994 instant writ petition was filed by the petitioner against the orders dated25-3-1994. On 11-3-1994 this Court heard the matter and was pleased to issue rule and grant stay of possession of the property and the parties were ordered to maintain status quo.

First of all, as pointed out, the show-cause notice dated25-3-1994 is vague. There is no material including any sale instance referred therein. No copy of any document relating to the sale instance, even if any, was furnished to the petitioner along with the notice and/or at any time whatsoever. No justification and/or details provided to purchase the property in question. This according to us, is a gross breach of principle of natural justice as no adequate opportunity to meet the case and to respond to the action as proposed to be taken by the authority was given.

Such vague show-cause notice deprives the parties to oppose and to raise appropriate defence to the proposed action as there was not a tentative or prima facie view of the value of the property referred therein. There is no material whatsoever to justify that the transaction was undervalued and the basis for the conclusion which was arrived at. [Vide Appropriate Authority of Income Tax Vs. Jagdish Electricians India P. Ltd. and Others, , Sona Builders v. Union of India and Ors. (2001) 10 SCC 280 , Mrs. Nirmal Laxminarayan Grover Vs. Appropriate Authority and Others, , Shreyas Builders and Another and Laxman Ganesh Tulshibaughwala and Others Vs. M.D. Kodnani and Others, , Jagdish Electronics (India) Pvt. Ltd. and Another Vs. Appropriate Authority, Income Tax and Others, , Smt. Pratibha Sheth and Others Vs. Appropriate Authority and Another, , Jai Nadershah Karani and Another Vs. C.M. Betgeri, Commissioner of Income Tax and Others, . In all the above cases, such show-cause notices and actions arising out of the same including orders were quashed and set aside for the similar reasons.

Even after going through the impugned order/action, we have noted that the sale instance as relied, of which no copy was served at the relevant time and/or at any time to the petitioner. The said sale instance is of the year 1994. As noted, pursuant to the offer given by respondent No. 2, the petitioner was qualified and respondent accordingly resolved to sell the property, based upon the valuation, which they had prepared, accepted the earnest money in the year 1991 itself. After due sanction, as required under the Bombay Public Trusts Act, the agreement in question was executed in the year 1993. The petitioners and respondent No. 2 thereafter submitted Form 37-I to respondent No. 1. The sale instance of the year 1994, therefore, relied upon in the present case of the property situated in other locality, cannot be treated a basis for determining so-called undervaluation of the market value as alleged. There is no material to show any fair market value of such property situated in the same locality and of the relevant year of 1991. The whole approach, therefore, is incorrect. It amounts to concluding to purchase the property without putting on record "fair market value" as contemplated u/s 269UD(1) of the IT Act is impermissible. We have also noted that there is nothing mentioned anywhere in the show-cause notice that the assessee''s action was with a view to evade taxes. Respondent No. 1 failed to specify and discharge its onus of establishing the undervaluation as they failed to determine the fair market value with reasons. There are no sufficient reasons given while rejecting the defence of the petitioner for not taking note of tender notice dated3-1-1991 instead of agreement dated24th Dec. 1993 though there is no justification whatsoever given while comparing with a non-comparable property; vide Mehta Mody and Co. Vs. Appropriate Authority and Others, and Writ Petn. No. 558 of 1995, Cigeo Construction Co. (P) Ltd. vs: Appropriate Authority and Ors. dated29-8-2008 & Writ Petn. No. 719 of 1993, Shewalkar Developers (P) Ltd. v. Union of India and Ors. decided on 7-8-2008 reported at Above cases support the submissions of the petitioner''s counsel in all respects.

Importantly, respondent No. 2 after complying with all the formalities being a trust and property being a trust property, as required under the BPT Act, based upon the proper valuation of the property considered and decided and sanctioned by the competent authority just cannot be overlooked without any contra material to justify to challenge the said valuation. In a case like this, where the sanction is granted by the authority under the BPT Act. In Om Shri Jigar Association Vs. Union of India and Others, a Bench of Gujarat High Court considering similar provisions of Income Tax Act, as well as BPT Act has observed as under:

In the light of the aforesaid facts, it is apparent that there was no reason for the Appropriate Authority to resort to the provisions of Chapter XX-C of the Income Tax Act. It would be difficult to arrive at a conclusion that there is significant undervaluation of property to the extent of 15 per cent or more in the agreement of sale as evidenced by the apparent consideration being lower than the fair market value by 15 per cent or more. Further, the property was sold after inviting offers from the public at large by giving advertisement in the newspaper and that too after proper verification by the statutory authority under the Bombay Public Trusts Act. Even after executing the agreement to sell, objections are invited as provided under Rule 24. Hence, in such types of cases, even if some lower amount is received, it would not mean that power to purchase the said property u/s 269UD of the Income Tax Act can be exercised by the authorities under Chapter XX-C as it would be difficult to draw a presumption that there was an attempt to evade tax. This is made abundantly clear by the Supreme Court in the case of C.B. Gautam Vs. Union of India and Others, .

Therefore, taking all into consideration, including the decisions referred, we have no option but to allow the petition.

In the result, the impugned notice and all actions arising out of the same are quashed and set aside. The petition is accordingly allowed in terms of prayer Clause (1) and (2) only. No order as to costs.