2001 (1) TMI 71 - HC - Income Tax

Summary

Issues Involved:
1. Validity and propriety of exhibits P-7, P-9, P-9(a), and exhibit P-11.
2. Legality of the proceedings under section 269UD of the Income Tax Act, 1961.
3. Alleged errors apparent on the face of the records.
4. Alleged miscarriage of justice and violation of principles of natural justice.
5. Alleged gross undervaluation of properties.
6. Consideration of unique circumstances surrounding the transfer.

Issue-wise Detailed Analysis:

1. Validity and Propriety of Exhibits P-7, P-9, P-9(a), and Exhibit P-11:
The petitioners challenged the proceedings initiated by the appropriate authority under section 269UD of the Income Tax Act, 1961. Exhibits P-7, P-9, P-9(a), and P-11 were questioned for their legality and propriety. Exhibit P-7 was a show cause notice proposing pre-emptive purchase of the property for Rs. 66,99,100. Exhibit P-9 was the order for pre-emptive purchase, and Exhibit P-11 required the delivery of possession of the property. The petitioners contended that these orders were vitiated by errors apparent on the face of the records and a lack of proper appreciation of the transaction's nature and purpose.

2. Legality of the Proceedings under Section 269UD of the Income Tax Act, 1961:
The petitioners argued that the proceedings under section 269UD were illegal and unwarranted. They claimed that the object of the statutory provision was overlooked, and the nature and purport of the transaction were not appreciated. The transfer was necessitated by the financier's requirements, and the consideration shown was the issue of shares rather than a cash transaction. The petitioners contended that the transfer was not a typical sale but a compliance with the financier's stipulations, making the application of section 269UD inappropriate.

3. Alleged Errors Apparent on the Face of the Records:
The petitioners submitted that the orders suffered from errors apparent on the face of the records. They argued that the reply to the show-cause notice was overlooked, and there was a miscarriage of justice. The first respondent allegedly failed to consider the unique circumstances of the transaction, as highlighted in Exhibit P-8, where it was stated that the transfer was necessitated by the financier's requirements and was not a typical sale.

4. Alleged Miscarriage of Justice and Violation of Principles of Natural Justice:
The petitioners alleged that the order was in gross violation of the principles of natural justice. They claimed that the materials collected and relied upon by the first respondent were not divulged, and relevant aspects were overlooked. The petitioners argued that there was a total non-application of mind, as evidenced by the mistaken impression that the transferors were three instead of two, and the failure to consider the unique circumstances of the transfer.

5. Alleged Gross Undervaluation of Properties:
The appropriate authority argued that there was gross undervaluation of the properties, justifying the exercise of powers under section 269UD. They referred to an engineering report and a comparable transaction to conclude that the apparent consideration was well below the market value. The petitioners countered that the transfer was not comparable to typical sales and that the consideration shown was based on the financier's stipulations.

6. Consideration of Unique Circumstances Surrounding the Transfer:
The petitioners emphasized that the transfer was necessitated by the financier's requirements and was not a typical sale. They argued that the transfer involved no cash transaction and was solely to meet the financier's stipulations. The petitioners contended that the appropriate authority failed to consider these unique circumstances and applied section 269UD inappropriately. The court found that the primary contention of the petitioners was not addressed in the impugned orders, and the objections raised were not noticed.

Judgment:
The court held that the appropriate authority had failed to consider the unique circumstances of the transfer and had not applied its mind properly. The impugned orders, including exhibits P-7, P-9, P-9(a), and P-11, were set aside. The petitioners' application, filed as exhibit P-6, was to be taken up for fresh consideration, and appropriate orders were to be passed as per the law. The original petition was allowed, with no order as to costs.