2007 (9) TMI 538 - HC - Income Tax

Undervaluation of sales consideration - Held that - It is pertinent to note that the property in question is situated at Versova whereas the sale instances relied upon in the impugned order are situated at Juhu. According to the petitioners the distance between Versova and Juhu is about 2 to 3 kms. and there is vast difference between the valuation of the property situated in these two localities. This is evident from the fact that even the State Government for the purposes of stamp duty has fixed higher rate in respect of the premises situated at Juhu compared to the rate in respect of the premises situated at Versova. This disparity in the location has not been considered in the impugned order in spite of specific objections was raised by the petitioners in that behalf. Moreover before passing the impugned order the appropriate authority has neither given the documents relating to the sale instances referred to in the show-cause notice nor in the impugned order the appropriate authority has referred to the sale instance pointed out by the petitioners in their reply to the show-cause notice. In these circumstances the grievance of the petitioners that the impugned order suffers from serious infirmities deserves acceptance. W.P. allowed.

Summary

Issues:
Challenge to order under section 269UD(1) of the Income-tax Act, 1961 for purchase of property in question.

Analysis:
The High Court of Bombay addressed the challenge to an order dated February 25, 1993, passed under section 269UD(1) of the Income-tax Act, 1961, seeking to purchase a property known as "Abhishek Bungalow." The petitioners had agreed to purchase the property subject to the tenancy of another party. An initial order purporting to purchase the property was passed without giving the petitioners a hearing, leading to a writ petition that resulted in the order being quashed and remanded for reprocessing. Subsequently, a show-cause notice was issued, alleging undervaluation of the property based on neighboring sale instances. The petitioners objected, citing lack of fair market value determination, breach of natural justice principles, and discrepancies in valuation comparisons. The impugned order dated February 25, 1993, attempted to purchase the property, prompting the current challenge.

The petitioners argued that the impugned order suffered from serious flaws, including the absence of a fair market value determination, lack of particulars on sale instances, and failure to consider relevant sale instances provided by the petitioners. They contended that the property was not undervalued as claimed, pointing to failed auctions of similar properties purchased by the appropriate authority at lower prices. On the other hand, the Revenue argued that objections were considered in the impugned order and referenced a prior court decision regarding fair market value determination.

The court noted that Chapter XX-C provisions could only be invoked in cases of significant undervaluation to evade tax, requiring a fair market value assessment. It emphasized the necessity of determining fair market value before alleging undervaluation, as per legal precedents. In this case, the fair market value was not determined, rendering the purchase order baseless. The court highlighted the location disparity between the property and the sale instances cited, underscoring the need to consider such differences in valuation assessments. It also noted the failure to provide documents on sale instances and the oversight of relevant objections raised by the petitioners.

Moreover, the court observed that properties in the same locality, purchased by the appropriate authority at lower prices, remained unsold despite efforts, indicating no undervaluation in the property in question. Consequently, the court found merit in the petitioners' contentions, concluding that the impugned order was unsustainable. As a result, the petition was allowed, and the rule was made absolute, with no order as to costs.