TMI Blog1993 (4) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... Valuation Cell had worked out rate of land at Rs. 3,593 per sq. mtr. Taking into account above rate the Competent Authority thought that rate of Rs. 3,600 per sq. mtr., for working out the value of land was reasonable. The Competent Authority worked out the value of property sold at Rs. 46,39,831 as per the following calculation: . Rs 1. Value of land measuring 1,077.06 sq. mtr. @ Rs. 3,600 per sq. mtr 38,77,416 2. Value of structure after allowing depreciation @ 1.5 per annum for 28 years 7,62,467 . 46,39,831 3. Taking the aforesaid fair market value of property and the apparent consideration at Rs. 24 lakhs, the Competent Authority had reasons to believe that the transferor and the transferee had not truly stated the consideration in the instrument of transfer as agreed to between them with objects mentioned in cls. (a) and (b) of s. 269C(1) of IT Act. The Competent Authority also raised presumptions mentioned in s. 269C(2) of IT Act and initiated proceedings by issuing notice under s. 269D(1) dt.14th Feb., 1986of IT Act. The said notice was published in the official gazette on22nd March, 1986. As transferors w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances, the sale of property at 32-Park Area, Karol Bagh,New Delhihaving same area with 2-1/2 storeyed structure transferred vide sale deed dt.20th Jan., 1986for a consideration of Rs. 50 lakhs was considered most appropriate for fixing FMV of the disputed property. He rejected assessee's claim that above said sale instance related to the property purchased with intention to exploit for commercial purposes. He maintained that sale instance of property at 32-Park are also related to residential premises without permission from the Municipal Corpn. to use the property for commercial purposes. The Competent Authority, however, conceded that most of the properties in the area were being used for commercial purposes without the requisite permission. This was applicable to property in question also. On the basis of sale instances of property at32-Park Avenueand after making suitable adjustment for time gap of six months between sales of two properties and for better situation of property, the Competent Authority finally determined FMV of property in question at Rs. 41 lakhs against stated consideration of Rs. 24 lakhs. After obtaining final approval of CIT on4th April, 1989, the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situated in a residential area but the entire area is being used as a commercial area for all intents and purposes. This house is also at a stone's throw fromAjmal Khan Roadand is about 2 km. from 27 Park Area House, Karol Bagh." 8. At the time of hearing of appeals before us, Shri C.S.Aggarwal, learned counsel for the assessee, submitted that Competent Authority had no material to have reasons to believe that fair market value of property exceeded the apparent consideration by more than 15 or 25% to validly initiate acquisition proceedings under s. 269C of IT Act. The report relating to property at 17-A/17 Karol Bagh,New Delhiwas not of property similarly situated. It related to very small property measuring 234 sq. yds. situated in different area and this could not furnish basis for having requisite reason to believe. Shri Aggarwal drew our attention to decisions of Hon'ble Delhi High Court in the case of CIT vs. Duncans Agro Industries Ltd. (1991) 94 CTR (Del) 203 : (1991) 192 ITR 310 (Del). It was emphasised that the Competent Authority could not act on a vague material. There should be a rational nexus between material available on record and formation of belief regarding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the case of CIT vs. Arun Mehra, (1985) 49 CTR (Del)119 : (1986) 157 ITR 308(Del). It was emphasised that acquisition proceedings were penal in character. In support reliance was placed on the decision of the Hon'ble Delhi High Court in the case of Duncans Agro Industries Ltd. 12. The learned Departmental Representative, on the other hand, strongly supported the order of the Competent Authority. He emphasised that before initiation of proceedings, the Competent Authority served notices on the transferees, got a report prepared from the Income-tax Inspector and took into account comparable sale instances to arrive at a reasonable FMV of property. It being difficult to have two exactly similarly situated properties for determining the FMV, the Competent Authorities relied upon the best available material and proceeded in accordance with law. During the course of hearing the Competent Authority further put to the assessee sale of property at 32-Park Avenue which was only 5 buildings away from the impugned property and comparable in all respects. The initiation of proceedings and raising of presumptions under s. 269C(2) were supported by relying upon decisions cited by the Compet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons for doing so: Provided further that no such proceedings shall be initiated unless the Competent Authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefor by more than fifteen percent of such apparent consideration." 16. The words "reason to believe" are also employed in s. 147 of IT Act and interpreted by theApex Courtto be stronger than words "satisfied". It has been held that belief of the authority must be that of an honest and reasonable person based upon reasonable grounds and not on mere suspicion, gossip or rumour. The power can be used when there is reason to believe and not merely on reason to suspect. It has further been held that authority would be acting without jurisdiction if reason for his belief that conditions are satisfied does not exist or is not relevant and the material does not have rational basis with the formation of belief. It is only those material which is before the authority at the time of initiating proceedings that has to be taken into account and not any further material which subsequently came to light in the course of the proceedings. With the above legal quoting we proceed to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly took stated consideration at Rs. 24 lakhs only. It is unnecessary for us to venture to determine the amount of unearned increase or to enter into the controversy whether the same is to be computed with reference to Rs. 1,800 or Rs. 5,000 per sq. mtr. fixed by the Land and Development Officer. In view of observations of the Hon'ble Supreme Court in the case of CWT vs. P.N. Sikand 1977 CTR (SC) 253 : (1977) 107 ITR 922 (SC) we deem it sufficient to say that the unearned increase is a substantial amount and by not considering the same as part of apparent consideration, the competent Authority Committed an error apparent from the record. (iii) The Competent Authority initiated acquisition proceedings after considering valuation report in case No. IAC Acquisition SR-3/9/85 relating to 17A/17 WEA Karol Bagh, New Delhi dt.28th Jan., 1986. On perusal of aforesaid report we find that 2-1/2 storeyed structure was purchased by Shri M.S. Suri and others for a total consideration of Rs. 4,10,000. The property was fully tenanted for different floors paying Rs. 1,00,725 and 120 since 1957, 1977 and 1968 respectively. The vendee M.S. Suri was also a tenant of the first floor but portion unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issimilar property could be considered to initiate penal acquisition proceedings. Only reliable thing available in report is sale of property (taken almost as open land) of 117 sq. yds. for Rs. 2,19,000. For applying this sale instances if taken to be of land similarly situated to the disputed property, some deduction was to be made as it is well settled that smaller size plots fetch much higher price than bigger plots. Without proper consideration, the sale instance or report relating to much smaller property located at about 2 km. away from the disputed property could not furnish any basis for estimate of FMV of 2-1/2 storeyed building having 10 times more area. Thus on the basis of above data a reasonable prudent man could not have "reasons to believe" that FMV of property in question was Rs. 47 lakhs. We find no reasonable nexus between the material on record and formation of belief that disputed property had that particular FMV. Except for the above valuation report, no other material was collected by the Competent Authority to initiate acquisition proceedings. 18. The application of proviso to s. 269C spins on three factors, namely, apparent consideration of property in que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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