TMI Blog1997 (12) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... actual matrix and the law in very sweet and esoteric language. My learned brother had been unique in this respect. I have always been admiring his gift of the gab. I derived immense solace and comfort while working with him. He provoked my thinking and prompted me to proceed on the right track which enabled me to have a hang of the matters. I am spellbound, as it were, and I am in entire agreement with all that he has said. I now proceed to express my views in the Pan Indian fashion. All law is an experiment, as all life is an experiment as stated by Justice Holmes of the United States of America. The Government of India made an experiment by introducing Chapter XX-C in the Income-tax Act, 1961, with effect from 1986, but the Supreme Court in Gautam (C. B.) v. Union of India [1993] 199 ITR 530 held that no doubt the Government could make an experiment but within the parameters of the Constitution. Apparently, keeping in mind the principles that there should not be unending conflict or strife or competition between the Government and the citizens in the field of taxation, the Supreme Court laid down the law clearly, the attempt of the Revenue to garner resources, to mop up the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs shall be initiated in respect of properties transferred after the 30th September, 1986. This amendment will take effect from 1st October, 1986. Clause 34 reads as under (see [1986] 158 ITR (St.) 96 ) : Clause 34 seeks to insert a new Chapter XX-C in the Income-tax Act, 1961, enabling the Central Government to purchase immovable properties in certain cases of transfer. This Chapter contains 16 sections from section 269U to section 269UO. The provisions of the new Chapter will come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different areas. There are no other objection petitions and the Bill was adopted and became an Act. Parliament thought by enacting a law and leaving the entire implementation to the Income-tax Department it could achieve the purpose of getting more revenue for the Government and preventing concentration of wealth. The authorities commenced proceedings purporting to act under Chapter XX-C and those actions were challenged in various courts and, ultimately, the Supreme Court had to consider the attack on the constitutional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions and rested content with the provisions made in the Chapter leaving it to the Department to take decisions in accordance with the well settled principles in this arena. Parliament is presumed to know the well established principles adumbrated by the Supreme Court of United States of America in Yick Wo v. Hopkins [1886] 118 US 356, wherein the court laid down : Though the law itself be fair on its face and impartial in appearance, yet, if it is applied and administered by public authority with an evil eye and an unequal hand, so as practically to make unjust and illegal discriminations between persons in similar circumstances, material to their rights, the denial of equal justice is still within the prohibition of the Constitution. This principle of interpretation has been sanctioned by this court in Henderson v. Mayor, etc. of New York (92 U. S. 259 ; Bk 23 LEd. 543 ; Chy Luny v. Freeman 92 US 275 ; (Bk 23 LEd 676) ; Neal v. Dlaware 103 US 370 (Bk. 26 LEd. 267) and Soon Hing v. Crowley (supra). The present case, as shown by the facts disclosed in the record, are within this class. It appears that both petitioners have complied with every requisite, deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) : . . . laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the Legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved . . . The court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry that exact wisdom and nice adaptation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1410 ; [1978] 1 SCR 1 : It must be remembered that merely because power may some time be abused, it is no ground for denying the existence of power. The wisdom of man has not yet been able to conceive of a Government with power sufficient to answer all its legitimate needs and at the same time incapable of mischief. In the light of these principles, the Supreme Court in C. B. Gautam s case [1993] 199 ITR 530, held rejecting the challenge on the constitutional validity of the Chapter (page 551). In these circumstances, in our opinion, it cannot be said that the provisions of the said Chapter conferred an unfettered discretion on the appropriate authorities to order the purchase by the Central Government of immovable properties agreed to be sold and hence they cannot be regarded as conferring arbitrary or unfettered discretion on the appropriate authorities. The challenge to the provisions of the said Chapter as being violative of article 14 of the Constitution of India must, therefore, fail . Dealing with the scope of Chapter XX-C and the obligation of the Department, the Supreme Court observed (at page 548) : The legislative history of Chapter XX-C, in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view to avoid or reduce the liability of the assessee under section 45 to the tax on capital gains and with that object the transfer of the capital asset was being made at an undervalue of not less than 15 per cent., for the purposes of taxing the assessee, the full value of the consideration was taken to be its fair market value on the date of the transfer. It was pointed out by the Bench that sub-section (1) of section 52 did not deal with income to accrue or to be received, which in fact never accrued and was never received. It sought to bring within the net of taxation only that income which has accrued or is received by the assessee as a result of the transfer of the capital asset and since it would not be possible for the Income-tax Officer to determine precisely how much more consideration is received by the assessee than that declared by him, sub-section (1) provides that the fair market value of the property as on the date of the transfer shall be taken to be the full value of the consideration which has accrued or has been received by the assessee. The onus of establishing that the conditions of taxability are fulfilled is always on the Revenue. In that case, it was ur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on with the material coming to the notice of the competent authority, though the question of sufficiency or adequacy of the material is not open to judicial review. The Supreme Court read this into Chapter XX-C. The authorities have to act in accordance with the principles of natural justice, the Supreme Court posited thus (page 553 of 199 ITR) : As we have already pointed out, the provisions of Chapter XX-C can be resorted to only where there is a 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. We have further pointed out that, although a presumption of an attempt to evade tax may be raised by the appropriate authority concerned in the case of the aforesaid circumstances being established such a presumption is rebuttable and this would necessarily imply that the concerned parties must have an opportunity to show cause as to why such a presumption should not be drawn. Moreover, in a given transaction of an agreement to sell, there might be several bona fide considerations which might induce a seller to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce holders in possession. Therefore, following this dictum of the Supreme Court the authorities under the Act have to be very careful in ordering compulsory purchase when there are lessees or persons having subsisting mortgage rights over the properties. The Supreme Court held (page 558 of 199 ITR) : In the result the expression free from all encumbrances in sub- section (1) of section 269UE is struck down and sub-section (1) of section 269UE must be read without the expression free from all encumbrances with the result that the property in question would vest in the Central Government subject to such encumbrances and leasehold interests as are subsisting thereon except for such of them as are agreed to be discharged by the vendor before the sale is completed. Regarding the monthly tenancies, the Supreme Court held (page 559 of 199 ITR) : The next controversy posed was regarding the monthly tenancies. As far as monthly tenancies are concerned, they do not pose any difficulty because monthly tenants are also lessees in law although their right is a very limited one. If the agreement to sell does not provide for vacant possession or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue that, in case a view is taken that the expression free from all encumbrances should be struck down, it would be left open to an intending seller of immovable property to undervalue the property by creating a bogus lease or a bogus encumbrance thereon and this would defeat the purpose for which Chapter XX-C was introduced. We are unable to agree. If a lease or an encumbrance is found to be bogus, it can be treated as of no legal effect and in that event, it would not affect any of the rights of the Central Government on the vesting of the property in the event of an order for purchase being made under section 269UD(1). If it is so considered necessary, the provisions of the Chapter might be so amended so as to clarify that if any lease or encumbrance is created with a view to defeat the provisions of Chapter XX-C, such lease or encumbrance will be regarded as void or ignored for the purposes of the said Chapter. That, however, is for Parliament to consider. The Supreme Court recognised that the object of the provisions of Chapter XX-C is a laudable object, namely, to counter evasion of the tax in transactions of sale of immovable properties. The judgment of the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd other taxes from immovable properties. When a question was put to learned counsel for the Revenue whether any rules have been framed or guidelines issued to the authorities with reference to the deductions to be made or the additions to be made while making comparative study with other sale instances properties, learned counsel submitted that no such rules have been framed. The crux of the matter is that Parliament had brought into the statute book Chapter XX-C with a particular purpose ; to prevent evasion of tax. It is a basic principle of the interpretation of statutes right from Heydon s case [1584] 76 ER 637, the courts should consider a few facts to appreciate the object of the law and intendment of theirs by the law maker. Stating it broadly without intending to be exhaustive the factors are (1) What was the law before the making of the Act ? (2) What was the mischief and defect which the earlier law could not remedy ? (3) What remedy Parliament had decided to provide in the new law ? (4) The true reason of the remedy ; (5) The language of the law should be analysed. At this moment when we are considering the orders passed in the above cases by the appropriate au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed and no standard or principles had been adopted or set for itself by the appropriate authority. We want to note that learned counsel for the petitioners submitted in some cases, a particular method of deductions and additions is adopted in one case but under exactly similar circumstances in another case a different method is adopted without any rational basis. However, we do not want to dilate on this aspect because we are sitting under articles 226 and 227 of the Constitution of India and the parameters laid down by the Supreme Court are well settled and clear. The appropriate authority had acted in an arbitrary fashion in arriving at the fair market value in all the cases. The sale instances of properties comparable with the subject properties have not been taken into account and properties situate far away from the subject properties have been taken into consideration and the additions and deductions are made at the whims and fancies at the subjective satisfaction of the appropriate authority. In none of the cases, we are able to see any reasonable basis known to the field to fix the fair market value. It is a matter of common knowledge nowadays in all the cities all over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appropriate authority, the language of Chapter XX-C would have been couched in different words and would not be as it is found in the statute book. We may also notice just to appreciate the question that has arisen for consideration ; previously Parliament inserted by the Taxation Laws (Amendment) Act, 1972, Chapter XX-A with effect from November 15, 1992 ; it ceases to be operative in respect of transaction of immovable property made after September 13, 1986. Under section 269A the definition of apparent consideration is given as under : 'apparent consideration (1) in relation to any immovable property transferred, being immovable property of the nature referred to in sub-clause (i) of clause (e), means,- (i) if the transfer is by way of sale, the consideration for such transfer as specified in the instrument of transfer ; (ii) if the transfer is by way of exchange,- (A) in a case where the consideration for the transfer consists of a thing or things only, the price that such thing or things would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer ; (B) in a case where the consideration fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer, determined by adopting the rate of interest at eight per cent per annum. The Chapter also defines fair market value in the following terms :- fair market value ,- (i) in relation to any immovable property transferred by way of sale or exchange, being immovable property of the nature referred to in sub-clause (i) of clause (e), means the price that the immovable property would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer of such property ; (ii) in relation to any immovable property transferred by way of lease, being immovable property of the nature referred to in sub-clause (i) of clause (e), means the premium that such transfer would ordinarily fetch in the open market on the date of the execution of the instrument of transfer of such property, if the consideration for such transfer had been by way of premium only ; (iii) in relation to any immovable property transferred, being immovable property of the nature referred to in sub-clause (ii) of clause (e), means the consideration in the form of money that such transfer would ordinarily fetch in the open market on the date of the transfer, if such tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Consequently, the usual method of comparison for the purpose of valuation for giving compensation under the Land Acquisition Act, 1894, cannot be applied to the property coming within the purview of Chapter XX-C. Before issuing the show-cause notice, the law enjoins on the appropriate authority, as the initial burden is on it, to take into account sale instances which could be compared and the appropriate authority cannot issue show-cause notice by resorting to Procrustean methods by making additions and deductions without any rational basis and acting on that premise come to a conclusion relating to a figure to assume that the apparent consideration is 15 per cent. less than the fair market value and, therefore, the parties intended evasion of tax. In the context of the law laid down by the Supreme Court in our view, in none of the cases the appropriate authority could discharge the initial burden. The Department along with the instructions issued, could have notified appropriate value bounds giving the value of the land in different areas depending upon the location and facilities available as was done in England under the Domestic Property Regulations, 1991. The Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to form a credible opinion to issue the show-cause notice. The appropriate authority is also expected to know that the term, market, is, what normally we think of as the place where the sellers and buyers meet, but in economics in a larger sense market would mean the availability of commodities at a particular price specifying the needs and requirements of the sellers and buyers and the appropriate authority is also expected to know that in real estate parlance market would mean the availability of the title to a property and interest therein, the bundle of rights at a particular point of time as required, by specifying the needs of the parties. It is an operation between the parties in trading with each other, depending upon the utility of the property from the purchaser s point of view and the price from the vendor's point of view. It is in this backdrop the Department should consider issuing show-cause notice for making pre-emptive purchase. The market value of a property would depend on important factors like (1) its demand in the investment market ; (2) annual net income the property may yield in future. The appropriate authority should analyse the investment carefully and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 951.75 for the ground rent paid to the Maharani Bagh Co-operative House Building Society Ltd. (v) A photocopy of the perpetual sub-lease for plot No. C-82 (New No. G-4) duly executed between the Maharani Bagh Co-operative House Building Society Ltd., and Mrs. Quamarain is also being submitted duly signed by the transferor and transferee. On July 26, 1993, the owner submitted the documents to the appropriate authority. On September 29, 1993, the first respondent appropriate authority, issued show-cause notice under section 269UD(1) of the Income-tax Act, 1961, to the owner, the petitioner, the two tenants. It is stated in the show-cause notice that the subject property was compared with the three properties termed as sale instance properties :- 1. G-8, Maharani Bagh Apparent consideration 1.26 crores. Apparent consideration of subject property is higher by 58 % 2. D-18, Maharani Bagh (known as I-15) Apparent consideration 1.11 crores. Apparent consideration of subject property is higher by 22 % 3. N-62, Panchsheel Park Apparent co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rani Bagh. Sale agreement 2nd sale instance Sale deed 1-12-1992 ₹ 1.11 crores. Adjusted declared 500 land rate works mts. out at ₹ 29,587 per sq. mt. sq. yds. or 418 sq. Value to be increased at 1 % per month 7 months earlier to sale agreement For 7 months + 7% FAR (not so much as the 2nd instance) FAR (140100) 28% Side open (not available/which is available in 2nd instance) 5% has no basement potential 10 + 7% 43% 36% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,41,06,918.00 Depreciated value at the rate of 8 % ₹ 88,87,358 Barsati potential 148.90 sq. mts value 148.90 x 25,333 ₹ 37,72,083.00 value of the subject property ₹ 88,87,358.00 ₹ 37,72,083.00 ₹ 1,42,092.00 ₹ 1,28,01,533.00 This is higher by 60 % What has been done by the appropriate authority is 1% is added for every month as if every month there is increase of 1% in the property. The basement potential of the properties considered and barsati potential is taken into account. Taking into account the subject properties tenanted, 6 years deferred value at 8% is calculated and 6 years rent is added to the value arrived at by the above process. On October 14, 1993, the owner, the petitioner sent replies to the appropriate authorities. The petitioner stated in the reply that the two floors are under the occupation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not be affected by the purchase. Again on October 19, 1993, the tenant, Amarjeet Singh, stated that he appeared before the appropriate authority and mentioned about Suit No. E-389 of 1991 filed against him by the owner and he had expressed displeasure over the way in which Mr. Upadhaya, member of the appropriate authority, acted. The first respondent appropriate authority passed the order of compulsory purchase on October 25, 1993. The basis of the order is that comparing the apparent consideration of the subject property with three sale instance properties the apparent consideration is grossly undervalued and, therefore, the appropriate authority was obliged to pass the order. The facts as mentioned in the show-cause notice are adopted in the order impugned. The appropriate authority has also referred to the offer made by Mr. P. K. Ganeriwal, a tenant, and ultimately the appropriate authority came to the conclusion that the apparent sale consideration of the subject property is lower by more than 15 per cent. than the fair market value of the property. The appropriate authority has not given a finding that the undervaluation was made with the sole object of evading tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by the appropriate authority that a tea company of Calcutta and one Mr. Jeff from abroad had made offers for purchasing the property. The petitioner was not furnished with any documentary evidence. The aforesaid persons appear to be the nominees of the tenant, P. K. Ganeriwal. Amarjeet Singh, the tenant of the first floor, made it clear in his letter dated October 16, 1993, that he is a tenant of the first floor and terrace above. He stated : The sale instance of S-39A, Panchsheel Park, relied upon by petitioner, was arbitrarily dealt with. Without any basis/working the land rate of this property was worked out to ₹ 30,347 per sq. mtr. and therefore, was stated to be of no help to petitioner. Relying upon the other instance of property at 56, Jor Bagh, New Delhi, which was tenanted and the tenant was paid a sum of ₹ 65.61 lakhs for vacating, petitioner submitted that it will have to make such payments to tenants for getting the subject property vacated. However, this submission was negated by observing that no judicial notice of such a position can be taken as no such payment is stipulated in the agreement for sale and purchase of subject proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential additional for barsati floor potential should have been made with reference to land area 133.78 sq. mts. as against 148.90 as calculated by the appropriate authority. The value of construction at ₹ 9,35,758 after giving depreciation of 1.5 per cent. for 26 years (age of the building) is low. Minimum should have been 5 per cent. Determination of cost of construction on the basis of plinth area is not done. Subject property is situate at the dead end of the road and 5 per cent. discount ought to have been given. Discount for basement of 10 per cent is low in the present situation when getting space in Delhi is very difficult. A specific request was made to the appropriate authority to furnish data with reference to properties cleared within the last one year in the same locality or other surrounding areas, with reference to tenanted properties and that was not given. The method adopted by the appropriate authority is arbitrary and hit by article 14 of the Constitution of India. Respondent Nos. 1 and 2 filed a counter affidavit traversing the allegations in the writ petition. In paragraph 1, the nature of the property and consideration are referred to in the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a deferment factor is an accepted practice of valuation. This reasoning itself is not enough to find out the approach of the appropriate authority to the question. It is stated in the counter, that during the course of hearing the petitioner was confronted with two letters, one received from Bhubhandhar Tea Company, Calcutta, who were willing to purchase the property for a sum of ₹ 61,45,009 plus unearned increase and other charges. There was also an offer from Satish Jha, NRI, who was willing to purchase the subject property for a sum of ₹ 61 lakhs plus unearned increase and stamp charges. According to respondents Nos. 1 and 2, the basis of purchase order was on a comparison of three sale instances mentioned in the show-cause notice. Reference is made to the representation made by the tenants which is not very much relevant at this stage. The appropriate authority has disputed the method of valuation suggested by the petitioner. Respondents Nos. 1 and 2 have also chosen to disallow the discount claimed by the petitioner. The appropriate authority maintained the same stand that is taken by it in the show-cause notice. The petitioner filed a rejoinder to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction is founded on law or fact ; a court with jurisdiction confined to the city of London cannot extend such jurisdiction by finding as a fact that Piccadily Circus is in the ward of Chepe. The same principle was enunciated by the Court of Appeal in White and Collins v. Minister of Health [1939] 2 KB 838. The question debated in that case was whether the High Court had jurisdiction to review the finding of the administrative authority on a question of fact. It appears that Part V of the Housing Act, 1936, enabled the local authority to acquire land compulsorily for the provision of houses for the working classes but section 75 of the Act provided that nothing in the Act was to authorise the compulsory acquisition of land which at the date of compulsory purchase forms part of any park, garden or pleasure ground or is otherwise required for the amenity or convenience of any house . In accordance with the provisions of this part of the Act, the Ripon Borough Council made an order for the compulsory purchase of 23 acres of land, it being part of an estate in Yorkshire called Highfield consisting of a large house and 35 acres of land surrounding it. The owners served notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1961, the jurisdiction of the civil court is barred and that section reads as under : 293. No suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this Act, and no prosecution, suit or other proceeding shall lie against the Government or any officer of the Government for anything in good faith done or intended to be done under this Act. Therefore, the question whether the filing of a suit is an effective alternate remedy would not arise at all for consideration. Learned counsel Mr. Syali submitted when the fair market value has not been arrived at adhering to the principles acceptable in law, no question of presumption of tax evasion would arise. C. M. No. 1988 of 1994 : This application is filed by Bhupender Tea Co. Ltd., who is one of the persons who offered to purchase the property for ₹ 61,45,009 plus unearned increase and stamp charges. We do not want to go into the merits of the claim of the applicant. The applicant has no locus standi to file the petition. Accordingly, C.M. No. 1988 of 1994 under order 1, rule 10, CPC, is dismissed. C. W. No. 4153 of 1993 : There ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph 4 of the show-cause notice it is stated that one Vinod Kumar Jain requested for hearing as he was a tenant in the premises. In paragraph 6, the basis for the show-cause notice is given as under : In the case of subject property, the apparent consideration is ₹ 1,75,00,000. The plot area is 3595.32 sq. mts. including 830.95 sq. mtrs. declared as excess land under ULCR Act. The net plot area comes to 3595.32-830.95=2764.37 sq. mtrs. If salvage value of ₹ 1,64,445 is considered, the achieved land rate works out to ₹ 1,75,00,000 1,64,445 = 1,73,35,555 divided by 2764.37 = ₹ 6271 per sq. mtr. We may compare the sale instance of property at 60, Friends Colony (East) which was agreed to be sold on December 5, 1990, for apparent consideration of ₹ 2.65 crores. If the depreciated value of structure of sale instance is taken at ₹ 11,60,000 the land rate per sq. mtr. works out to ₹ 2,65,00,000 (-)11,60,000 = 2,53,40,000 divided by 1173.91 = ₹ 21,586. If adjustment on account of time gap of +2%, side open +10%, potential for basement +10% in the sale instance and nearness to railway track 5% and size of plot 5% is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation could be made against him, he must be given an opportunity to show cause and prove that the alleged undervaluation in the agreement for sale was not with a view to evade tax. (8) Another precedent condition is that the apparent sale consideration has been intentionally understated, i.e., a deliberate understatement of the value of the property to evade tax. (9) The apparent sale consideration of the property in question is higher than the fair market value assessed/determined by any norm, method or standard. In the alternative, even if it be assumed for the sake of argument that the apparent consideration was lower than the fair market value even then a variety of compelling circumstances as given in the affidavit of his client by way of evidence (which stands uncontroverted) existed under which the property was sold at ₹ 1,75,00,000 considering the best/maximum price he could get for a tenanted property. (10) There was not an iota of evidence or any circumstance suggesting evasion of tax or a deliberate understatement of the value of property. (11) The unrebutted and uncontroverted facts and evidence is on the record produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r). It is submitted that the observation of the appropriate authority that the tenants can be easily evicted is wholly fallacious and that would completely vitiate the order. It is further stated by the petitioners that the appropriate authority should have resorted to the fixation of fair market value on the basis of capitalisation of rent for some years. The appropriate authority erred in assuming that the sale instance, 60, Friends Colony, was a good guide in determining the fair market value. It is further stated that the adjustments adopted by the appropriate authority were wholly arbitrary and they were made just for the purpose of passing the impugned order. The petitioners also stated that the appropriate authority arbitrarily refused to consider the sale instance, No. 2, Barakhamba Road. The petitioners assert that there was no finding by the appropriate authority that there was intentional gross understatement of the value of the property and there was tax evasion by the party and unless there was such a finding, order of compulsory purchase cannot be made. The petitioners further stated that the appropriate authority illegally and in utter contravention of the norms and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Ground floor at ₹ 1,100 p.m. since 7-12-1976. First floor at ₹ 375 p.m. since 1959 Barsati floor vacant. 3. 2960/24-8-92 21, Community Centre, Basant Lok, 127.46 sq.mts. 10-8-1992 90,00,000 3. Ground floor tenanted to Chemical Vasant Vihar, De Universe Pvt. New Delhi.Ltd. at ₹ 9,600 Commercial plot p.m. ₹ 11,525 increased in April 1983, and again increased to ₹ 14,400 in April 1987 and again increased in April, 1990 to ₹ 27,440 (b) First floor I.T.C. Ltd., at ₹ 21,592 p.m. since March 1980. 4. R-2873/ 11-6-92 203, Golf Links, New Delhi 375 sq.yds. 31-5-1992 50,00,000 4. Ground floor at ₹ 1,150 p.m. since 1975. First Floor at ₹ 950 p.m. since 1978. 5. 2583 182, Golf Links, New Delhi 575 sq.yds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate authority is challenged by the petitioners in the following terms : That the appropriate authority before passing the purchase order dated April 18, 1991, had got the valuation report prepared from the departmental valuer and according to the departmental valuer and according to the said valuation report, the fair market value of the suit property was worked out at ₹ 1,11,63,234 but when the then Finance Minister vide his note dated April 9, 1991, appended on letter dated March 19, 1991, directed the appropriate authority to pass the purchase order in respect of the suit property at the instance of Shri Vinod Jain and some Members of Parliament, another valuation report was procured and falsely manipulated according to which the alleged fair market value of the suit property was worked out at ₹ 4,77,67,461. As already submitted in the previous writ petition, though the then members of the appropriate authority had already made an inspection of the suit property and on that basis, the valuation report was asked for from the departmental valuer who after considering all the facts and circumstances of the case assessed/ determined the fair market valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th reasoning, the land rate arrived at from the instance case was reduced by more than 20 per cent. which resulted in the issuance of NOC for the said property and but for this, purchase order for its alleged undervaluation of apparent consideration by more than 15 per cent. would have been passed. The petitioners submit that respondents Nos. 1 and 2 acted illegally, discriminately and in violation of principles of natural justice in not giving the valuation report to the petitioners. The non-supply of the material placed on the file to the parties but considered by the appropriate authority amounts to non-providing a reasonable opportunity of hearing and in fact and law is in utter disregard of the principles of natural justice and terms of C. B. Gautam s case [1993] 199 ITR 530 (SC). In paragraph 75 of the grounds the petitioners have projected the wrong approach made by the appropriate authority : That at the time of hearing, it was pointed out to the appropriate authority that the instance relied upon of 60, Friends Colony, had been wrongly stated in the show-cause notice and relied upon by the respondents. When the attention of the members was drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1991, though it was observed by the appropriate authority that the offers of price more than apparent consideration cannot be considered because the appropriate authority can neither sell the property directly nor can get the cheque of the kind sent encashed but the appropriate authority arbitrarily and for ulterior motives and purposes discriminated against the petitioner s case and singled it out arbitrarily and passed the impugned purchase order on the basis of offer made by Bishwanath Traders, the proprietor of which is the father-in-law of the younger brother of Shri Vinod Jain the tenant. Even with regard to the present impugned purchase order, respondent No. 2 procured a letter from Shri Vinod Jain offering to purchase the suit property for ₹ 4.5 crores. The petitioners submit that the offer of Bishwanath Traders and Investment Ltd., in the case of the previous purchase order and also now the offer of Shri Vinod Jain were and are wholly bogus and a manipulation, ruse and a pretext for the appropriate authority to acquire the suit property under section 269UD of the Act. It may be stated that Shri Rajiv Gupta, advocate, in the case of the property bearing No. 42-44, Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty was tenanted, deduction was allowed of ₹ 2,023 crores and net value arrived at ₹ 4.55 crores. Adding salvage value of ₹ 1.64 lakhs, the market value was computed at ₹ 4,564 which was 160% above the apparent consideration of ₹ 1.75 crores. This is only a repetition of what is stated in the show-cause notice. About the subject property being under tenancy, it is stated in paragraph 24 :- In the purchase order dated May 28, 1993, it was also brought out that the lease agreement of the tenant Sh. Vinod Kumar Jain dated December 1, 1983, was for a period of five years with effect from January 1, 1984, and that the said lease agreement had expired on January 1, 1989, and had not been renewed and, therefore, the tenancy was on month to month basis after January 1, 1989. It is asserted by respondents Nos. 1 and 2 that the petitioners have no locus standi. It is stated in paragraph 28 : It is further submitted that the intending purchaser has only a right to be heard. It was held in Rajata Trust s case [1992] 193 ITR 220 (Kar), that a person who had entered into agreement for purchase of property is not a pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT [1984] 146 ITR 216 (P amp; H), to show that the valuation report is nothing but an opinion. He also referred to Durga Sharan Udho Prasad v. CIT [1976] 103 ITR 271 (Patna), All India Lakshmi Commercial Bank Officers Union v. Union of India [1984] 150 ITR 1 (Delhi) and CIT v. Arun Mehra [1986] 157 ITR 308 (Delhi). Learned senior counsel Mr. L. R. Gupta also dwelt at length on the question of burden of proof and he referred to the following decisions : 1. K. S. Nanji and Co. v. Jatashankar Dossa, AIR 1961 SC 1474. 2. A. Raghavamma v. A. Chenchamma, AIR 1964 SC 136. 3. Ramji Dayawala and Sons (P.) Ltd. v. Invest Import, AIR 1981 SC 2085. 4. Smt. Prem Lata v. Arhant Kumar Jain, AIR 1973 SC 626. 5. Harmes v. Hinkson, AIR 1946 PC 156. 6. Kumbhan Lakshmanna v. Tangirala Venkateswarlu, AIR 1949 PC 278. We did not find it necessary to refer in detail to the facts in the above cases because the question in this batch of cases is to be decided in the light of the judgment of the Supreme Court in C. B. Gautam s case [1993] 199 ITR 530, and the question is whether the appropriate authority has violated the basic principles in determining the fair market value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Orissa High Court has also stated as to what is the market value. He also referred to Debi Prosad Poddar v. CWT [1977] 109 ITR 760 (Cal), wherein the Calcutta High Court held in respect of property in the possession of tenants that the appropriate method would be capitalising the annual rent of certain number of years purchase. He also referred to CIT v. Smt. Ashima Sinha [1979] 116 ITR 26 (Cal). Learned senior counsel referred to CIT v. Smt. Vimlaben Bhagwandas Patel, Smt. Kamlaben Kanjibhai Patel [1979] 118 ITR 134 (Guj), which was in Chapter XX-A of the Income-tax Act, 1961. The Gujarat High Court held at page 136 : The conditions precedent for the exercise of jurisdiction to initiate acquisition proceedings are- (i) transfer of immovable property worth more than ₹ 25,000 in value ; (ii) fair market value of the property exceeding the apparent consideration by 15 per cent. ; (iii) ulterior motive of tax evasion or concealment of income for such untrue statement of apparent consideration in the instrument of transfer of such property ; (iv) recording of reasons by the competent authority. The Gujarat High Court had al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transferor of tax evasion or tax reduction or of the transferee about the concealment of income which he should disclose for tax purposes. This is an objective fact about which the competent authority must be satisfied besides another objective fact that the fair market value of the property in question exceeds by the prescribed margin the apparent consideration thereof. The court also held that the objector can prove that the consideration has not been untruly stated by proving that the fair market value does not exceed the apparent consideration by 25 per cent. and the consideration was fixed not with any ulterior motive of tax evasion. The court also noticed that the competent authority did not furnish to the transferee the valuation report of the valuation officer in spite of repeated requests. The learned senior counsel also referred to CIT v. Panchanan Das [1979] 116 ITR 272 (Cal). The court held that the rent capitalisation method should be adopted when there are tenants and there is no question of adding up the valuation arrived at by the rental method with any deferred value. Learned senior counsel also referred to CIT v. New India Construc tion Co. [1980] 123 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property right of a citizen. These provisions are stringent which result in an appropriation of property by the State. The authorities administering these laws should not lightly invoke these provisions : when proceedings for acquisition of property of a citizen are initiated by the competent authority, the provisions of the Act should be strictly followed. The court also observed : The mode of determining the value of the building on the basis of annual rental value is well recognised. Even the Legislature has prescribed this method under the Wealth-tax Rules. The Tribunal, in our opinion, was right in determining the market value of the property on the basis of the annual rental value. Learned senior counsel referred to Mani Singh Avtar Singh v. IAC of I.T. (Acquisition Range) [1985] 151 ITR 233 (P amp; H). Unique Associates Co-operative Housing Society Ltd. v. Union of India [1985] 152 ITR 114 (Bom). The Bombay High Court also held that the burden lies on the Revenue to show that there is understatement of the consideration and the second condition is that the assessee had actually received more than what is declared by him. He also referred to Je ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors are to be taken into consideration for fixing the fair market value. He also referred to Dwarka Dass v. CWT [1974] 97 ITR 541 (Delhi). Learned senior counsel referred to Indian Dyestuff Industries Ltd. v. IAC of I.T. [1994] 206 ITR 485 (Guj). The court observed (page 490) : In the context of section 269C of the Income-tax Act, the competent authority must have reason to believe about the ulterior motive of the transferor of tax evasion or tax reduction or of the transferee about the concealment of income which he should disclose for tax purposes. This is an objective fact about which the competent authority must be satisfied besides another objective fact that the fair market value of the property in question exceeds by the prescribed margin the apparent consideration thereof. . . conditions mentioned in section 269C(1) and section 269D(1) should be fulfilled before proceedings can be initiated. . . (ii) excess fair market value of the property over the apparent consideration by 15 per cent. ; (iii) ulterior motive of tax evasion or concealment of income for such untrue statement of apparent consideration in the instrument of transfer of such property. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which casts a slur on the parties to the agreement. Such an imputation cannot be made mechanically without due regard to the explanation of the affected parties. The presumption of undervaluation in the case of undervaluation of 15 per cent. or more being a rebuttable one, the evidence led by the intending seller or purchaser assumes great importance. The court also took note of the limited time available to the appropriate authority and observed that it cannot be construed to confer power on the appropriate authority to pass an order without carefully considering the facts and circumstances set out by the intending seller or purchaser and analysing the comparable cases cited by such persons . The court further observed (page 29) : The very historical setting in which the provisions of Chapter XX-C were enacted suggest that it was intended to be resorted to only in cases where there is an attempt at tax evasion by significant undervaluation of immovable property agreed to be sold . . . reasons must be germane to the object for which Chapter XX-C was introduced in the Income-tax Act, namely, to counter attempts to evade tax . The same proposition that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Supreme Court. A perusal of the order of the Supreme Court would also show that their Lordships of the Supreme Court were not pleased to deal with the merits of the case and the highest bid was confirmed by their Lordships. It is well known that whatever happens during the pendency of any proceeding is subject to the ultimate decision reached by the court in the main case. Therefore, no elaborate exposition of law is required for the purpose of finding out whether their Lordships of the Supreme Court intended to dispose of the writ petition finally while confirming the highest bid. Their Lordships had confirmed the highest bid because in the event of the writ petition being dismissed by this court the Department could straightaway take further proceedings on that basis. Their Lordships also did not think it fit to withdraw the writ petition to the file of the Supreme Court and their Lordships had not been pleased to observe that the writ petition would stand disposed of in view of the confirmation of the highest bid by their Lordships. In the light of this admitted position, it is not open to the appropriate authority to contend that in view of the order passed by the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,91,67,030 as against the apparent consideration of ₹ 3,25,36,567 which is 51 per cent. above the apparent consideration. Regarding the second sale instance, it is stated : Your attention is also invited to another sale instance of immov-able property bearing No. N-119, Panchsheel Park, New Delhi, having plot area of 1,200 sq. yards on a 45 feet wide road which was agreed to be sold for ₹ 3,25,00,000 (+) UEI of ₹ 52,54,050 (total apparent consideration ₹ 3,77,54,050) as per agreement dated September 29, 1993. This sale instance property is only one side open and is facing park. The declared land rate of this sale instance property with FAR of 100 comes to ₹ 37,520 per sq. metre if the salvage value of the sale instance property is taken at ₹ 1,06,080, (Rs. 3,25,00,000 (+) 52,54,050-1,06,080, divide 1,003.4) For arriving at fair land rate adjustment of (+) 6.5% on account of time gap. FAR (+) 14 per cent. (116-100 divide 116), extra side open (+) 5 per cent. colony difference of 10 per cent. and sale instance property facing park (-) 5 per cent. (total (+) 10.5%) is made and the land rate works out to 37,520 x 1,105 = 41,459 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of Kalkaji and Chitranjan Park. Therefore the colony is comparable to either adjoining colonies or the colonies facing the subject property. It is further stated in the reply that the comparable properties should be similar in size, nature, having similar characteristics and in similar locality. Referring to the decision in CIT v. Duncans Agro Industries Ltd. [1991] 192 ITR 310 (Delhi), evaluation of fair market value ignoring comparable instances of sale in the same area is erroneous. It is further stated that the first sale instance property No. 4, Palam Marg, Vasant Vihar, is situate in a very superior colony and comparing the subject property with that property and making adjustments is not at all permissible in law. The second sale instance property No. N-119, Panchsheel Park, is also not comparable. The third instance property A-95, Neeti Bagh, is also not comparable as it differs in size, number of storeys and the FAR. According to the petitioner and the vendors, the three sale instances are situate in posh colonies in South Delhi and the DDA had categorised the above said referred colonies in the bracket of highest rates and Chirag Enclave have been categorised as belongi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s : Working of fair market value on the basis of instance at B-6. Panchsheel Enclave, New Delhi. Date of agreement : 27-5-1993 Land area : 800 sq. yds. (668.9 sq. mtrs) Consideration : ₹ 1,60,00,000 plus UEI UEI : ₹ 34,94,000 approx. Total consideration : ₹ 1,94,94,000 Value of structure : ₹ 5,16,000 approx. Value of land : ₹ 1,89,78,000 Land rate derived : ₹ 28,372 per sq. mtrs. Adjusted for FAR (1.6=1.90) : (-)26 per cent. Adjusted for co-ownership (As per clause 3) : (-)10 per cent. Adjusted for time gap : For 11 months 11 per cent. Land rate achieved : ₹ 21,279 per sq. mtre. Fair market value on this basis of the subject property : ₹ 3,12, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tments made by the appropriate authority when there is no definite rule or norms, the authority cannot arrive at a value by making adjustments in an arbitrary fashion. Dealing with the sale instances given by the petitioner, the appropriate authority had rejected them by a process of reasoning which cannot at all be accepted. A perusal of paragraphs 9, 10, 11, 12 and 13 which are given below would show that the reasoning given by the appropriate authority is not in accordance with the established principles : Learned representative has also relied on certain other sale instances. One such instance is of property B-6, Panchsheel Enclave, New Delhi. This sale instance property had plot area of 668.9 sq. metres. Even though the sale instance was undervalued, the appropriate authority considered it not a fit case for several other reasons, e.g., this property was located at the face of the fly over, the title was not very clear inasmuch as mutation was not done in the names of the transferor and there was a nullah just a little away from the subject property. No such depreciating factors are present in this case. Therefore, the comparison with property at B-6, P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ller to be bona fide, the Controller may, on an application made to him in this behalf by the evicted tenant within such time as may be prescribed, direct landlord to put the tenant in possession of the premises or to pay him such compensation as the controller thinks fit. It is interesting to note that section 19 relates to recovery of possession for occupation and re-entry. The purpose behind the provision contained in section 19 appears to be that a person who gets possession of his property for his bona fide use should not let out to a person other than the earlier tenant. No evidence in this case has been placed whether sale is also covered under section 19(2) of the Act because letting out is different than sale of the property. A copy of letter described as undertaking dated April 18, 1994, has been filed from the transferee which specifically mentions that: We have examined the title and authority of the owners of property bearing No. A-6, Chirag Enclave, New Delhi and are satisfied ourselves with regard to the authority and power of the owners to sell and transfer the said property . It means that if any permission was required, that has already b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be the ground for ignoring the sale instances which otherwise are comparable. Annexure P-9, referred to above, reads as under : GOVERNMENT OF INDIA, OFFICE OF THE APPROPRIATE AUTHORITY, INCOME-TAX DEPARTMENT, Janpath Bhawan, 8th Floor, B Wing, New Delhi-110 001. No. AA/R 3677 of 1994-95/132 Dated May 6, 1994. To To (1) Mrs. Samarjeet Sandhu, W/o Late Sh. G. S. Sandhu, R/o HS-36, 1st Floor, Kailash Colony, New Delhi. Transferors Page No : 0390 (2) Lt. Gol. M. S. Dhillon, R/o F-12A, Kailash Colony, New Delhi. Transferors (3) Mrs. Amarjeet Lehal W/o Sh. Harmeet Singh Lehal R/o 65, Fielding Road Acton London (U. K.) (1) Sh. Om Parkash Khandelwal Transferees (2) Smt. Geeta Khandelwal R/o 2/101, Roop Nagar Delhi-7 Dear Madam/Sirs, Subject : Show-cause notice under section 269UD(1) of the Income- tax Act, 1961, in respect of property No. F-12A, Kailash Colony, New Delhi-48. Under the instructions of the appropriate authority, Delhi I am to state as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show cause as to why a pre-emptive purchase order under section 269UD(1) of the Income-tax Act may not be passed. For this you may appear before the appropriate authority on May 18, 1994, at 11.30 a.m. either personally or through your authorised representative. You are also requested to produce before the appropriate authority on the aforesaid date and time, the original title deed/s of the property together with photo copies thereof, for verification and return. In the case of failure to arrange representation on the aforesaid date and time, necessary orders will be passed in accordance with law on the basis of material already available on record without any further reference to you. Mr. Rajiv Sahai, Dy. Commissioner of Income-tax, filed counteraffidavit traversing the allegations in the writ petition. In the counteraffidavit it is stated that the unearned increase was ₹ 55,36,567. It is stated that the apparent consideration comes to ₹ 3,25,36,567. The stand taken in the show-cause notice and the impugned order is maintained in the counter. The petitioner filed rejoinder to the counter-affidavit. Mr. Syalli, learned counsel for the petitioner, submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners wrote to the first respondent seeking information about the progress of the work. On July 7, 1989, the first respondent builder informed the petitioners that the authorities had not sanctioned the plans. Again on September 10, 1990, the first respondent wrote to the petitioners stating that the N. D. M. C. had not sanctioned plans beyond 7th floor. The petitioners came down to India to finalise the transaction and met the first respondent. It was at that time the first respondent offered to sell a flat in Nilgiri Apartments, Barakhamba Road. The petitioners accepted the proposal. On April 27, 1991, the first respondent builder confirmed that it would sell a flat in Nilgiri Apartments, Barakhamba Road. On June 25, 1991, an agreement was executed between the petitioners and the first respondent for the purchase of the flat bearing No. 2 on the 4th floor in Nilgiri Apartments, Barakhamba Road for a consideration of ₹ 29 lakhs plus 15 per cent. extras and the final consideration would come to ₹ 34 lakhs. In addition to the above, the petitioners were obliged to pay under the contract the ground rent, house tax, municipal tax and mutation charges. What is stated by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction. On August 23, 1991, purchase order was passed by the appropriate authority. Challenging the purchase order C. W. No. 2836 of 1991 was filed by the first respondent builder and C. W. No. 980 of 1992 was filed by the petitioners. On March 1, 1993, this court following the judgment of the Supreme Court in C. B. Gautam s case [1993] 199 ITR 530 quashed the order dated August 23, 1991, and remitted the matter for reconsideration by the appropriate authority. On May 10, 1993, the appropriate authority issued show-cause notice to the first respondent and the petitioners stating : You are also informed that the apparent consideration as disclosed in Form No. 37-I filed by you is low if compared to other sale transactions in the same complex. Flat No. 4 on the third floor of the same complex (R-2439) was agreed to be sold for ₹ 30 lakhs as per agreement to sell dated May 30, 1991. The actual built up area of that flat was 1,341 sq. ft. which gives unit rate of ₹ 2,834 per sq. ft. Even after making adjustment for time gap + 1 per cent. and floor level difference 1 per cent. the rate remains the same. The actual area of the subject property is 1,41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest on ₹ 5,20,000 at 18 per cent. from the date of payment to date of agreement, i.e., June 25, 1991 (as per encl. I) 2,61,600 39,90,600 The petitioners explained that if the increase of value in U.S. dollars vis-a-vis Indian currency is taken into account from the dates of respective advance payments up to the date of the agreement, the petitioners would spend an extra amount of ₹ 2 lakhs (The dollar rate in 1988 was ₹ 16 whereas in 1991 the same was ₹ 22). On May 28, 1983, the appropriate authority passed the purchase order taking the same view as in the show-cause notice. In paragraph 6, it is stated by the appropriate authority : We have carefully considered the various submissions made on behalf of the transferors and the transferees. We are unable to accept in full the contention of the learned representative with regard to the value of the car parking space because car parking space does not have the same rise in cost as the main flat. Therefore, the value of the car parking space is estimated at ₹ 1,00,000. On this basis, the per sq. ft. rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppropriate authority to come to an arbitrary rate of ₹ 3,000 per sq. ft. and there is absolutely no reason to come to any conclusion that there was any tax evasion. The reasoning given by the appropriate authority does not at all appear to be reasonable. When a flat in a complex is offered for sale there are so many factors and unless there are some materials with the appropriate authority for fixing the valuation of the flat the fair market value of a flat consisting of several flats in a complex cannot be on the basis of subjective satisfaction of the appropriate authority. If that is so in a democratic country like ours there is no room for rule of law. We have no hesitation in coming to the conclusion that the order of the appropriate authority is absolutely arbitrary and it cannot at all be sustained. Mr. Soli Sorabjee, learned senior counsel for the petitioner, in addition to the arguments on merits, submitted that the appropriate authority had not complied with section 269UG of the Income-tax Act, 1961, by paying the amount within the time prescribed. We do not go into that question as we quash the order on other grounds. C. W. No. 3726 of 1994 : The suit p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on first floor of property at E-547, Greater Kailash-II, New Delhi which was agreed to be sold for ₹ 65,00,000 as per agreement to sell dated December 6, 1993. This sale instance property was also on a plot area of (sic) sq. yards on a 40 feet wide road with only 2 sides open. The declared built up area rate of the sale instance property consisting of 2,570 sq. ft. was at ₹ 65,00,000 divided by 2,570-Rs. 2,347 per sq. ft. If adjustment on account of + 4 per cent. and side open of + 5 per cent. (total 9 per cent.) is made, the adjusted built area works out to Rs., 2,529 x 1.09 = 2756.6 say ₹ 2,757 per sq. feet. On the basis of this sale instance the value of the subject property works out to ₹ 1,532 x 2,757 = ₹ 42,23,724 as against apparent consideration of Rs. (sic) lakhs higher by 75.99 per cent. of the disclosed apparent consideration. On May 17, 1984, the transferors and the transferee sent their explanation. It is stated that the building was constructed with a very poor specification and a poor structural design and look and, therefore, is not at all comparable with newly constructed flats. The transferors made advertisements in the newspape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two places where marble has been used that is of 1 x 6 adana pieces of very low quality of ₹ 10 per sq. ft. The fittings are all aluminium fittings, without tubs and printed tiles. The tiles used are 4 x 4 white tiles used generally in DDA flats or Government constructions. The transferors have to remove few geysers and other fittings as per the understanding. Besides, there are lot of complaints of leakage and regular complaints of ground floor occupants. They also brought to the notice of the appropriate authority that the flat was constructed on the terrace rights and, therefore, the owner of the ground floor had not allowed any access to the front lawn and the real court yard and there was no parking inside the building, even a scooter or motor cycle cannot be parked. In the show-cause notice it is stated that the area of the flat is 1532 sq. ft. whereas the actual area was 1402 sq. ft. Therefore, the rate per sq. ft. works out at ₹ 1712 per sq. ft. and not ₹ 1,560 as mentioned in the show-cause notice. About the first sale instance property, it is stated : The instance compared in the show-cause notice at S-237, Greater Kailash-I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 17,55,000. The area is 1250 sq. ft. The rate works out at ₹ 1,400 sq. ft. When adjusted with time gap, it gives rate of ₹ 1,572 which is lower than the subject property. Therefore, it was stated that the appropriate authority should drop further proceedings. On July 28, 1994, the appropriate authority passed the order of compulsory purchase. Regarding the advertisement made by the transferors, the appropriate authority has stated : We find from the newspaper cuttings of Hindustan Times of 17th March, 1994, 20th March, 1994, and 23rd March, 1994, that the advertisement reads as under : Greater Kailash corner/1st floor area 300 without basement, 3 bed rooms, drawing-dining . The above advertisement does not even specify whether the subject property was in Greater Kailash-I or in Greater Kailash-II. Further, this advertisement does not mention the expected price for the property nor the covered area. We also do not know what was the response of such advertisements and whether any willing purchaser contacted the transferor and if so, the price for which he was prepared to purchase the property. No evidence has been filed before us show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions are governed by business prudence and are not influenced by any extraneous considerations. Exception, however, is made only under section 269UD of the Income- tax Act where such transactions are made between the relatives on account of natural love and affection. The appropriate authority had completely ignored the realities of situation. Regarding the user the appropriate authority has observed : The contention that the subject property did not have three bath rooms as mentioned in the agreement to sell and in fact it had only two bath rooms, the third one having been converted into a store room because in the third bath room there was no window or other ventilation, is also not sustainable because on inspection of the property we found that in fact there were three bath rooms. The third bath room has sufficient ventilation through the other bath room having a common wall and the water connection and pipes were also found to exist and, therefore, this could also be converted into a bath room by installing the required sanitary fittings. If the approach of the appropriate authority is adopted in the way it is done, on the subjective satisfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g walls of the subject property has been found to be factually incorrect. It is also not correct to say that each of the three bed rooms in the sale instance property at S-237, Greater Kailash-I, and two of the three toilets in the sale instance property are bigger in size, than each of the three bed rooms in the subject property and two of the three toilets in the subject property. The contention that the overall usable area in the sale instance property is 1014.92 sq. feet, as compared to the overall usable area of 968.69 sq. feet in the subject property has also been found to be incorrect. As per the plan approved by the MCD and submitted along with the application in Form No. 37-I in the case of the subject property as well as in the case of the sale instance property at S-237, Greater Kailash-I, it has been found that the actual usable area in the subject property including the passage is 1064.40 sq. ft. as compared to the usable area of 830.69 sq. ft. including passage in S-237, Greater Kailash-I. Regarding the specification, the appropriate authority observed : We may state that the difference in the value of the property on account of inferior or su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Subject property not facing park : (-)5 per cent. Land rate works out : ₹ 35,480 To this has to be added salvage value of the structure of the subject property : ₹ 44,660 Now the land value : 271.73 x 35,480 = 96,40,980 Add 44,660 The total comes 96,85,640. The apparent consideration of the subject property is thus 20% less than the fair market value. About the second sale instance property- Plot area : 271.73 sq. mts. Consideration : 125 lakhs Date of agreement : 19-7-1994. Salvage value of the structure : ₹ 1 lakh. Declared land rate works out at : ₹ 45,634 Page No : 0406 Time gap at 1% p.m. : 1 1/2 per cent. The property facing park : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide 271.73 31,281.05 (-) Rs. 5,00,000 salvage value Rs. 85,00,000 divide 271.73 31,281.05 (-5) Rs. 31,281.05 x (-5%) 29,717.00 park facing. The value of the basic land value amount of ₹ 29,717.00 which is comparable to our land value and the permission for this was granted by the appropriate authority. C-530 Defence Colony : This property is situated on a corner plot and the land is 360 sq. yds. This property faces open ground and the house is 1 storeys with the three bed rooms, drawing, dining and two study-rooms with attached bath-rooms. The permission for this was applied in October/November, 1993, for ₹ 93 lakhs. The value was calculated as follows : ₹ 93,00,000 divide 301.00 30,897.01 If addition of (+5%) for time-gap is made (+) then ₹ 1,544.86. The adjusted value comes to ₹ 32,441.86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire proceedings. The petitioners filed C.M.P. No. 8279 of 1994 seeking to place on record certain facts. It is stated in the petition that the subject property belonged to the late Col. Y. S. Sawhney. He died in May 1992, as a bachelor. The third respondent, J. S. Sawhney, inherited the property, he being the only surviving brother. The step brother of the late Y. S. Sawhney and the children of his pre-deceased elder brother had filed a Suit No. 224 of 1994 in the court of the Additional District and Sessions Judge, Delhi. They had withdrawn that suit and they had instituted Suit No. 2079 of 1994 in this court propounding a will alleged to have been executed by Y. S. Sawhney. It is also stated that with reference to house No. 11, Road No. 78, Punjabi Bagh, New Delhi, while comparing the property with property No. 21 of 1977, Punjabi Bagh, New Delhi, had given deduction of 10 per cent. on account of litigation in order dated October 12, 1994. The petitioners in the application have also prayed for summoning of the file in Suit No. 2079 of 1994 in this court. The appropriate authority has filed a reply to the writ petition travers-ing the allegations in the writ petition. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the apparent consideration is less by 56.60 per cent. of the fair market value : If compared to sale transactions of similar properties in this locality, the apparent consideration disclosed appears to be low. Your attention is particularly invited to sale of immovable property E-326, East of Kailash, New Delhi, with a plot area of 200 sq. yards or 167 sq. metres which was agreed to be sold for apparent consideration of ₹ 51,00,000 + conversion charges as per agreement dated May 23, 1993. This sale instance property also consisted of land with building consisting of basement, ground floor and second floor. If the salvage value of the sale instance property is considered at ₹ 55,720 and the conversion charges are considered at ₹ 42,421, the unit land rate works out to ₹ 30,419 per sq. metre (51,00,000 + 42,421 = 51,42,421 55,720 = 50,86,701 167.22 = 30,419 per sq. metre). This sale instance property required to be further enhanced by + 16.75 per cent. on account of time gap + 3 per cent. FAR + 18.75 per cent. and location on account of park 5 per cent. (total 16.75 per cent.) After this adjustment, the land value of the subject proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. is fair and due. (-) 10 per cent. (vi) Subject property is bigger in size as com- pared to the sale instance. Thus its potential to attract buyers is comparably less. (-) 10 per cent. (vii) The sale instances is of the property where greater coverage is permissible on the ground. The coverage area is 50 per cent. according to the DDA Rules. Therefore, scope of expansion is 17.1 per cent. less for which due deduction ought to be permitted. (-) 17. 1 per cent. 26 approx In paragraph 7 of the reply it is stated that property C-111, East of Kailash, was transferred by way of collaboration agreement in January, 1993, at ₹ 24.50 lakhs where the area of the site is 250.48 sq. mts. The unit cost in the case of land works out at ₹ 20,000 per sq. mt. and No objection has been granted by the appropriate authority. It is stated that the transaction is a genuine one and no objection should be granted. A further representation was given stating that three properties had been cleared by the appropriate authority, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e superior than those in A-Block. We are also conscious of the status and standing of the transferor who was a meritorious officer of the Indian Police Service, although this factor is extraneous to the issue being dealt with by us. Regarding the adjustments, the following reasons are given by the appropriate authority : As regards the adjustments it may be stated that an adjustment of +3 per cent. on account of time-gap, adjustment of +18.75 per cent. on account of the FAR and an adjustment of (-) 5 per cent. on account of park was already proposed in the show-cause notice dated November 4, 1993. Further, an adjustment of (-) 5 per cent. on account of the subject property facing a nullah across the main road is also being given now. Further, an adjustment of (-) 10 per cent. is also being given now as claimed by the transferee as the subject property is bigger in size as compared to the sale instance property at E-326, East of Kailash, New Delhi. The transferee in his written submissions has claimed an adjustment of (-) 10 per cent. as the subject property is surrounded by jhuggies and jhompries and further has claimed an adjustment of (-) 17.1 per cent. as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Sh. D. N. Katyal was in occupation of the property No. A-32, East of Kailash, New Delhi, as a licensee, the purchaser purchased this property along with the occupation of Sh. D. N. Katyal whom he had agreed to evict at his own cost. This factor clearly distinguishes property No. A-32, East of Kailash, New Delhi, from the subject property in which there is neither a bona fide tenancy nor an occupancy of a third party. The apparent sale consideration of property No. A-32, East of Kailash, would have been much higher but for the possession of the property by Sh. D. N. Katyal. Therefore, the sale instance of A-32, East of Kailash cited by the transferee is not comparable to the subject property. The appropriate authority dealt with the sale instance cited by the writ petitioner with reference to property D-137, East of Kailash, which had been agreed to be sold for an apparent consideration of ₹ 1,12,50,194 including unearned increase as per agreement to sell dated October 13, 1992, a peculiar reasoning is adopted by the appropriate authority to say that the fair market value of the subject property is 37 per cent. higher than the sale instance property : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration of ₹ 23,50,000. The area of the land is 375 sq. mts. The construction consists of a single storeyed house including a double-storeyed outhouse covering area of 2,300 sq. ft. On May 27, 1987, the parties filed the application in Form No. 37-I for issuance of a no objection certificate. On July 10, 1987, the appropriate authority passed the order for compulsory purchase. Challenging that order the petitioners filed C. W. No. 2275 of 1987 in this court. On March 1, 1993, a Division Bench of this court allowed the writ petition in view of the judgment of the Supreme Court in C. B. Gautam s case [1993] 199 ITR 530. On May 3, 1993, the petitioners applied to the appropriate authority requesting it to furnish the reasons for not issuing the no objection certificate. On May 11, 1993, the appropriate authority issued a show-cause notice. The basis of the show-cause notice is : You are also informed that the apparent consideration disclosed by you in Form No. 37-I is low if compared to other sale transactions of similar property in that area during that period ; it may be recalled that immovable property located at B-7/118, Safdarjung Enclave Extn., New De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and handed over the area to the respective parties holding posses-sion before demolition. However, some developments were undertaken by the DDA to improve roads, etc. So the locality consists of all sizes of plots varying from 36 sq. metres. to 500 sq. mtrs. with small approach roads surrounded by old Arjun village and labour jhuggies. That the property under reference was owned by Sardar Mohan Singh. Due to adverse political atmosphere the transferors were anxious for expeditious disposal of his property and to leave the country to join his daughter living abroad. In pursuance of his planning he was making desperate efforts to sell the property. But because of defective situation, small approach roads, sub-standard habitation, labour jhuggies around and over and above unhealthy surroundings of the village, there was no preference by the buyers for purchase of the said property. At the relevant time, adjoining plots were occupied by jhuggi dwellers on both the sides of the plot in question. These jhuggies still exist at the site. A photo taken of the site is produced for kind perusal. A site plan copy is also enclosed. In the explanation the difference between Safdarjung Enc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate for the purposes particularly when sale instances of the same locality are available. It is submitted that the sale consideration as recorded in the agreement to sell represents the fair market value and is not a fit case where the provisions for pre-emptive purchase of property by the Central Government are attracted. On May 28, 1993, the order of compulsory purchase was passed. Dealing with the sale instance quoted by the petitioners, the appropriate authority stated : Before dealing with the submissions on behalf of the transferee it will be relevant to note that the subject property is 375 sq. mtrs or 450 sq. yds. Therefore, it is not appropriate to compare it with sale instances of 70 sq. mtrs., 100.7 sq. mtrs, 174.8 sq. mtrs. 70 sq. mtrs. mentioned at Sl. Nos. 1, 2, 3, amp; 4 of the preceding paragraph. So far as sale of adjoining plot No. B-7/119 of 238 sq. mtrs. is concerned, the transferee, it is regretted, has not properly stated the facts. The sale deed in respect of undivided share was sold on 31-7-1992. The property was tenanted and the monthly rent as per sale deed was only at ₹ 600.00. The remaining undivided share ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the sale instance property B-2/2, Safdarjung Enclave, which is a leasehold property to bring it at par with the subject property to arrive at the rate of ₹ 7,014 per sq. mt. It is submitted that the formula evolved by the Government of India for conversion rate leasehold into freehold is 10.4 per cent. and, therefore, there was an error on the part of the appropriate authority. The appropriate authority had not given the basis on which it had arrived at the cost of the super structure at ₹ 3,41,000 while as per the calculation of the petitioners the value of the super structure comes to ₹ 1,25,000. The appropriate authority had also not conveyed in what manner it had calculated + 10 and +31 per cent. for location, FAR, etc. The appropriate authority had acted contrary to the established principles by comparing the subject property with properties situate in colonies like Hauz Khas, Green Park or Safdarjung Enclave which were fully developed more than 10 years prior to the agreement in 1987. The appropriate authority had not also not considered the existence of jhuggies and the irregular size of the plot in this area and the vendors were anxious to sell the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after a very great research and industry and on well thought out lines of reasoning formulated points which were very instructive, apart from being very interesting and learned. He submitted the right to acquire property is part of personal liberty under the Constitution and that cannot be taken away by resorting to Chapter XX-C, Income- tax Act, 1961. He relied on the following authorities : 1. State of West Bengal v. Subodh Gopal Bose [1954] AIR 1954 SC 92 ; [1954] 5 SCR 587. 2. Kharak Singh v. State of U. P. [1963] AIR 1963 SC 1295. 3. Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp Cas 325 ; [1970] AIR 1970 SC 564. 4. Maneka Gandhi (Smt.) v. Union of India [1978] AIR 1978 SC 597. 5. State of Himachal Pradesh v. Umed Ram Sharma [1986] AIR 1986 SC 847 ; [1986] 2 SCC 68. 6. Supreme Court Legal Aid Committee representing Undertrial Prisoners v. Union of India [1994] 6 JT 544 (SC). 7. Shantistar Builders v. Narayan Khimalal Totame [1990] AIR 1990 SC 630 ; [1990] 1 JT 106 (SC). 8. Prabhakaran Nair v. State of Tamil Nadu [1987] AIR 1987 SC 2117. 9. Mohini Jain (Miss) v. State of Karnataka [1992] AIR 1992 SC 1858 ; [1992] 4 JT 292 (SC). 10. Vincent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tizen whosoever is aggrieved can challenge not only on the ground that the law should be reasonable but also the order passed on the basis of that law. He relied upon the decision of the Supreme Court in Oudh Sugar Mills Ltd. v. Union of India, AIR 1970 SC 1070. He next submitted that the mode of determination of market value is part of procedure which should be in accordance with law and he referred to sections 277 and 295 of the Income-tax Act, 1961, and the Income-tax (Seventh Amendment) Rules, 1986, and submitted that if the procedure is not in accordance with law, the ultimate order is vitiated and it is null and void. He relied upon the following authorities apart from relying upon Black s Law Dictionary : 1. A. K. Gopalan v. State of Madras, AIR 1950 SC 27. 2. P. Vajravelu Mudaliar v. Special Deputy Collector for Land Acquisition AIR 1965 SC 1017. 3. CWT v. Laxmipat Singhania [1978] 111 ITR 272 (All). 4. CWT v. Smt. Taraben R. Patel [1992] 198 ITR 657 (Kar). 5. Jaswant Rai v. CWT [1977] 107 ITR 477 (P amp; H). 6. CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134 (Guj). He further submitted that determination of fair market value in law cannot dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en they wanted to withdraw : For reasons stated in the application the same is allowed, the writ petition is dismissed as withdrawn. The interim orders are vacated as of today ; the effect of this would be that as if order under section 269UD(1) is deemed to have been passed today for the purpose of limitation and other consequences. Later on, the petitioner had filed the present writ petition. The third respondent-appropriate authority had filed an application CM No. 6632 of 1993 stating in paragraph 7 : It is submitted that after the decision of the Supreme Court in C. B. Gautam s case [1993] 199 ITR 530, the issue is only of academic interest because the order passed in this case under section 269UD will have to be set aside for passing fresh order after giving proper hearing and communication of a reasoned order. In the show-cause notice the appropriate authority in arriving at the fair market value had not followed the well settled principles. Following the reasoning given by the Gujarat High Court in Krishna Kumar Agarwal v. Appropriate Authority [1996] 217 ITR 274 and Hindumal Balmukund Investment Co. Pvt. Ltd. v. Appropriate Authority [199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Authority [1995] 216 ITR 850 (Guj), being Special Civil Application No. 11697 of 1994 decided on March 8/9, 1995. It was lastly contended that the bare reading of the order precluded the satisfaction that the apparent consideration of the property in question appears to be understated by more than 15 per cent. and is, therefore, a fit case for making pre-emptive purchase under the provisions of Chapter XX-C of the Act and has been arrived at without application of mind inasmuch as, from the order, it is apparent that the facts which are necessary for arriving at such satisfaction are non-existent. The learned judges observed (page 26) : We have given our anxious consideration to the contentions raised before us and perused the material placed before us. As will be discussed presently, in our opinion, the last contention of learned counsel for the petitioner is well-founded and the petition should succeed on that count alone. Hence, we do not propose to go into other contentions. The learned judges observed (page 27) : It is further to be noticed that even where the taking of action depends upon the subjective satisfaction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UD of the Act. The order clearly falls short of this requirement. The order nowhere specifies the grounds on which the appropriate authority has decided to take action under Chapter XX-C while the appropriate authority rejects the submissions made by the objectors against the proposed action, as discussed earlier, the action is not supported by any material on which it can be said that the appropriate authority could reach a conclusion that the estimated market rate or the real consideration of the first floor of a commercial building, similarly situated as the property in question, is more than the apparent consideration disclosed in the agreement in question by 15 per cent. Therefore, the order must fail on its own reading. Forbes Forbes Campbell and Co. Ltd. v. Nishar Ahmed, IAC, [1996] 217 ITR 103 was by the Division Bench of the Bombay High Court (M. L. Pendse and S. M. Jhunjhunuwala JJ.) and the judgment was delivered on October 12, 1994. In this case before the Bombay High Court the notice issued by the appropriate authority was challenged and the learned judges quashed the notice on the same process of reasoning as adopted by the Gujarat High Court. In all the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended to be resorted to only in cases where there is an attempt at tax evasion by significant undervaluation of immovable property agreed to be sold. The court further observed (page 280) : The impugned order, in our opinion, does not even whisper about the satisfaction of the appropriate authority about the undervaluation being with an intention to evade tax. It must be noticed that the presumption is a rebuttable one and what evidence is required to rebut it depends upon the facts and circumstances of each case. The presumption may even be rebutted, without leading evidence, on the basis of material already available on record. The position regarding discharging the burden to displace the rebuttable presumption has been succinctly explained in CIT v. Vinaychand Harilal [1979] 120 ITR 752 (Guj). That was a case where there was a statutory provision for raising a presumption against the assessee under the Explanation to section 271(1)(c) about concealment of particulars of income by the assessee. The court said (page 758) : In order to rebut the presumption raised by the Explanation to section 271(1)(c), it is open to the assessee to point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act leaves no room for doubt that it is a question of objective decision-making process by taking into consideration all the relevant materials which have come before the hearing authority and considering the rival aspects of the matter. Moreover, the requirement of law is to specify the grounds on which the order of pre-emptive purchase is made. That obligation does not stop by merely rejecting the submissions made before it. The rejection of submissions made by the vendors or the transferee or the persons interested in the property, does not lead to consequence that grounds for making pre-emptive purchase exist. The sine qua non is that the reasons must exist on the material placed before it, for supporting the action taken for pre-emptive purchase under section 269UD of the Act. The order clearly falls short of this requirement. In the above facts and circumstances of the present case, we are not inclined to refer the matter back to the appropriate authority. The petition accordingly succeeds. The impugned order dated April 20, 1995 (annexure M ), is quashed. Respondent No. 1 will issue the necessary certificates including the no objection certificate within six week ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case, the petition requires to be allowed. Apart from any other reason, in our opinion, the appropriate authority has committed a grave error of law apparent on the face of the record in placing reliance on the sale instance property and in passing the impugned order on that basis. As is clear, while passing the impugned order, the appropriate authority has referred to and relied upon consideration and market price of the sale instance property. However, it is the case of the petitioner that the sale instance property could not be said to be a comparable sale instance. Regarding the situation of the sale instance property and the property under consideration, the appropriate authority observed that both the sale instance property and the property under consideration were situated in a commercial zone. The property under consideration was situated behind Mount Carmel High School in a commercial zone. It was not accepted that there was no commercial development around property under consideration. In our view, Mr. Shah is right in contending that even if property under consideration is situated in commercial zone, it is indeed a relevant factor whether there is commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich reliance was placed by the petitioner. Sale instance property-1 is situated at the end of C. G. Road which, according to the petitioner is a commercially developed area. The property under consideration is situated on Ashram Road but on to wide T. P. Road taking off from Ashram Road. Similarly, sale instance property-2 is situated on 40' T. P. Road taking off from C. G. Road which is also occupied by the two tenants and it ought to have been considered in its proper perspective. Mr. Shah is right in submitting that the fact that the transfer expenses were to be borne by the purchaser is a relevant fact and it ought to have been given due importance. The authority was not right in observing that it would not affect the value of the property. Apart from the above grounds, in our opinion, Mr. Shah is right in submitting that the satisfaction as contemplated by section 269UD(1) must be based on objective facts. There must be evidence and material to arrive at the conclusion and satisfaction. Rejection of sale instances and/or grounds and/or reasons put forth by the party is one thing. At the most, it can be said to be a negative finding for not accepting the case of the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitting that the satisfaction as contemplated by section 269UD(1) must be based on objective facts. There must be evidence and material to arrive at the conclusion and satisfaction. Rejection of sale instances and/or grounds and/or reasons put forward by the party is one thing. At the most, it can be said to be a negative finding for not accepting the case of the transferor/transferee. The law, however, requires something more. In our opinion, it is incumbent upon the appropriate authority to come to a positive and definite conclusion that the property was undervalued. A similar question arose before us in Special Civil Application No. 869 of 1995, (Anagram Finance Ltd. v. Appropriate Authority [1996] 217 ITR 22 (Guj)) decided by us on March 30, 1995. Considering the relevant provisions of the Act as also the decision of the Supreme Court in Barium Chemicals Ltd. v. Company Law Board [1966] 36 Comp Cas 639 ; AIR 1967 SC 295, we observed as under (page 28 of 217 ITR) : A combined reading of section 269UD(1A) and (1B) of the Act leaves no room for doubt that it is a question of objective decision-making process by taking into consideration all the relevant mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd set aside. In Shriniketan Members Association and Anuj Members Association v. Appropriate Authority [1996] 219 ITR 359, the same Bench of the Gujarat High Court delivered judgment on October 20, 1995. The court followed the judgment in Hindumal Balmukund Investment Co. P. Ltd. v. Appropriate Authority [1996] 219 ITR 146 (Guj) emphasising the points stated earlier in the following terms (page 364) : It may further be noticed that if in the estimate of the appropriate authority the apparent consideration of the property stated in the agreement to sell is less by 15 per cent. or more of its fair market value, the presumption of understatement having been made with the intention to evade the tax may be raised by it. However, such a presumption is not a statutory presumption which is mandatorily required to be drawn in all cases . . . . mere finding of understatement, without recording the conclusion of the appropriate authority himself, about a nexus between understatement of consideration and attempt to tax evasion, it is not permissible to raise presumption that the appropriate authority has also found that such understatement was an attempt to evade the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lsory purchase of the property in question. The Bench referred to the judgment of the Supreme Court in C. B. Gautam s case [1993] 199 ITR 530. The learned judges rested their view on the observations of the Gujarat High Court in CIT v. Vimlaben Bhagwandas Patel (Smt.) [1979] 118 ITR 134, 181, wherein it was observed (page 515) : In the perspective of this settled legal position of law, we have to examine as to what would be the contents of the principles of natural justice in the inquiry before the competent authority. By and large, it can be said that in the enquiry under Chapter XX-A of the Income-tax Act, 1961, the transferor and/or transferee as well as the occupant and any other known interested person should be told the nature of allegations against him including the material collected so far by the competent authority, and be furnished copies of the statements recorded and those of the documents collected by the competent authority on which he intends to rely so as to give the person interested or affected an opportunity to state his case and to correct or controvert the material sought to be relied upon, and the competent authority should act in a just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties, which did not represent fair market value. In the absence of the agreements relied upon by the appropriate authority, the agreement holders were handicapped to explain the same. It may be noticed that if the documents relied upon by the appropriate authority are excluded from discussion, there is no material to support the finding of understatement of consideration by more than 15 per cent. in the agreement in question, recorded by the appropriate authority. We, therefore, hold that not providing copies of the agreements which were relied upon by the appropriate authority to record an adverse finding against the agreement holders amounts to denial of opportunity of being heard resulting in violation of the principles of natural justice which would vitiate the proceedings. In Smt. Varshaben Bharatbhai Shah v. Appropriate Authority [1996] 221 ITR 819, the Division Bench of the Gujarat High Court consisted of B. C. Patel and R. M. Doshit JJ. and the judgment was delivered on February 5 and 6, 1996. The court considered the question about non-observance of principles of natural justice. The court noted (page 830) The appropriate authority took into consideration the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... communicate to the assessee the substance of the information so proposed to be utilised to such an extent as to put the assessee in possession of the full particulars of the case he is expected to meet and that he should be further given ample opportunity to meet it. In the instant case, the appropriate authority did not disclose to the petitioner the valuation report submitted by its subordinate officer and in the absence of furnishing such a report, it cannot be said to be a real hearing or a fair hearing but can be said to be an empty formality. In Ashis Mukerji v. Union of India [1996] 222 ITR 168, a Division Bench of the Patna High Court D. P. Wadhwa C. J. (as His Lordship then was) and S. J. Mukhopadhaya J. considered the validity of the order passed by the appropriate authority on July 11, 1996. The Division Bench besides quashing the order of the appropriate authority set aside the order of taking possession of the property and declared that the property shall revest in the writ petitioner. In Mrs. Nirmal Laxminarayan Grover v. Appropriate Authority (Income-tax Department) [1997] 223 ITR 572, the Division Bench of the Nagpur Bench of the Bombay High Court had an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is pointed out, is to prevent proliferation of black money in real estate transactions and evasion of taxes by gross undervaluation of the immovable property in question. It is, therefore, necessary that recourse to compulsory purchase of the immovable property in question under Chapter XX-C of the Act should be taken only in clear cases of gross undervaluation from which the inference must clearly flow that it is done for evasion of taxes. As regards the principles relating to the comparable sale instances, the said principles are well settled by the judgments of the Supreme Court regarding the determination of market value of the acquired land under the Land Acquisition Act which principles can usefully be resorted to in the determination of the question of gross undervaluation of the market value of the property in question which are the subject-matter of compulsory purchase under Chapter XX-C of the Act. As pointed out hereinbefore, the sale instance relied upon by the appropriate authority cannot be said to be a comparable sale instance and, therefore, cannot furnish a good guide for determining the market value of the suit land. The court further observed (page 593 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given adequate notice of what is proposed, so that they may be in a position- (a) to make representations on their own behalf ; or (b) to appear at a hearing or inquiry (if one is to be held) ; and (c) effectively to prepare their own case and to answer the case (if any) they have to meet. It must be then seen that the conclusions of the authority at the stage of giving a show-cause notice are always prima facie or tentative conclusions for, if it is not so, its ultimate order would suffer from its bias, i.e., its pre-determined mind. However, because its conclusions at the stage of show-cause notice are only prima facie or tentative conclusions, it would not mean that they are not required to be disclosed in the showcause notice. The above stand taken by the respondents in their return is thus wholly misconceived and is untenable. In fact, it betrays the ignorance of the respondents about the basic tenets of the principles of natural justice which we have referred to above as requirements of a proper show-cause notice. Dealing with the contentions on behalf of the Revenue that the inquiry was summary in nature and, therefore, the appropriate authority was justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of which the appropriate authority holds the prima facie view that the property in question is grossly undervalued has to be thus in its possession before taking action under section 269UD(1) of the Act, the question of time-frame and summary nature of enquiry has no relevance to the question of incorporating in the showcause notice the particulars of the material in the possession of the appropriate authority on the basis of which it entertains a view that the property in question is grossly undervalued. The petitioner is, therefore, clearly prejudiced in her defence since the relevant material upon which the prima facie view of the appropriate authority that the property in question is undervalued is based is not disclosed in the show-cause notice given to her. The impugned order of the appropriate authority passed pursuant to such a defective show-cause notice is thus illegal and is vitiated for not being in consonance with the basic principles of natural justice. In the light of the view taken by us above, it cannot be held that the appropriate authority has proved by clear and cogent material on record that the suit land is significantly undervalued, which is a criter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of the Act is under-statement of apparent consideration to the extent of at least 15 per cent. and with a view to evade tax or conceal income. (2) There is a rebuttable presumption of tax evasion where the fair market value of the subject property exceeds the apparent consideration by 15 per cent. (3) The passing of a pre-emptive purchase order under section 269UD(1) of the Act implies tax evasion and imputation of tax evasion adversely affects the reputation and image of the concerned parties and, therefore, the purchase order shall not be made lightly and in routine. (4) The burden lies on the authority to establish that the apparent consideration falls short of the market value by more than 15 per cent. and it never shifts ; only the onus continues shifting from one to another. (5) The parties are entitled to be supplied entire material relied upon by the authority including the valuation reports on record. (6) The imputation of tax evasion or concealment of income cannot be mechanically or lightly made without due regard to the explanation of the affected parties and meticulous examination of instances of comparable properties cited by the affected parties an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received in respect of subject property from a third party after the date of the agreement or at the auction of the same property later, cannot ordinarily be taken into consideration for determining its fair market value. (19) General guidelines and criteria to make adjustments on account of time, locations, size of plot, etc., for comparing values of different properties, to determine the fair market value of the subject property, shall be made known to the public and shall not be kept a guarded secret. (20) In determining the fair market value of a property, regard must be had to the field realities, such as long delays taking place in courts in getting possession from bona fide tenants in cases where tenants have protection of rent laws and also in cases where suits for possession are filed under the Transfer of Property Act. (21) The fair market value of a property cannot be determined by theoretical considerations in an abstract manner by applying multipliers and arbitrary adjustments since, as far as possible, the actual value of a property in the market is required to be determined for action under Chapter XX-C of the Act. (22) The element of guess work inherent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. per annum. As a result of above formula, the value has been discounted by 32 to 37 per cent. and the market value has thus been worked out at 68/ 63 per cent. of the value of sale instance properties. The authority has also considered two offers made to it though it is claimed that the said offers were not made the basis of the purchase order but it only corroborated other evidence on record showing under valuations. The agreement in respect of property G-18, Maharani Bagh, being one of the sale instance properties taken into consideration for determining the fair market value of the property, had been entered into on June 25, 1991. On account of the time gap of 24 months, the adjustment of plus 24 per cent. was made. In another sale instance property being G-8, Maharani Bagh, there was basement potential and, therefore, adjustment of minus 10 per cent. was made by the authority on that count. The impugned pre-emptive purchase order is utterly perverse. There is nothing on record to suggest as to what were the special reasons for making a purchase order in respect of almost wholly tenanted property. Assuming there was some justification for the authority to initiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t petition the property, in respect of which pre-emptive purchase order has been made, is 25, Friends Colony, New Delhi, with the plot area of 3593.32 sq. mtrs. including 830.95 sq. mtrs declared excess land under the Urban Land Ceiling Regulation Act. The net area of the plot under the property, therefore, 2762.32 is 2,364.37 sq. mtrs. The property was agreed to be sold for an apparent consideration of ₹ 1.75 crores under agreement dated February 1, 1991. The earlier order for preemptive purchase made in respect of this property on April 18, 1991, by the authority was set aside by this court on March 1, 1993, in view of the decision of the Supreme Court in C. B. Gautam s case [1993] 199 ITR 530 and the matter remanded to the authority for fresh examination. Thereafter, the show-cause notice dated May 21, 1993, was issued by the authority and the impugned pre-emptive purchase order was made on May 28, 1993. This property is also tenanted. The facts noticed in the impugned order passed by the authority show that from January 1, 1974, the lessee of the property was Jain Shudh Vanaspati Ltd., at a monthly rent of ₹ 4,000 for the residence of Vinod Kumar Jain who had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation for issuing show-cause notice to consider pre-emptive purchase order being made in respect of property in question, the method of valuation adopted by the authority is also wholly arbitrary and irrational. In respect of the subject property whereof there is so much of litigation, the authority labours under the belief that the period of lease agreement having already expired and the tenancy after the lease period being monthly, there could be no question of the tenant not being evicted. Under these circumstances 5 years deferment formula was applied for determining the market value and net rent capitalisation method. It has to be borne in mind that the monthly rent was only ₹ 4,000. It also deserves to be noticed that though the sale instance of property No. 60 was taken into consideration for determining the fair market value of the property in question but it has now come on record that in respect of property No. 60, Friends Colony, agreement dated December 5, 1990, for ₹ 2.65 crores did not materialise. The seller forfeited ₹ 25 lakhs and the said agreement was cancelled and under a subsequent agreement of September 1991, the property was sold at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rea of the property is 4300 sq. ft. By showcause notice dated July 6, 1994, the transferor and the transferee were granted opportunity to show cause why pre-emptive purchase order under section 269UD(1) of the Act be not made. The impugned order of preemptive purchase was made by the authority on July 28, 1994. The sale instances given in the show-cause notice and confirmed under the impugned order for determining the fair market value of the property are : (1) 4, Palam Road, Vasant Vihar. (2) N-119, Panchsheel Park, New Delhi. (3) A-95, Neeti Bagh, New Delhi. In respect of the Vasant Vihar property the agreement to sell was dated August 20, 1993, in respect of the Panchsheel Park property the agreement was dated September 29, 1993, and in respect of the Neeti Bagh property the agreement was dated October 28, 1993. After plus and minus adjustments on account of time gap, locational difference of the colony and the plot, etc., the unit land rate per sq. mtr. was worked out to ₹ 33,440 by applying the sale instance of Vasant Vihar property, ₹ 41,460 on the basis of Panchsheel Park property and ₹ 34,172 per sq. metre on the basis of Neeti Bagh property. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners, the authority itself had made adjustment of FAR to the extent of 40 per cent. Greater Kailash Enclave I is adjacent to the subject property and in any case better comparable than Vasant Vihar area. The authority has compared two incomparables. The impugned order thus cannot be sustained and deserves to be quashed. C. W. No. 3139 of 1993 : The property in issue in this petition is Flat No. 2 on 4th Floor Neelgiri Apartments, 9, Barakhamba Road, New Delhi. The petitioners who are purchasers are husband and wife. They are doctors by profession. Under the agreement dated June 25, 1991, the flat in question was agreed to be sold to the petitioners for a sum of ₹ 29 lakhs plus 15 per cent, other charges. The pre-emptive purchase order made by the authority on August 23, 1991, was set aside by this court by judgment dated March 1, 1993, in view of the decision of the Supreme Court in C. B. Gautam s case [1993] 199 ITR 530. Thereafter, show-cause notice dated May 10, 1993, was issued to the transferor and transferee relying upon the sale instance of Flat No. 4 on the third floor of the same building said to have been agreed to be sold for ₹ 38 lakhs, as per a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n question being in the front complex can be legally made, the apparent consideration would still be within the permissible range of 15 per cent. In fact the apparent consideration paid by the authority for the flat in question was ₹ 38.34 lakhs. The per square foot rate thus would be ₹ 2,717 and, the difference, if compared with the rate of comparable flat at ₹ 2,898 would be 6.25 per cent. It may also be noted that the case of the petitioners before the authority was that Barakhamba Road being a very busy road, it is subject to heavy air and noise pollution and hence the flat of residential purpose in the front complex has disadvantage. The authority erroneously rejected the value of the flat on the first and third floor in respect of which permission has been granted on the ground that the said sales were much prior to the date of agreement. In other cases noticed hereinbefore the authority had by applying adjustment taken into consideration the instances of the sale effected about two years prior to the date of the agreement. Further, from the material placed on record, it appears, that ₹ 23,30,924 was tendered by the Central Government to the vend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transferor, were all rejected by the authority. The approach of the authority, to say the least, is not in conformity with the object underlying Chapter XX-C of the Act. The sum and substance of view point of the authority is as to why Mr. amp; Mrs. Chari entered into a deal to purchase property at Bangalore when they did not have arrangements of money. The question, however, is not about the prudence of the transferors to sell the property to the transferee because the transferors wanted immediate payment but is whether there is any attempt to evade tax. The factor that the subject property was agreed to be sold to an immediate neighbour who also gave about 70 per cent. amount as advance, cannot be rejected only on the ground that only transactions between the relatives on account of natural love and affection can be considered for a value lesser than market value. The whole concept of distress sale, in so far as applicable to such matters, has been completely misunderstood by the authority. Further, the subject flat was constructed in the year 1986 and was compared by the authority with a flat constructed in the year 1993 alleged to have specification of a five star h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi, was agreed to be sold to the petitioners in terms of the agreement to sell dated May 6, 1994, for a sale consideration of ₹ 80 lakhs plus conversion charges of about ₹ 1,04,000. The sale instance of properties situate at C-77 and C-86, Defence Colony, have been taken into consideration by the authority for coming to the conclusion that the apparent consideration disclosed is understated by more than 15 per cent. The land rate of the subject property has been worked out at ₹ 29,659 per sq. mtr. The land rate of C-77 agreed to be sold at ₹ 99 lakhs including conversion charges as per agreement dated December 22, 1993, has been worked out at ₹ 35,838 per sq. mtr. and it is concluded that the total value of the subject property is about 20 per cent. higher than the apparent consideration. It is stated to be lower by 43.6 per cent. when compared to the sale instance property C-86 agreed to be sold for ₹ 1.25 crores as per agreement dated July 19, 1994. It was strenuously contended before the authority by the petitioners that the sale instance properties were not comparable on account of various factors including the nature of construction a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judge. As already stated they had also moved an application for being impleaded as a party though the said application was rejected by this court. In other cases, the authority has been discounting the fair market value of the property on account of litigation. The aforesaid ground on which such discounting has been declined in the present case, is wholly erroneous. If the value on account of litigation had been discounted by 10 per cent. as was done in other cases while considering the fair market value, the apparent consideration of the subject property would have been within permissible limits, when compared with the sale consideration of property No. C-77, Defence Colony. Apart from the above, the authority without any just cause rejected the explanation pertaining to property at C-86 that it was a centrally air- conditioned property and thus not comparable by merely observing that the said fact only showed that the value of the property C-86 was slightly more. It failed to consider that the value of a centrally air-conditioned property could not have been taken into view to value the subject property. Looking from any angle, we find it difficult to sustain the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e apparent consideration. Further, the instance of property No. A-32 relied on by parties was rejected for irrelevant reasons. A-32 was not only the property in the same block but its valuation was relied upon for determining the value of property E-326 and, therefore, it could not be ignored. The value of the subject property was worked out by not only violating the principles of natural justice but also by comparing incomparables and declining to compare the instance of comparable properties. In this view the impugned order of pre-emptive purchase deserves to be quashed. C. W. P. No. 4357 of 1993 : Under agreement dated May 21, 1987, property bearing No. B-7/118, Safdarjung Enclave Extension, having plotted area of 375 sq. mtr. was agreed to be sold for ₹ 23.50 lakhs. The order of pre-emptive purchase made on July 10, 1987, was set aside in C. W. P. No. 2275 of 1987 decided on March 1, 1993, in view of the Supreme Court decision in C. B. Gautam s case [1993] 199 ITR 530. Thereafter, the authority issued show-cause notice dated May 11, 1993, wherein it was stated that prima facie apparent consideration of the subject property was low as compared to other sale transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of adjustment arises only when there is basic similarity between the properties in two different colonies. Thirdly, the sale instances of properties in the same colony were rejected on account of irrelevant consideration, namely, smaller size of sale instance properties stating that the fair market value of bigger plot size properties is more than those on smaller size plots. In my view, one of the reasons for comparing incomparable sale instances has been absence of any guidelines, norms and standard to determine the fair market value of the properties. The mode and manner for determining the fair market value has to be fair, just and reasonable and not arbitrary. The authority has been applying different yardsticks in different cases. Though in determining the fair market value of a property, there has to be some element of guess work, that does not mean that the basic facts to be taken into consideration should differ from case to case and should depend upon as to who are the members of the authority. Such a course would be arbitrary and violative of article 14. There is reasonable likelihood of arbitrariness stepping in while determining the fair market value of propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.5 lakhs is dated June 29/July 2, 1990, it is difficult to accept the contention that the amount was tendered on June 29, 1990. Had it been so the date July 2, 1990, in the letter would have been meaningless. Further, the letter of authority of Mrs. Francis Mary Elizabeth Sinha authorising her husband to collect the cheque itself is dated July 6, 1990. Further, respondents Nos. 4 and 5 have stated in their counter-affidavit that they were never contacted by respondents Nos. 2 and 3 before June 30, 1990, and they had met the Deputy Commissioner of Income-tax in the office of respondent No. 2 on July 2, 1990, to find out about the refund of ₹ 8.5 lakhs and that the cheque of ₹ 8.5 lakhs was collected by them on July 6, 1990. Further, the affidavit of respondent No. 3 dated February 12, 1991, refers to only deposit of ₹ 11.5 lakhs on June 29, 1990, and not the deposit of ₹ 8.5 lakhs. There was no dispute about the payment of ₹ 8.5 lakhs. It was payable on or before June 30, 1990. In the face of these facts the plea that the sum of ₹ 8.5 lakhs was deposited in the names of respondents Nos. 4 and 5 with the authority on June 29, 1990, cannot be acce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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