ORDER
UNDER S. 269UD--Validity--Fair market value not determined properly--Notice not disclosing reasons
Ratio :
If an order passed under section 269UD is perverse in that it does not take into consideration relevant materials or takes into consideration extraneous matters, then, the appropriate authority's order would be quashed and cannot be remitted back.
Held :
A perusal of the impugned orders will clearly indicate that the appropriate authority proceeded mechanically for the purpose of finding out whether the fair market value is more than 15 per cent or higher than the apparent consideration. The entire evidence and materials have been appraised by the respondent and the valuation has been sought to be arrived at some time applying tests with mathematical precision with the anxiety for finding out whether the fair market value is more than 15 per cent or higher than the apparent consideration, completely overlooking that the mere fact that market value is found to be 15 per cent or more higher than the apparent consideration will not automatically establish that there is an attempt at evasion of tax particularly when there can be reasonable difference of the assessment of fair market value from one person to another. In the show-cause notice in support of the tentative or prima facie finding no reasons were recorded nor any materials were disclosed on the basis of which such tentative finding was arrived at. The impugned orders of pre-emptive purchase passed by the appropriate authority in each of the proceedings, is therefore, set aside.
Application :
Also to current assessment year.
Income Tax Act 1961 s.269UD
Sameresh Banerjea, J.
1. In both the writ petitions, which have been heard analogously, the petitioner-bank has challenged an order passed by the Appropriate Authority of Income-tax, Calcutta, under Section 269UD(1) of the Income-tax Act, 1961.
2. As it appears from the pleadings, the petitioner bank for the purpose of providing residential accommodation to its officers entered into two agreements with respondent No. 7, Delight Housing Corporation, for purchasing 16 flats which were under construction at premises No. 250, Netaji Subhas Chandra Bose Road, Tollygunj, Calcutta 47. One agreement was for purchasing eight flats on the first and second floor on the super built up area basis for a total consideration of Rs. 39,10,130, and for car parking space which was entered between the parties on April 21, 1994. 25 per cent, of the consideration, namely, Rs. 9,96,282.50, was paid at the time of execution of the first agreement and further sum of Rs. 25,00,000 was paid leaving a balance of Rs. 4,86,847.50 and the possession of the said eight flats was also given to the bank.
3. The said agreement is the subject-matter of the first Writ Petition No. C.O. 8664(W) of 1994. The agreement for purchasing the remaining eight flats on the third and fourth floor and car parking of the said building was entered into with respondent No. 7 on May 27, 1994, which provided for a total consideration of Rs. 39,10,130 out of which the petitioner paid a sum of Rs. 9,77,532.50 being 25 per cent, of the total consideration on the date of execution and the balance sum of Rs. 27,37,091 was payable in two instalments at the time of taking possession and Rs. 1,95,506.50 was payable at the time of conveyance. Possession of the said flats, however, was not given to the petitioner. The said agreement is the subject-matter of the second writ petition being C. 0. No. 12142{W) of 1994.
4. In terms of the requirement of Chapter XXC of the Income-tax Act, the petitioner and respondent No. 7 filed Form No. 37-1 in respect of the agreement dated April 21, 1994, and officers of respondent No. 1 inspected the premises and required copies of various documents which were duly submitted by the petitioner and respondent No. 7.
5. Respondent No. 1 thereafter issued a show-cause notice dated July 15, 1994 (annexure 'D' to the first writ petition), alleging that the fair market value of the property on the date of agreement works out to more than 15 per cent, above the apparent consideration and directing the petitioner to show cause as to why the property should not be purchased by the Central Government under the pre-emptive right under Section 269UD(1) of the Income-tax Act on the apparent consideration. The petitioner submitted its reply to the show-cause notice by letter dated July 21, 1994, being annexure 'E' to the writ petition contending, inter alia, that the apparent consideration is in consonance with the fair market value of the property ; that the property is being purchased for accommodating the officers of the bank who came to Calcutta for transfer from other branches free of charge and as the bank has entered into an agreement with respondent No. 7 to purchase a number of flats together which were situate away from the main road the same could be obtained by the petitioner at a comparatively cheaper rate. Various other factors were indicated in the said reply on the basis of which according to the petitioner the apparent price is quite reasonable.
6. The officers of the petitioner also appeared before respondent No. 1 at the hearing which first took place on July 22, 1994, in the course of which the petitioner was asked to produce material of any sale transaction in the concerned area and, accordingly, the petitioner after ascertaining the same communicated the same by its letter dated July 23, 1994.
7. Similar show-cause notice was also issued to respondent No. 7 who replied to the same giving reasons for justification of the reasonableness of the apparent consideration.
8. In the show-cause notices the respondents never disclosed the reasons for coming to the tentative conclusion nor any materials relied upon by the respondents were disclosed in the show-cause notice or along with the same.
9. But at the hearing on July 22, 1994, respondent No. 7 was granted the inspection of the valuation report which disclosed that relying upon the valuation made in another case being No. 1028, at Rs. 734 per sq. ft. the purported fair market value of the property was worked out at Rs. 697 per sq. ft. after allowing a discount of 5 per cent, for non-availability of certain amenities, but the records of the said Case No. 1028 were not disclosed. From inspection of the valuation report it appeared that the Case No. 1028 was in respect of purchase of 18 flats with 15 car parking spaces along with undivided proportionate share in the land, etc., by the Small Industries Development Bank of India (hereinafter referred to as SIDBI) in premises No. 340, Netaji Subhas Chandra Bose Road, Tollygunj, Calcutta. Respondent No. 7 was, however, not furnished with the copy of the agreement for sale in the said case ; but from inspection, it, however, transpired that in determining the alleged fair market value respondent No. 1 had taken into consideration three sale instances of flats, two of which relating to sale of flats in premises No. 8/2A, Alipore Park Road, Calcutta, and the other relating to premises No. 34, Allenby Road, Calcutta, both of which were centrally located in posh areas and the fair market value of Rs. 734 per sq. ft. was arrived at by averaging the sale price in the said three sale transactions after making such adjustments. Respondent No. 7 raised objection to such method of valuation. Thereafter in August, 1994, the petitioner was served with the impugned order dated July 29, 1994, directing purchase of the subject property for consideration of Rs. 39,74,000 (annexure 'H' to the writ petition).
10. At that point of time, the proceeding pending relating to the second agreement was still pending and when the first writ application being C.O. No. 8664(W) of 1994 was moved on August 19, 1994, Tarun Chatterjee J., while admitting the writ petition granted liberty to the petitioner to challenge the final order to be passed in the second proceedings by a fresh writ application and accordingly the final order dated September 28, 1996, passed in the second proceeding has been challenged in the second writ petition being C. O. No. 12142(W) of 1994.
11. The second agreement being the subject-matter of the second writ petition was entered into between the petitioner and respondent No. 7 on May 27, 1994. According to the petitioner in view of the bulk purchase made by it, respondent No. 7 gave the petitioner a further discount of Rs. 75,000 and did not separately charge for the car parking area of 200/250 sq. ft. in the said agreement and, accordingly, the price was fixed of Rs. 39,10,130. The second agreement like the first agreement provided, inter alia, that in addition to the total consideration the petitioner would pay to respondent No. 7 costs, charges, expenses and deposits for obtaining and providing electricity including transformer, sub-meter, etc., as well as for providing generator for common portions of the building and for the flats. In accordance with the said requirement of Chapter XXC of the Act, the petitioner and respondent No. 7 filed a separate Form No. 37-1 in respect of the said agreement before respondent No. 1. On September 1, 1994, the show-cause notice was issued being annexure 'D' to the writ petition alleging, inter alia, that the fair market value of the property in question as on the date of the agreement worked out to be more than 15 per cent, of the consideration and the petitioner was directed to show cause as to why the subject property should not be purchased by the Central Government under the pre-emptive right under Section 269UD(1) of the Income-tax Act, 1961, for an effective consideration of Rs. 38,41,507. The said show-cause notice also, however, did not disclose the basis on which the same was worked out by the respondent nor any materials upon which reliance has been placed by the respondents for coming to their aforesaid tentative finding was arrived at were disclosed.
12. By letter dated September 7, 1994, the petitioner through his learned advocate asked for copies of the materials and documents including valuation report, agreement, etc., on the basis of which the said notice was issued. No reply, however, was received from the respondent and the petitioner before the respondent on September 15, 1994, that is the date fixed for hearing, participated in the proceeding without prejudice to its rights and contentions.
13. At such hearing the prayer for furnishing of the aforesaid documents was reiterated. On September 16, 1994, the petitioner was furnished with copies of the valuation report in respect of the agreement dated April 21, 1994, and May 27, 1994, and a calculation of the effective apparent consideration in Case No. 1028 relating to purchase of 18 flats in premises No. 340, Netaji Subhas Chandra Bose Road, Tollygunj, Calcutta, by the Small Industries Development Bank of India (hereinafter referred to as 'SIDBI') under an agreement dated March 31, 1994. The respondent, however, did not furnish the copies of the valuation report in the said Case No. 1028 on the ground that the same was not being relied upon. On September 15, 1994, the petitioner filed before respondent No. 1, an illustrative list of differences between the subject property and the said premises No. 340, Netaji Subhas Chandra Bose Road, Tollygunj, Calcutta, and the respective transactions relating thereto.
14. The petitioner also appointed a highly qualified chartered engineer and registered valuer, for making a comparative statement and valuation in respect of the said property in the aforesaid premises No. 340 and the respective transactions relating thereto and the said valuer inspected both the properties and after making necessary enquiries submitted a report wherein he worked out the adjustment prices in SIDBl's case at Rs. 613.80 per sq.ft. and in case of the petitioner's case at Rs. 643.67 per sq.ft. and such report was relied upon by the petitioner by producing the same before respondent No. 1 in the course of hearing dated 27th September, 1994.
15. Thereafter, the impugned order dated September 27, 1994, has been passed by respondent No. 1 directing that the said property be purchased by the Central Government on the apparent consideration of Rs. 39,10,674.
16. The main grounds of challenge in both the writ petitions are that in passing the impugned order the respondent acted in violation of principles of natural justice as reasonable opportunity was denied to the petitioner to defend itself ; the impugned orders have not been passed in consonance with the purpose and object for which the relevant provisions was enacted, namely, to prevent evasion of tax ; the impugned orders are vitiated as extraneous materials have been taken into consideration and relevant materials produced before the appropriate authorities have been ignored and the impugned order passed by respondent No. 1 is perverse and wholly arbitrary.
17. The sum and substance of the contentions raised by the respondents are that the questions which have been raised in the present writ petition really pertain to appreciation of evidence and it is not for the writ court to sit as a court of appeal for reappraising the evidence ; the appropriate authority has duly appreciated all the evidence and relevant materials and has come to a finding and, therefore, no interference is called for under the facts and circumstances of this case ; there is no violation of principles of natural justice in as much as all relevant materials and documents on the basis of which the finding was arrived at were disclosed to the petitioner. It has also been contended that in course of hearing no complaint as to the violation of natural justice was made ; on the contrary, the vendor, being respondent No. 7, has accepted the order and he has not challenged the same before this court but has applied for payment of consideration money.
18. Respondent No. 7 being the vendor has not addressed the court challenging the legality and propriety of the impugned order passed by respondent No. 1 on the contentions that respondent No. 7 is not prejudiced by the impugned order in the writ petition although it was asserted that the respective consideration as stipulated in the two agreements are the real and effective consideration payable by the petitioner-bank to respondent No. 7.
19. Respondent No. 7, however, has submitted that it is entitled to interest on the consideration money and accordingly whether the property is purchased by the respondent or by the bank, the court should issue an appropriate direction for payment of 18 per cent, interest on the consideration money.
20. While considering the question whether there is any violation of principles of natural justice it is pertinent to note that Chapter XXC of the Income-tax Act, containing Section 269UD(1) of the said Act under which the impugned orders have been passed did not contain any provisions for giving any hearing to a person against whom an order of compulsory pre-emptive purchase is passed under the Act.
21. While considering a challenge as to the validity of the aforesaid provisions of Chapter XXC of the Income-tax Act, 1961, the Supreme Court in the case of C.B. Gautam v. Union of India : [1993]199ITR530(SC) had the occasion to interpret various provisions under the said Chapter including Section 269UD.
22. Although, provisions for giving a reasonable opportunity of hearing was not there on the said Chapter, it was held by the Supreme Court that the requirement of a reasonable opportunity being given to the concerned parties, particularly, to the intending purchaser and the intending seller, must be read into the provisions of Chapter XXC and before an order of compulsory purchase is made under the said section, the intending purchaser and the intending seller must be given a reasonable opportunity of showing cause against an order for compulsory purchase. It was further held, inter alia, the power of compulsory purchase conferred under the said provisions can be used only where in an agreement for sale of immoveable property in an urban area to which the provisions of the said Chapter applied there is a significant under valuation by 15% or more of the market value and if the appropriate authority is satisfied that the apparent consideration shown in the agreement for sale is less than the market value by 15 per cent, or more it may draw a presumption that there has been an under-valuation with a view to evade tax ; but such presumption is rebuttable and the intending seller or purchaser can lead evidence to rebut the same. It was further held that reasons for such an acquisition which are required by Section 269UD to be in writing must be germane to the object for which the Chapter is introduced, namely, to counter attempts to evade tax.
23. In the light of the aforesaid judgment if the impugned order and the entire proceedings initiated in respect thereof are examined which are under challenge in the two writ petitions, it appears to this court there has been a violation of the principles of natural justice and denial of opportunity of hearing right from the initiation of the proceeding in question.
24. It is true that in the case of both the agreements, the petitioners have been issued the show-cause notices calling upon them as to why such pre-emptive order shall not be passed.
25. But it appears to this court that in each of the show-cause notices it has merely been stated that the market value of the subject property has been worked out to be higher than the apparent consideration, without disclosing, however, in the said show-cause notice what is the basis of such presumption or tentative finding and what are the materials on which such a tentative finding has been arrived at.
26. No materials or document on the basis of which such a tentative finding was arrived at or the reason in support of such tentative finding also were furnished to the petitioners in each of the cases along with the show-cause notice.
27. It has been held by the apex court that such an order of compulsory purchase and passed by the appropriate authority under the aforesaid provisions of the Act only after giving an opportunity of hearing to the petitioner and the presumption which may be drawn by the appropriate authority that the apparent consideration shown in the agreement for sale is less than the market value by 15 per cent, is a rebuttable one and the intending seller or purchaser can lead evidence to rebut the same. The reasonable opportunity of hearing to be given to an intending purchaser and the seller in such a proceeding by the appropriate authority, therefore must be real and not an illusory one.
28. Accordingly, the reason on the basis of which a tentative finding has been arrived at by the appropriate authority together with all relevant materials must be disclosed in the show-cause notice by the appropriate authority in consonance with the principles of natural justice but for which it will not be possible for an intending seller or intending purchaser to defend themselves at such proceeding and to rebut such presumption by producing evidence if necessary for establishing that the apparent consideration is also the real market value or there has been no intention to evade tax. In the absence of such disclosure of reasons and materials in the notice to show cause, therefore, there cannot be a reasonable opportunity to the concerned seller or purchaser to show cause against the proposed order.
29. As it has been held by a Division Bench of the Bombay High Court (Nagpur Bench) in the case of Mrs. Nirmal Laxminarayan Grover v. Appropriate Authority : [1997]223ITR572(Bom) , in the absence of the particulars and the materials or the reasons being disclosed in the show-cause notice for entertaining a tentative or a prima facie belief that the value of the property in question is grossly understated in the agreement for sale, the transferor or transferee cannot have the real opportunity to meet the case of the appropriate authority and hence there will be non-compliance with the principles of natural justice and, accordingly, the show-cause notice issued for pre-emptive purchase by the appropriate authority must disclose the reason for tentative or prima facie conclusion arrived at by the appropriate authority that the property sought to be compulsorily purchased significantly has been undervalued.
30. The fact that the nature of the enquiry under the provisions of the Act may be a summary one can hardly dispense with the aforesaid basic requirement of giving reasonable opportunity of showing cause against the pre-emptive order for compulsory purchase.
31. In this connection, the observations of the Bombay High Court in the aforesaid decision made in paragraph 42 (page 594 of 223 ITR) of the judgment are worth quoting hereunder :
'When an obligation is cast upon an authority to give a notice to show cause before reaching any final conclusion against the person affected by its action, the purpose and the requirement of such a show-cause notice is two-fold (i) the noticee must get an opportunity to meet the case against him and
(ii) he must have an opportunity to set forth his own case to show why an order adverse to him should not be passed. In this regard, de Smith in his Judicial Review of Administrative Action (Fourth Edition) has observed at page 196 as follows :
'Natural justice generally requires that persons liable to be directly affected by proposed administrative acts, decisions or proceedings be 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'.'
32. For the reasons stated above, the impugned show-cause notices issued by the respondents in both the writ petitions are bad being in violation of the principles of natural justice and, therefore, the said show-cause notices as well as the entire proceedings initiated thereon as also the final order passed on the basis of such show-cause notices are vitiated.
33. Even in the course of proceedings, the respondents acted in violation of principles of natural justice by not supplying all the relevant documents to the petitioner asked for. Admittedly, the respondents relied on the transactions of the SIDBI for the purpose of determining of the fair market value. But in the course of hearing of the proceedings relating to the first agreement a copy of the SIDBI's agreement was not supplied to the petitioner and the computation of the SIDBI's valuation was also not disclosed although the same were asked for. The report of the Departmental Valuation Officers and materials relied upon by him were also not disclosed.
34. Although the valuation report was ultimately given on July 22, 1994, in the course of hearing, records of the Case No. 1028 relied upon by the respondents were not disclosed thereby denying the opportunity to the respondents to ascertain as to the basis on which the value at Rs. 372 per sq. ft. had been arrived at in the aforesaid Case No. 1028.
35. Ultimately, inspection was granted, but neither a copy of the agreement was furnished nor the same was disclosed.
36. In respect of the said documents, namely, the valuation report, inspection was given only to respondent No. 7 and not to the petitioner and that too only a few days before expiry of the period of limitation provided under the said provisions of the said Act.
37. The petitioner thus was clearly deprived of the reasonable opportunity of making an effective representation against the proposed order in the absence of the disclosure of all relevant materials and documents and the reasons for tentative finding in the show-cause notice and subsequently for non-disclosure of such documents in the course of hearing or because of disclosure only at the last stage given very little time to make an effective representation.
38. It has been sought to be contended by the respondent that no complaint in respect thereof having been made by the petitioner at the relevant stage in the course of the proceeding itself, the writ court should not entertain such complaint.
39. It was also sought to be contended by the respondent in their affidavit that there cannot be any violation of the principles of natural justice as the comparable properties were inspected jointly by the petitioner and the appropriate authority. It has been further submitted by learned counsel appearing on behalf of the respondents that since no complaint has been made of violation of principles of natural justice by the vendor whose property is being purchased and he has accepted the order, the same will indicate there has been no violation of natural justice.
40. I am unable to accept such contentions of Mr. Pal, learned counsel appearing for the respondent. The Supreme Court in the case of C.B. Gautam v. Union of India : [1993]199ITR530(SC) , in no uncertain terms made it clear that both the vendors as well as the vendee were entitled to reasonable opportunity to show cause against the proposed order for pre-emptive purchase.
41. In such view of the matter, where the vendor has accepted the order and has not made any complaint, that can hardly be a ground for denying such opportunity to the vendee who is entitled to the same in law.
42. The power of pre-emptive purchase cannot be exercised by the respondents arbitrarily, but as held by the Supreme Court, only for preventing evasion of taxes. The determination of the market value of the concerned property by the respondents and comparison of the same with apparent consideration of the property, therefore, can be made by the appropriate authority only for the purpose of finding out whether there is any attempt at tax evasion and the tentative finding in respect thereof cannot be made arbitrarily or whimsically but only on proper application of mind on proper materials and documents. Such finding of the appropriate authority cannot be a final one but merely tentative and the final order can be passed in respect thereof only after giving a reasonable opportunity of hearing and to show cause against the proposed order and to rebut the presumption created because of the tentative order. Such a requirement therefore, which goes to the very root of the matter is a valuable right not only for the vendor but for the vendee as well and in such view of the matter the requirement of giving reasonable opportunity of hearing to the vendee cannot be dispensed with on the ground that such opportunity had been given to the vendor or the vendor has not challenged the order.
43. Learned counsel appearing on behalf of the respondents relied on certain decisions for the purpose of contending that such points not having been raised before the appropriate authority in the course of hearing cannot be agitated at this stage.
44. I am, however, unable to accept such contentions of the respondents. As pointed out hereinbefore the requirement of such giving reasonable opportunity pertains to the very root of a proceeding under the aforesaid provisions of the Act and cannot be dispensed with and in such view of the matter even assuming that the petitioner might not have raised such points before the appropriate authorities at the time of hearing that will not preclude the petitioner from raising such points before this court. Denial of such reasonable opportunity of hearing and violation of the principles of natural justice would make the entire proceedings and the order passed therein void and without jurisdiction. The decisions relied upon by the respondents, in my view, would not be applicable under the facts and circumstances of this case.
45. On a perusal of the impugned order passed in the first writ petition it appears to this court that the entire approach of respondent No. 1 in passing the impugned order of pre-emptive purchase is erroneous. It appears that respondent No. 1 has proceeded in the entire matter in utter disregard of the principles of law settled by the Supreme Court in the aforesaid case of C.B. Gautam v. Union of India : [1993]199ITR530(SC) .
46. In the said case, the Supreme Court has laid down in no uncertain terms that the power of the appropriate authority under the provisions of the Income-tax Act have to be exercised for the purpose of preventing tax evasion and not for finding out what should be the fair market value of the property in question. In fact it will appear from the said judgment that the learned Attorney-General appearing for the Revenue admitted before the Supreme Court that such power will be exercised only for the aforesaid purpose. In fact a relevant circular of the Revenue was also referred to which itself pointed out that such power would be exercised only for the aforesaid purpose and that no citizen will be harassed unnecessarily. In such view of the matter when the appropriate authority exercises the power under the provisions of the Act, he does so not for merely finding out what should be the proper market value of the property in question, but for the purpose of finding out whether any attempt has been made to undervalue the property for the purpose of evading tax. Mere undervaluation simpliciter, therefore, is not enough. As stated in page 539 of the said report in the case of C. B, Gautam : [1993]199ITR530(SC) , the learned Attorney-General agreed and in fact supported the view before the Supreme Court that the order for purchase passed by the authorities must have some nexus with tax evasion and it was submitted by him that every order passed for purchase under Section 269UD could be tested on the touchstone of its having a rational nexus with an attempt at tax evasion. It was further held by the Supreme Court in the aforesaid case of C. B. Gautam : [1993]199ITR530(SC) that an order for compulsory purchase of immovable property under the provisions of Section 269UD requires to be supported by reasons in writing and such reasons must be germane to the object for which Chapter XXC was, introduced, namely, to counter attempts to evade tax.
47. Keeping the aforesaid principles of law laid down by the Supreme Court in mind, if the impugned order directing pre-emptive purchase is examined, it will appear that there is no finding at all in the impugned order that the undervaluation has been made with a view to evade tax.
48. Since it has been held by the Supreme Court in the aforesaid case of C.B. Gautam v. Union of India : [1993]199ITR530(SC) , that an order under Section 269UD of the Act is required to be supported in writing which must be germane to the object for which Chapter XXC was introduced in the Income-tax Act, namely, to counter attempts to evade tax, such an order passed by the appropriate authority under the aforesaid provisions of the Act in view must indicate that the alleged undervaluation has been made with a view to evade tax and there should be a finding in respect thereof. The same view was taken by the Gujarat High Court in the case of Shriniketan Members Association v. Appropriate Authority : [1996]219ITR359(Guj) , wherein the Gujarat High Court struck down such an order as there was no specific finding that the undervaluation was made with a view to evade tax.
49. It was held by the Gujarat High Court in the said case that as there was no whisper in the order about the satisfaction of the authority as to whether the difference between the apparent consideration and the fair market value was on account of any attempt or intention to evade tax, the impugned order clearly falls short of the requirement that the power under Section 269UD is to be exercised only in a case where the appropriate authority has arrived at the finding that the difference between the apparent consideration and fair market value is with a view to evade tax. The same view was reiterated by the Gujarat High Court in the case of Laboni Developers v. Appropriate Authority : [1996]219ITR284(Guj) . The same view was taken by the Allahabad High Court in the case of Ashok Kumar Sood v. Dy. CIT : [1995]216ITR193(All) .
50. Not only has no finding in respect thereof been arrived at by respondent No. 1 in the impugned order, a perusal of the orders would also indicate that the very decision making process in respect of the impugned order is erroneous in as much as material and evidence were considered by the appropriate authority not with the view to finding out whether there has been any attempt to evade tax but merely for the purpose of finding out whether the apparent consideration is lower by 15% or more than the fair market value of the property.
51. As held by the Allahabad High Court in the aforesaid case of Ashok Kumar Sood v. Deputy CIT : [1995]216ITR193(All) while arriving at the market value two different considerations have to be made, when the market value is fixed under the Land Acquisition Act and when an order under Section 269UD of the Income-tax Act is passed. In the earlier case the compulsory acquisition is for a public purpose for which the market value is paid while the latter case is a case, where the property is sold by undervaluing in order to evade tax and the acquisition is made under Chapter XXC of the Income-tax Act, therefore, in the latter case, for finding the market value, mere exemplars may not be sufficient, but the authority has to scrutinise the evidence keeping in view whether such transaction on which valuation has been put, by undervaluing is such as it was to evade tax. Following the decision of the Supreme Court in the case of C. B. Gautam v. Union of India : [1993]199ITR530(SC) , the Bombay High Court in the case of Vimal Agarwal v. Appropriate Authority : [1994]210ITR16(Bom) , held as under :
'It may also be expedient to observe at this stage that it was never the stand of the Revenue before the Supreme Court that pre-emptive purchase can be resorted to automatically once the difference between the fair market value and the apparent consideration is 15 per cent, or more. On the other hand, the Revenue itself had emphatically stated before the Supreme Court that the limit of 15 per cent, is not to be applied mechanically but a reasonable margin for probable error has to be taken into account. That is because Section 269UD does not confer an unfettered discretion on the appropriate authority to order purchase of any and every property. In other words, the right of pre-emptive purchase under Section 269UD is not a right of pre-emption simpliciter. It is a right which can be exercised only in cases where there is significant undervaluation in the agreement of sale 'with a view to evade tax'. The emphasis is on 'attempt at tax evasion'. The onus of establishing that the undervaluation is with a view to evade tax is on the Revenue.'
52. A perusal of the impugned orders will clearly indicate that the appropriate authority proceeded mechanically for the purpose of finding out whether the fair market value is more than 15 per cent, or higher than the apparent consideration. The entire evidence and materials have been appraised by the respondent and the valuation has been sought to be arrived at some time applying tests with mathematical precision with the anxiety for finding out whether the fair market value is more than 15 per cent, or higher than the apparent consideration, completely overlooking that the mere fact that market value is found to be 15 per cent, or more higher than the apparent consideration will not automatically establish that there is an attempt at evasion of tax particularly whew there can be reasonable difference of the assessment of fair market value from one person to another.
53 I am unable to accept the contentions of Mr. Pal learned counsel appearing for the respondent that the aforesaid decision of the Gujarat High Court is based on a misconstruction of the ratio of the decision of the Supreme Court in the case of C. B. Gautam : [1993]199ITR530(SC) and is contrary to the decision of this court in the case of Associated Cement Cos. Ltd. v. Appropriate Authority : [1995]213ITR288(Cal) .
54. In the aforesaid case of Associated Cement Co. Ltd. : [1995]213ITR288(Cal) , the question whether the appropriate authority has also come to a finding that there was an attempt to evade tax was not even an issue and was never urged before the court and the court had no occasion to go into such question. On facts it was held in the said case that there was no violation of principles of natural justice and the writ petition was delayed.
55. I am in full agreement with the aforesaid decisions of the Gujarat and Bombay High Court on the aforesaid questions and in my view, the same will be an inevitable consequence and outcome of the decision of the Supreme Court in the case of C. B. Gautam : [1993]199ITR530(SC) , and such decisions were rendered by the Gujarat and Bombay High Courts on correct interpretation and understanding of the ratio decidendi in C.B. Gautam's case : [1993]199ITR530(SC) .
56. It has been rightly contended by Mr. Pal, learned counsel appearing for the respondents that as to the merit of the impugned orders passed by the respondents for pre-emptive purchase, it is not for the writ court to reassess or reappraise the evidence on the basis of which the appropriate authority has passed by the order and not to sit as a court of appeal over the aforesaid order of the appropriate authority.
57. But at the same time it is well settled that if such an order passed by the appropriate authority is perverse in that it does not take into consideration relevant materials or takes into consideration extraneous matters while passing such order or it is based on misconstruction of the materials and documents or records, the writ court certainly can interfere with such an order.
58. In this connection, the decision of the learned single judge of this court in the case of Hari Krishna Kanoi v. Appropriate Authority : [1994]207ITR743(Cal) may be referred to where the contention raised by the respondents that the court cannot examine the merits of the order itself was rejected and it was held that it will be open to consider whether the authority had taken into consideration relevant matters and ignored extraneous considerations in arriving at the decision and the decision making process would not only cover the situation relating to exercise of discretionary power, but also to exercise of power regulated by the statutes and, therefore, it is open to the courts to examine also whether an order has been passed in consonance with Section 269UD. It was also held in the said judgment (page 293 of the report) that while it is not for the writ court either to reappraise evidence adduced before the appropriate authority or to interfere with any finding out of fact unless the appropriate authority had taken into account irrelevant factors or ignored relevant factors, the court can interfere if the appropriate authority acted so unreasonably that no authority properly instructed in the law would have reached such a conclusion. The same view has been taken by the Allahabad High Court in the aforesaid case of Ashok Kumar Sood v. Deputy CIT : [1995]216ITR193(All) .
59. In the light of the aforesaid principles of law, if the impugned orders passed in both the cases are examined, the contentions raised on behalf of the petitioner that the appropriate authority has come to a finding considering irrelevant materials and taken into consideration extraneous materials which make the order perverse, cannot be said to be unjustified.
60. While determining the correct market value the appropriate authority worked out the price in SIDBI's case at Rs, 705 per sq. ft. on the basis of the agreement after adding Rs. 15 towards cost of arranging power supply. But the contentions of the petitioner in the second case that there cannot be any addition of Rs. 15 as there was no difference in the petitioner bank's transactions and SIDBI's case was accepted.
61. It has been submitted on behalf of the respondents that the order passed in the first proceedings cannot be challenged on the basis of a subsequent order passed in the second proceedings and in support of the aforesaid contentions a number of decisions have been relied upon.
62. It is, however, not really necessary for this court to indicate in details such decisions inasmuch as even if the contentions of the respondents that the first order cannot be challenged comparing the same with the second order, the court is certainly not precluded from scrutinising such order for the purpose of examining whether such order was passed in consonance with the relevant provisions of the Act or arbitrarily and without any application of mind.
63. Under clause 6{A) of the first agreement the petitioner like SIDBI had to separately pay for arrangement of power supply and, accordingly, the addition of Rs. 15 towards cost of power supply obviously was made on the assumption that the petitioners price included the cost of arrangement of power supply which is absolutely perverse being contrary to evidence.
64. In the first case, the Departmental Valuation Officer accepted the fact that the specifications and amenities provided in the petitioner's transactions were less than those in SIDBI's transactions and for the aforesaid reason he opined that a discount of 5 per cent, from the value was called for. But such discount of 5 per cent, as suggested by the Departmental Valuer was not accepted in the first case, but was accepted in the second case, accepting, therefore, the difference between the subject property of the petitioners and the SIDBI's property in respect of various specifications and amenities.
65. While making such determination of market value the cost of generator was taken into consideration in the second case, but has been rejected in the first case on the ground that the same did not form part of Form No. 37-1. It, however, appears from the copy of the said agreement which is annexed to the writ petition that clause 6(B) (at page 63 of the first writ petition), clause 15.3 (at page 73 of the first writ petition) of the said agreement and paragraphs 2 and 5 of Section 6(B) of the third schedule of the said agreement (at page 83 of the first writ petition) very much provided for provision of generator at extra cost. It is not disputed that such agreement was filed along with Form No. 37-1. The refusal of the respondents, therefore, to take into consideration the cost of generator is perverse and clearly exposes the failure of the appropriate authority to take into consideration the various terms of the agreement while determining the apparent consideration. Non-consideration of the aforesaid provisions of the agreement clearly amounts to non-consideration of relevant materials on record because of which the impugned order is vitiated.
66. In the first impugned order (para 4.4) the appropriate authority rejected the contentions of the petitioner as to the difference of price with the SIDBI's property, inter alia, on the ground that no free car parking had been provided to the petitioner, but accepted the same in paragraph 4 in the second order and allowed deduction of 2 per cent. The petitioner had no opportunity to raise such points, before the appropriate authority at the time of hearing because admittedly at that stage no copy of the SIDBI's agreement was supplied. But, admittedly, the respondents themselves were in possession of SIDBI's agreement and there free car parking spaces had been provided in the said agreement but not in the present agreement, non-consideration of the same amounts to non-consideration of materials on records.
67. I am not at all impressed with the submission of Mr. Pal that such matter should not be gone into by this court in view of the fact on the hearing of the first case those points were not raised.
68. The respondents in the notice to show cause never cared to -disclose the materials on record on the basis of which they worked out that the market value of the property is more than 15 per cent, higher than the apparent consideration. Even in the course of proceeding admittedly some of the documents were not furnished including SIDBI's agreement. In the absence of such agreement, therefore, the petitioner had no occasion to raise such points which could be raised by them only at the time of hearing of the second case when the copy of the said agreement was furnished at the time of hearing. The petitioner is, therefore, certainly entitled to raise such points before this court relating to first case and the respondents having caused serious prejudice to the petitioner by denying opportunity to the petitioner to defend itself effectively at such a proceeding, cannot be allowed to take advantage of their own wrong by contending that those points are raised for the first time before this court.
69. So far as the second impugned order is concerned which is the subject-matter of the second writ petition the same suffered from the same infirmities as suffered by the first order. Like the first case in the show-cause notice in support of the tentative or prima facie finding no reasons were recorded nor any materials were disclosed on the basis of which such tentative finding was arrived at.
70. A perusal of the second order will also indicate that like the first order also the anxiety of the appropriate authority in working out the market value of the property was only for the purpose of finding out whether the same is 15 per cent, above the apparent consideration and without any application of mind to such materials to find out whether such alleged undervaluation was for the purpose of evasion of tax. In fact, in the second order also, there is no finding of the appropriate authority in respect thereof at all like the first order for which also the second order is vitiated.
71. Like the first order again relevant materials and evidence were ignored and irrelevant matters were taken into consideration which makes the second order also perverse.
72. As it will appear from paragraph 3.16 to paragraph 3.18 of the impugned order passed in the second order the appropriate authority after recording the petitioner's contentions regarding difference in external finishing, provisions of water tank, sanitary fittings in bath-room power plug points, electronic bell and furniture and fittings, etc., did not make any deduction in respect thereof on the ground that the financial factor of the same was negligible, totally disregarding the report dated 27th September, 1994, submitted by the petitioner of a chartered engineer and class-A registered valuer. In fact, the said report is certainly a piece of evidence which the petitioner is entitled to produce before the appropriate authority for rebutting the presumption contained in the show-cause notice and, therefore, the appropriate authority was bound to consider the same. The impugned order, however, will indicate that there is no consideration at all of such a report. It will further appear in the second order that the cost, height of tiles in kitchen and inter-com facilities as worked out in the said report of the valuer although submitted by the petitioner before the appropriate authority the same were not taken into consideration at all.
73. In the case of the second agreement the appropriate authority has charged higher price calling for an upward adjustment of six per cent, on the basis that the petitioner-bank did not have to pay for the roof/terrace whereas SIDBI had to pay for the same. On such assumption, the appropriate authority held for the area other than the roof SIDBI's developers charged higher price calling for an upward adjustment of six per cent. In coming to such a finding, it will appear from the impugned order, the appropriate authority relied upon an enquiry made from SIDBI's transferee as to the amount charged from SIDBI for the roof. Such enquiry, however, was never held in the presence of the petitioner nor any document in respect thereof were furnished to the petitioner to enable it to make an effective representation in respect thereof.
74. Such action of the respondents, therefore, was in gross violation of the principles of natural justice and in such view of the matter such upward adjustment of six per cent, made by the respondents is wholly unsustainable.
75. It has been sought to be contended on behalf of the respondents that the question of such violation does not arise as admittedly there were joint inspection into the property in question.
76. Such joint inspection, however, can hardly dispense with the requirement of giving a reasonable opportunity of hearing to the petitioner inasmuch as it is not disputed that such enquiry with the transferee of SIDBI was not made in the presence of the petitioner and no documents in respect thereof was furnished to the petitioner.
77. The appropriate authority in paragraph 7 of the impugned second order sought to increase the price of Rs. 689.47 of SIDBI by three per cent, on the basis that because of the time gap of two months between the agreement of the SIDBI and that of the petitioner there was an increase of price of Rs. 1.5 per cent. per month. The same, however, was not based on any evidence or materials that there has been such increase at the rate of 1.5 per cent. per month, but merely on surmises and conjecture and the same is, therefore, wholly arbitrary. That apart the appropriate authority in presuming such price rise also did not take into consideration at all the fact that while the date of the SIDBI's agreement is March 31, 1994, that of the first agreement of the petitioner is April 21, 1994, and that of the second agreement is May 27, 1994, and the price were settled between the petitioner and respondent No. 7 some time in February/March, 1994, in view of the negotiations held between the parties and, therefore, it is not at all relevant that the second agreement was entered into on May 27, 1994, that is after the expiry of one month and 27 days after the agreement of the SIDBI.
78. In terms of Section 269UA(iii)(B) the apparent consideration is required to be determined as on the date of the agreement between the parties and consequentially such apparent consideration is to be determined with reference to the condition of the property as on the date of the agreement. The appropriate authority in the second order, however, did not take into consideration the fact that on the date of agreement the flats in question were not completed, although both the Departmental Valuer as well as valuer of the petitioner considered the same to be a relevant consideration, on the ground on the date of inspection the flats are completed. Such approach of the appropriate authority, therefore, is perverse and in violation of the provision laid down Section 269UA(iii)(B) of the Act and vitiates the order.
79. It has been rightly contended by Mr. Bajoria, learned counsel appearing for the petitioner, that if the infirmities and the perverse findings in the two orders passed by the appropriate authority in the two cases are not taken into consideration, in each of the cases the effective apparent consideration will be within 15 per cent. and, therefore, the very basis for assuming jurisdiction under Section 269UD of the' Act will be demolished and the entire proceedings of the impugned order will be vitiated.
80. But what appears to be more important to this court after consideration of the decision of the Supreme Court in the aforesaid case of C.B. Gautam v. Union of India : [1993]199ITR530(SC) , is that while because of the aforesaid judgment of the Supreme Court unless the difference in the apparent effective consideration and the market value is more than 15 per cent. the appropriate authority cannot assume jurisdiction under Section 269UD of the Income-tax Act, the same does not mean that the mere fact that such difference is more than 15 per cent. will automatically lead to the conclusion that there has been a devaluation of property with the motive of evading tax. The fact that in the matter of such valuation opinion differs and there may be bona fide difference of such price between the effective apparent consideration and the market value because of several valid factors, have been recognised by the Supreme Court in the aforesaid case of C. B. Gautam v. Union of India : [1993]199ITR530(SC) , and the appropriate authority while exercising the power under Section 269UD of the Income-tax Act is, therefore, required to keep in mind the aforesaid principles of law laid down by the Supreme Court while examining the material produced by the vendor or the vendee for the purpose of rebutting the presumption which is raised on issuing of the show-cause notice for the purpose of finding out whether there has been a real attempt of tax evasion. In the instant case, perusal of both the orders as pointed out hereinbefore, unfortunately reveals that right from the issue of the show-cause notice as also passing of the final order there does not appear to be any indication anywhere that the requisite enquiry was made by the appropriate authority with a view to find out whether there has been any attempt of tax evasion. In fact no finding in respect thereof has been arrived at by the appropriate authority at all in the impugned order. On the contrary it will appear from the impugned orders as also from the impugned show-cause notice that the appropriate authority right from the beginning proceeded on the footing that as soon as the difference in such price is worked out to be more than 15 per cent., the same automatically gives right to the appropriate authority to exercise power under Section 269UD of the Act for such pre-emptive purchase and the entire approach of the appropriate authority while exercising such power appears to have been made with an anxiety to establish that such price differentiation is more than 15 per cent. totally overlooking that there may be bona fide difference of opinion in the matter of such valuation the benefit of which certainly shall go to the vendor and vendee and in fact arbitrarily rejected even such opinion offered not only by the competent valuer engaged by the petitioner but also by the Departmental Valuer as pointed out hereinbefore.
81. For the reasons stated above both the impugned orders passed in the two cases as well as the entire proceedings are vitiated and the same are liable to be quashed.
82. It has been submitted by Mr. Pal, appearing for the respondents, that in the event this court sets aside the impugned orders passed by the appropriate authority in the two cases on the ground of violation of the principles of natural justice or for any other infirmities, the matter should be sent back to the appropriate authority for reconsideration of the matter in accordance with law, a prayer which has been vehemently opposed by Mr. Bajoria, learned counsel appearing on behalf of the petitioner.
83. In this connection, he has relied upon the decision of the learned single judge of this court in the case of Dwarkanath Chatterjee v. Union of India : [1995]213ITR470(Cal) , where Tarun Chatterjee J. had to deal with a similar situation. In the aforesaid case, his Lordship in view of the mandatory provisions occurring in the first and second provisos to Section 269UD of the Act refused such prayer.
84. His Lordship held, inter alia, that the period of limitation to pass an order of purchase of any immovable property as provided for in the first and second provisos to the said section creates an embargo on the appropriate authority by the Legislature to pass an order for purchase under the said section after the expiry of the period of limitation and Section 5 of the Limitation Act not having been made applicable to the aforesaid provisions of the Act, the appropriate authority loses its jurisdiction to exercise its power under the said section after the expiry of the aforesaid period and the same cannot be extended by the court. His Lordship in coming to his aforesaid finding also relied on a Division Bench judgment of the Delhi High Court in the case of Satwant Narang (Mrs.) v. Appropriate Authority : [1991]188ITR656(Delhi) and a Division Bench judgment of the Madras High Court in the case of Appropriate Authority v. Naresh M. Mehta : [1993]200ITR773(Mad) . I respectfully agree with the aforesaid decision of Tarun Chatterjee J. of this court as also the Division Bench judgment of the Madras and Delhi High Courts as also with the reasoning therein.
85. The question, therefore, of remitting the matter back to the appropriate authority to give the appropriate authority an opportunity to proceed in accordance with law afresh cannot arise as after the expiry of the period of three months, the appropriate authority has no further jurisdiction to exercise such power of pre-emptive purchase.
86. The only question which is now left to be determined by this court is as to whether respondent No. 7 being the vendor is entitled to interest on the amount of apparent consideration.
87. Mr. Bhaskar Gupta, learned counsel appearing on behalf of the respondent, has submitted, inter alia, that since in respect of the first agreement the bank had made payment of Rs. 34,96,282.50 to respondent No. 7 leaving a balance of Rs. 4,88,847.50 outstanding and in respect of the second agreement the bank had made payment of Rs. 9,77,532.50 as part payment leaving a balance of Rs. 29,32,597.50 respondent No. 7 is entitled to interest on the aforesaid balance amount at the rate of 18 per cent. per annum, specially when it has not offered any resistance against such attempt on the appropriate authority for pre-emptive purchase or caused any delay in the same by causing any obstruction to the same. It has been further submitted by Mr. Gupta that all these years respondent No. 7 has incurred expenses in respect of the flats towards corporation tax, maintenance charges, security charges, electricity dues, lift maintenance, etc., amounting to Rs. 5,000 per annum and, therefore, the same is also liable to be paid by the purchaser of the flats whether it is the appropriate authority or the bank.
88. In support of his contention that in such a situation the vendor is entitled to interest Mr. Gupta has relied on the decision of the Supreme Court in the case of C.B. Gautam v. Appropriate Authority : [1993]199ITR530(SC) ; Rajalahshmi Narayanan v. Margaret Kathleen Gandhi : [1993]201ITR681(SC) . The decision of the Karnataka High Court in the case of Chandrika Apartments Pvt Ltd. v. Union of India : [1994]206ITR272(KAR) , as also the decision of the Gujarat High Court in the case of Hindumal Balmukund Investment Co. Pvt Ltd. v. Appropriate Authority : [1996]219ITR146(Guj) and the case of Laboni Developers v. Appropriate Authority : [1996]219ITR284(Guj) have also been relied upon.
89. The writ petitioner has opposed such prayer, inter alia, on the ground that in terms of the agreement the writ petitioner was liable to pay only 25 per cent. of the price at or before the execution of the respective agreements and 70 per cent. upon possession and 5 per cent. at the time of conveyance and the liability of the bank under the agreements to pay different taxes, etc., arises only after possession is received by him and, therefore, according to the petitioner respondent No. 7 is not entitled to any interest under the facts and circumstances of this particular case. It has been further submitted that in the instant case equity does not demand that such direction for payment of interest may be made in view of the fact the possession of the eight flats and the third and fourth floor of the premises under the said agreements were never given to the petitioner and so far as the flats in the first and second floor are concerned the requisite amount was paid to respondent No. 7 by the petitioners on giving possession of such flats and 5 per cent. is due to be paid on completion of the conveyance and, therefore, the question of paying interest does not arise particularly when the agreement between the parties did not provide for the same. It has been further submitted that it is also not correct to contend that respondent No. 7 has offered no resistance to such pre-emptive purchase inasmuch as in respect of the proceedings initiated in respect of both the agreements, respondent No. 7 also very much contested the same by filing objections although the writ petition was not filed challenging the order.
90. It has also been contended that in any event respondent No. 7 is not entitled to such interest inasmuch as in the course of writ proceedings he applied for a direction for payment of money by both the petitioner and the appropriate authority, but failed to get such order either before the trial court or even before the appeal court which was moved against refusal by the trial court to give such order and the appeal court actually directed handing over of possession of the flats in the second and third floors under the second agreement back to respondent No. 7 which was done. More or less the same submission has been made on behalf of the appropriate authority in opposing such prayer for interest.
91. After considering the submission of the respective parties, it appears to this court that in the course of the proceedings when the matter was heard by this court at the motion stage, respondent No. 7 made a prayer before this court for a direction upon respondent No. 1 and the writ petitioner to pay the consideration money to respondent No. 7 or for a direction that both the writ petitioner and the appropriate authority should deposit the consideration money for the purpose of protecting its interest, when liberty was granted to respondent No. 7 to make such prayer before the regular Bench. Before the regular Bench, respondent No. 7 made an application for such direction. But such prayer was not allowed by Tarun Chatterjee ]., and his Lordship by an o