Pre-emptive purchase and natural justice: undervaluation must be tested on facts, and undisclosed material can invalidate the order.

In pre-emptive purchase proceedings for immovable property, undervaluation does not create an irrebuttable presumption of tax evasion; the surrounding facts must be examined, and a bona fide financing arrangement may rebut the inference. The adverse order also failed because the authority relied on an engineering report and other materials that were not supplied to the affected parties, denying an effective opportunity of hearing. Since compulsory purchase deprives property rights, non-disclosure of the decisive material rendered the order arbitrary and contrary to natural justice. The matter was required to be reconsidered after furnishing the relevant report and documents.

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Issues: (i) Whether undervaluation of immovable property, in the circumstances of the transfer, justified a presumption of tax evasion and the order for pre-emptive purchase; (ii) Whether the impugned order was vitiated for violation of natural justice because the material relied upon was not furnished to the transferors/transferee.

Issue (i): Whether undervaluation of immovable property, in the circumstances of the transfer, justified a presumption of tax evasion and the order for pre-emptive purchase.

Analysis: Chapter XX-C permits pre-emptive purchase where apparent consideration is lower than the real value, but the presumption of tax evasion is rebuttable. The Court noted that the transaction was linked to a bona fide project financing arrangement, the transferors and transferee were closely connected, and the surrounding circumstances required careful consideration. The factual context could not be treated as a normal open-market transfer without examining whether the apparent undervaluation truly reflected an intent to evade tax.

Conclusion: The presumption of tax evasion could not be upheld as conclusive on the facts, and the matter required reconsideration in light of the special circumstances.

Issue (ii): Whether the impugned order was vitiated for violation of natural justice because the material relied upon was not furnished to the transferors/transferee.

Analysis: Before an adverse order under section 269UD is made, the parties must receive a reasonable and effective opportunity of being heard. The engineering report and other materials relied upon by the authority were not supplied to the petitioners, although those materials formed the basis of the conclusion. Since the order entailed compulsory deprivation of property, non-disclosure of the material amounted to denial of an effective hearing and arbitrariness offending Article 14 of the Constitution of India.

Conclusion: The impugned order was vitiated by violation of the principles of natural justice.

Final Conclusion: The order of pre-emptive purchase could not stand as it was passed without furnishing the decisive material to the affected parties, and the authority was required to reconsider the matter after supplying the relevant report and documents.

Ratio Decidendi: In proceedings for pre-emptive purchase of immovable property, the statutory presumption of tax evasion is rebuttable, and any adverse order is invalid unless the parties are given an effective opportunity to meet the material relied upon.

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