Court sets aside order for violating natural justice & fair play, allows petitioners' locus standi.

The court allowed the petition, setting aside the impugned order due to violations of principles of natural justice and fair play, as well as the failure to determine the fair market value. The court held that the petitioners had the locus standi to maintain the petition, rejecting the preliminary objection raised by the respondents. The court did not find the annexation of the previous order to the show-cause notice indicative of a pre-determined mindset of the appropriate authority, focusing instead on the substantive grounds for quashing the order.

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Issues Involved:
1. Violation of principles of natural justice and fair play.
2. Determination of fair market value.
3. Locus standi of the petitioner.
4. Pre-determined mindset of the appropriate authority.

Detailed Analysis:

1. Violation of Principles of Natural Justice and Fair Play:

The petitioners contended that the order passed under section 269UD(1) of the Income-tax Act was in violation of the principles of natural justice and fair play. They argued that the valuation report and the notings of the Inspecting Assistant Commissioner were not made available to them, thus prejudicing their right to show cause. The court noted that the Supreme Court in C. B. Gautam v. UOI [1993] 199 ITR 530 had emphasized the need for a reasonable opportunity for the parties to show cause. The court observed that the failure to furnish the relevant documents relied upon by the appropriate authority rendered the order arbitrary and contrary to the principles of natural justice and fair play, thus necessitating the setting aside of the impugned order.

2. Determination of Fair Market Value:

The petitioners argued that the respondents did not determine the fair market value of the flat, which is essential for raising a presumption of tax evasion due to undervaluation. The court reiterated the Supreme Court's directive in C. B. Gautam [1993] 199 ITR 530, emphasizing the need to determine the fair market value to raise a rebuttable presumption of tax evasion. The court found that the appropriate authority did not address the relevant factors and reasons for determining the fair market value and did not provide a basis for comparing the subject property with the sale instances. Consequently, the order was liable to be quashed on this ground as well.

3. Locus Standi of the Petitioner:

The respondents raised a preliminary objection regarding the locus standi of the petitioners to maintain the petition. The court referred to its earlier judgment in S. Krishnan v. U. V. Shahadadpuri [1999] 240 ITR 274, which upheld the right of the transferee to challenge the order of purchase. The court reaffirmed that the petitioners had the locus standi to maintain the petition, rejecting the preliminary objection.

4. Pre-determined Mindset of the Appropriate Authority:

The petitioners contended that the annexation of the previous order to the show-cause notice indicated a pre-determined mindset of the appropriate authority. The court referred to the judgment in Karsanbhai Patel in Writ Petition No. 568 of 1993 and Mrs. Nirmal Laxminarayan Grover v. Appropriate Authority [1997] 223 ITR 572 (Bom) Nagpur Bench, which had considered similar issues. However, the court concluded that this contention was not available as a ground for setting aside the order, as the primary reasons for quashing the order were the violations of principles of natural justice and the failure to determine the fair market value.

Conclusion:

For the reasons stated, the court allowed the petition, making the rule absolute in terms of prayer clauses (a) and (b), and set aside the impugned order with no order as to costs.

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