Pre-emptive purchase notices must disclose tentative undervaluation findings and supporting material, or the resulting order cannot stand.

In Chapter XXC pre-emptive purchase proceedings, a show-cause notice must disclose the authority's tentative conclusion that the property is undervalued, together with the reasons and material relied upon, so the affected party can make an effective objection and receive a proper hearing. Notices that merely call upon the assessee to show cause against compulsory purchase, without stating the basis of the tentative conclusion, are defective and contrary to law. The Bombay HC held that such defective notices could not sustain the consequential purchase orders, which were liable to be set aside.

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Issues: Whether the show-cause notices issued under Chapter XXC of the Income-tax Act, 1961 were valid when they did not disclose the tentative conclusion of undervaluation, the reasons for proposing compulsory purchase, or the material relied upon, and whether the consequential orders were sustainable.

Analysis: The notices merely required the petitioner to show cause against compulsory purchase of the flats and did not state that the appropriate authority had formed a tentative conclusion that the transactions were undervalued. They also omitted the reasons and the material on which such conclusion was said to have been reached. In proceedings for pre-emptive purchase, the authority must first form a tentative conclusion on the basis of available material and then communicate that basis in the notice so that the affected person receives an effective opportunity of objection and hearing.

Conclusion: The show-cause notices were defective and contrary to law, and the orders passed pursuant to those notices were liable to be set aside in favour of the petitioner.

Ratio Decidendi: In pre-emptive purchase proceedings, a show-cause notice must disclose the authority's tentative conclusion of undervaluation together with the reasons and material supporting it, failing which the resulting order cannot stand.

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