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Issues: (i) Whether the order of compulsory purchase under section 269UD of the Income-tax Act, 1961 was liable to be quashed for want of notice, hearing and a speaking order in compliance with natural justice. (ii) Whether the power under section 269UD could be invoked on the facts of the case when there was no recorded satisfaction of undervaluation to the requisite extent and relevant comparable sale instances were ignored.
Issue (i): Whether the order of compulsory purchase under section 269UD of the Income-tax Act, 1961 was liable to be quashed for want of notice, hearing and a speaking order in compliance with natural justice.
Analysis: The statutory scheme of Chapter XX-C was required to be worked consistently with the principles of natural justice as recognised by the Supreme Court. Since the order was prejudicial to the petitioners, the appropriate authority was required to afford an opportunity and pass a reasoned order. The impugned order did not reflect compliance with these requirements.
Conclusion: The order was vitiated and liable to be set aside on this ground in favour of the assessee.
Issue (ii): Whether the power under section 269UD could be invoked on the facts of the case when there was no recorded satisfaction of undervaluation to the requisite extent and relevant comparable sale instances were ignored.
Analysis: The material on record did not show any positive finding that the apparent consideration was undervalued by the extent necessary to justify compulsory purchase or that the transaction was entered into to evade tax. The authority also failed to consider relevant sale instances from the same ward, though they were germane to market value. The circumstance that the property was owned by a public trust and the Charity Commissioner had no objection to the sale was treated as a relevant factor supporting the challenge to the order.
Conclusion: Invocation of section 269UD was not justified on the facts, and the challenge succeeded in favour of the assessee.
Final Conclusion: The compulsory purchase order and the rectification order were quashed, and the authority was directed to complete the consequential formalities, including issuance of the clearance certificate.
Ratio Decidendi: A compulsory purchase under Chapter XX-C cannot stand unless the authority records a reasoned satisfaction, after considering relevant material, that the transaction is significantly undervalued and that the statutory power is exercised consistently with natural justice.
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