Pre-emptive purchase under Chapter XX-C fails where comparable valuation material is defective and undervaluation is not proved.
A pre-emptive purchase order under Chapter XX-C of the Income-tax Act can be sustained only on relevant, comparable and contemporaneous material showing that the apparent consideration is undervalued by 15% or more so as to support the statutory presumption of tax evasion. Here, the comparable sales were materially defective, the authority relied on a later guideline rate and ignored contemporaneous valuation material, so the decision rested on irrelevant considerations and was unreasonable in judicial review. The High Court held that the statutory precondition for compulsory purchase was not established and quashed the order.
Issues: Whether the pre-emptive purchase order under section 269UD(1) of the Income-tax Act, 1961, was sustainable when the material relied on did not establish significant undervaluation of the apparent consideration by 15% or more.
Analysis: The authority could invoke Chapter XX-C only where the apparent consideration was shown, on relevant comparable material, to be lower than the fair market value by 15% or more so as to justify a rebuttable presumption of tax evasion. The comparable instances relied on had serious defects: one was a vacant plot and another was materially different in situation, character and distance from the disputed property. The authority also acted on an incorrect guideline rate fixed after the date of the agreement and ignored the contemporaneous government valuation and engineering report. The decision was therefore based on irrelevant considerations and was unreasonable in judicial review.
Conclusion: The impugned pre-emptive purchase order was not sustainable and was liable to be quashed in favour of the petitioners.
Final Conclusion: The writ petition succeeded because the statutory precondition for compulsory purchase was not established on the material before the authority.
Ratio Decidendi: A pre-emptive purchase under Chapter XX-C can be sustained only on relevant, comparable and contemporaneous material showing significant undervaluation of the property, and an order founded on irrelevant or unreasonable valuation assumptions is liable to be set aside under judicial review.
TaxTMI 
AI Drafter ✕
TaxTMI 
