Compulsory purchase under Chapter XX-C fails where undervaluation is not proved by a reasoned valuation basis.

A compulsory purchase order under Chapter XX-C was unsustainable because the competent authority did not record a reasoned and objective finding that the apparent consideration was understated by more than the statutory threshold. The authority relied on sale instances and a valuation exercise without clearly explaining how the fair market value was fixed, and the materials did not support undervaluation of over 15 per cent. The clarification on the terrace and absence of balance FSI further undermined the valuation basis. The Bombay HC held that such an unreasoned and arbitrary exercise disclosed non-application of mind, and the order was set aside.

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Issues: Whether the order of compulsory purchase under Chapter XX-C of the Income-tax Act, 1961 was sustainable on the basis of alleged undervaluation exceeding 15 per cent of the fair market value.

Analysis: The record showed that the competent authority relied on sale instances without clearly identifying the basis on which the fair market value was fixed at Rs. 46 lakhs. The clarification in the impugned order also showed that the terrace was not exclusively attached to the flat and that there was no balance FSI relevant to the subject property. The discounted valuation reported by the Valuation Officer, together with the comparable instances, did not support a conclusion that the apparent consideration was understated by more than 15 per cent. The order therefore disclosed absence of proper application of mind and arbitrariness.

Conclusion: The compulsory purchase order was unsustainable and was set aside in favour of the assessee.

Ratio Decidendi: A compulsory purchase order under Chapter XX-C cannot be sustained unless the authority, on relevant comparable material, records a reasoned and objective finding that the apparent consideration is understated beyond the statutory threshold; an unreasoned valuation exercise is arbitrary.

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