Pre-emptive purchase under tax law quashed for denial of hearing and failure to apply mind to valuation material.

A pre-emptive purchase order under the Income-tax Act was quashed because the affected party was not given a real and effective opportunity to reply before action was taken. The High Court also found that the authority did not record proper consideration of the material on record or the statutory grounds required for compulsory purchase. In proceedings under section 269UD, the order must independently reflect satisfaction on significant undervaluation and an attempt at tax evasion; here, the departmental valuation did not support undervaluation, and the order did not address that rebuttal evidence. The order was therefore invalid for procedural unfairness and non-application of mind.

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Issues: Whether the order for pre-emptive purchase under section 269UD of the Income-tax Act, 1961 was liable to be quashed for denial of reasonable opportunity of hearing and for non-application of mind to the material on record.

Analysis: The impugned order was passed after the show-cause notice reached the petitioner too late to enable an effective reply, so the mandatory requirement of affording a reasonable opportunity before action under section 269UD was not satisfied. The order also failed to disclose consideration of the relevant material and the statutory grounds required by section 269UD(1B). In proceedings for compulsory purchase, the authority must form and record satisfaction on the twin requirements of significant undervaluation and an attempt at tax evasion, and the order must speak for itself. Here, the departmental valuation itself indicated that the apparent consideration was not below fair market value, yet the order did not reflect application of mind to that material or the rebuttable nature of the presumption. The order therefore suffered from both procedural unfairness and substantive infirmity.

Conclusion: The order under section 269UD was invalid and liable to be quashed.

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