Objective material is essential for pre-emptive purchase; speculative undervaluation findings and rejected comparables could not stand.

Pre-emptive purchase under Chapter XXC of the Income-tax Act can be sustained only on a reasoned and objective satisfaction based on material showing understatement of the apparent consideration by more than 15 per cent. Mere rejection of the parties' explanation is insufficient, and comparable sale instances cannot be discarded on speculative grounds without supporting material. On the facts discussed, the authority's inference of undervaluation lacked a concrete basis, the relied-upon sale instances were wrongly rejected, and the impugned pre-emptive purchase order was quashed.

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Issues: (i) Whether the appropriate authority could validly order pre-emptive purchase under Chapter XXC of the Income-tax Act on the basis of the material relied upon; (ii) Whether the authority was justified in rejecting the sale instances relied upon by the transferor/transferee and in assuming undervaluation by more than 15 per cent.

Issue (i): Whether the appropriate authority could validly order pre-emptive purchase under Chapter XXC of the Income-tax Act on the basis of the material relied upon.

Analysis: The statutory scheme required the authority to reach a positive satisfaction on objective facts and on material placed before it that the apparent consideration was understated by more than 15 per cent. Mere rejection of the parties' explanation was insufficient. The record did not disclose any concrete material or reasoned basis for the conclusion that undervaluation existed to the requisite extent. The finding rested on speculation rather than an objective decision-making process.

Conclusion: The pre-emptive purchase order was not sustainable and was liable to be quashed.

Issue (ii): Whether the authority was justified in rejecting the sale instances relied upon by the transferor/transferee and in assuming undervaluation by more than 15 per cent.

Analysis: The authority rejected the comparable instances on grounds that did not withstand scrutiny. The reason that a trust sale was effected after Charity Commissioner's permission, and therefore involved no scope for understatement, in fact supported reliability of that instance as a comparable sale. Likewise, the authority did not meet the factual assertions showing that the cited market instance was in a superior location and not truly comparable. In the absence of material demonstrating why the comparable instances should be discarded, the inference of undervaluation could not be sustained.

Conclusion: The rejection of the relied-upon sale instances was erroneous, and the finding of undervaluation was invalid.

Final Conclusion: The petition succeeded, the impugned orders were quashed, and the authority was directed to complete the consequential clearance formalities.

Ratio Decidendi: An order of pre-emptive purchase under Chapter XXC can stand only on a reasoned and objective satisfaction supported by material on record, and comparable sale instances cannot be discarded on speculative grounds.

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