Fair market value in acquisition proceedings must be based on truly comparable sales, not selective valuation instances.

In pre-emptive acquisition proceedings under Chapter XX-A of the Income-tax Act, fair market value must be assessed by comparing truly comparable sales in the same locality and around the relevant date. The Court held that the Tribunal erred by rejecting relevant comparable instances on unsound grounds and by failing to consider the Gurdev Nagar sales collectively through a cumulative average. On the proper valuation approach, the land value, with the superstructure added, did not cross the statutory margin needed to support acquisition, so the presumption of understatement was not sustainable. The acquisition order was therefore set aside, and the assessee succeeded.

---

---

Issues: Whether the acquisition of the property under Chapter XX-A of the Income-tax Act, 1961 was justified on the footing that the apparent consideration was understated and the fair market value exceeded it by the statutory margin.

Analysis: The valuation of the site had to be tested against comparable sales in the same locality and around the relevant date. The Court found that the Tribunal had rejected several comparable instances on unsound grounds, including by treating smaller plots as inherently unreliable and by ignoring comparable sales that were close to the transaction date. It held that all relevant Gurdev Nagar instances ought to have been considered together, and that the proper approach was to take the cumulative average of the comparable sales. On that basis, the land value was materially lower than the figures adopted by the authorities, and when the superstructure value found by the Tribunal was added, the total did not cross the statutory threshold required to sustain acquisition. The finding of understatement and the consequent presumption under the acquisition provisions were therefore not sustainable on the material before the authorities.

Conclusion: The acquisition order was unjustified and the assessee succeeded.

Final Conclusion: The appeal was allowed, and the acquisition proceedings were set aside with costs to the appellants.

Ratio Decidendi: In pre-emptive acquisition proceedings, fair market value must be determined on a rational comparison of truly comparable sales taken as a whole, and a valuation based on irrelevant or selectively chosen instances cannot sustain the statutory presumption of understatement.

---