Pre-emptive purchase under Chapter XX-C fails without fair market value determination and fair opportunity to rebut comparable sales.

Pre-emptive purchase under Chapter XX-C required a reasoned determination of fair market value showing significant undervaluation and a tax-evasion element; absent such determination, the order could not stand. The authority also had to consider the transaction's special facts, including disputed title and earlier payments, and supply the comparable sale-instance material relied upon so the affected party could respond. Failure to do so amounted to non-application of mind and breach of natural justice. The compulsory purchase order was quashed and the writ petition succeeded with costs.

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Issues: (i) Whether the pre-emptive purchase order under Chapter XX-C of the Income-tax Act, 1961 could stand when no fair market value of the property was determined and the transaction was not shown to involve significant undervaluation. (ii) Whether the impugned order was vitiated by failure to consider the special facts of the transaction and by breach of natural justice in not supplying the relied-upon sale-instance material.

Issue (i): Whether the pre-emptive purchase order under Chapter XX-C of the Income-tax Act, 1961 could stand when no fair market value of the property was determined and the transaction was not shown to involve significant undervaluation.

Analysis: The statutory power of compulsory purchase under Chapter XX-C is attracted only where the apparent consideration is found to be significantly below fair market value, with a tax-evasion element. In the absence of an actual determination of fair market value, it cannot be concluded that the apparent consideration is lower by the requisite margin. The record showed no such determination, and the purchase was therefore unsupported by the necessary foundation.

Conclusion: The issue was decided in favour of the petitioners, and the order of pre-emptive purchase could not be sustained on the ground of undervaluation.

Issue (ii): Whether the impugned order was vitiated by failure to consider the special facts of the transaction and by breach of natural justice in not supplying the relied-upon sale-instance material.

Analysis: The Authority did not properly consider that the title was disputed, substantial payments had been made earlier to perfect title, and the transaction had to be viewed in its practical background. It also failed to furnish the documents relating to the comparable sale instances relied upon, despite request. These omissions showed non-application of mind and denial of a fair opportunity to meet the case against the petitioners.

Conclusion: The issue was decided in favour of the petitioners, and the impugned order was vitiated by breach of natural justice and non-application of mind.

Final Conclusion: The compulsory purchase order under Section 269UD(1) of the Income-tax Act, 1961 was quashed, and the writ petition succeeded with costs.

Ratio Decidendi: Pre-emptive purchase under Chapter XX-C can be sustained only on a reasoned determination of fair market value showing significant undervaluation, and the affected party must be given a fair opportunity to meet the comparable material relied upon.

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