Competent authority's belief in I.T. Act not presumed at initial stage. Invalid notices quashed.

The court held that the presumption under sub-s. (2) of s. 269C of the I.T. Act, 1961 does not apply at the stage of forming the competent authority's belief under sub-s. (1) of s. 269C. It clarified the two stages under sub-s. (1) and emphasized that the presumption only applies in proceedings initiated under Chap. XX-A. The court found the impugned notices issued by the competent authority to be invalid and lacking proper jurisdiction, leading to their quashing. The revenue's appeal was dismissed, and the judgment of the lower court was affirmed, with the denial of the revenue's request for a certificate for appeal to the Supreme Court.

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Issues: (i) Whether the presumption under section 269C(2) of the Income-tax Act, 1961 could be invoked at the stage when the competent authority formed the belief necessary for initiation of proceedings under section 269C(1). (ii) Whether the impugned notices were vitiated because the competent authority treated the confirming party as a transferor and proceeded on the basis that the transferor was capable of colluding in understatement of consideration.

Issue (i): Whether the presumption under section 269C(2) of the Income-tax Act, 1961 could be invoked at the stage when the competent authority formed the belief necessary for initiation of proceedings under section 269C(1).

Analysis: The scheme of Chapter XX-A shows two distinct stages: first, the competent authority must form a reasoned belief on available materials that the statutory conditions for acquisition exist, and only thereafter may proceedings be initiated. The presumption in section 269C(2) operates only "in any proceedings under this Chapter" and therefore applies after proceedings have been initiated and notice has been issued. It cannot be used to supply the materials needed for the initial formation of belief, because that would collapse the distinction between the pre-initiation administrative stage and the adjudicatory stage and would render the statutory notice and objection mechanism meaningless.

Conclusion: The presumption under section 269C(2) was not available at the pre-notice stage and could not support the formation of belief under section 269C(1).

Issue (ii): Whether the impugned notices were vitiated because the competent authority treated the confirming party as a transferor and proceeded on the basis that the transferor was capable of colluding in understatement of consideration.

Analysis: The notices proceeded on an erroneous footing that the confirming party was a transferor. The property was in fact transferred by the Life Insurance Corporation of India, a statutory body, and the nature of the transaction made the assumption of collusive understatement implausible. The competent authority, by overlooking the true character of the parties and the source of title, lacked a proper basis for the requisite belief that the consideration stated in the conveyance was not truly stated with the object required by section 269C(1).

Conclusion: The notices were illegal and without jurisdiction and were liable to be quashed.

Final Conclusion: The statutory foundation for initiating acquisition proceedings was absent, and the High Court's quashing of the notices was upheld.

Ratio Decidendi: The presumption under section 269C(2) of the Income-tax Act, 1961 applies only to proceedings after initiation under section 269C(1) and cannot be used to form the initial belief required for issuing notice; a notice founded on an erroneous understanding of the transferor's identity is without jurisdiction.

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