1977 (3) TMI 11 - HC - Income Tax

High Court allows appeals, remands case for further hearing. Clear findings needed on permissible expenditure.

The High Court allowed the appeals, set aside the order of the appellate authority, and remanded the case for further hearing and disposal according to ... Acquisition Of Immovable Property, Appellate Authority, Movable Property, Stamp Duty Issues Involved1. Determination of fair market value of the disputed property.2. Permissibility of deductions for incidental expenses such as stamp duty, brokerage, and solicitors' fees.3. Calculation of permissible deductions for development expenses.4. Whether acquisition should be permitted if the fair market value exceeds the apparent consideration by more than 15%.Detailed AnalysisDetermination of Fair Market ValueThe property in dispute is a plot located at Lalbahadur Shastri Marg, Ghatkopar, with a total area of 4,550 sq. yards. Ganesh Builders agreed to sell this plot at Rs. 65 per sq. yard, with the actual conveyance executed in favor of Paras Builders. The competent authority obtained a valuation report from the department's valuer, which estimated the 'fair market price' at Rs. 6,82,500, significantly higher than the apparent consideration of Rs. 2,95,750. The competent authority issued a notice under Section 269D of the I.T. Act, indicating a belief that the property was transferred with an intention to conceal income or avoid taxes. Both parties showed cause against the notice, leading to a series of correspondences and valuation reports from both sides.Permissibility of Deductions for Incidental ExpensesThe competent authority allowed deductions for development expenses but refused to give credit for incidental expenses such as stamp duty, brokerage, and solicitors' fees, considering these as not forming part of the price but incidental to the conveyance. The Tribunal, however, allowed a deduction of Rs. 30,000 for these incidental expenses. The High Court found that such deductions should not be permitted, as the fair market value should represent the price that the property would ordinarily fetch on sale in the open market. Incidental expenses, although part of the buyer's mental process, do not alter the quoted price, which becomes the sale price.Calculation of Permissible Deductions for Development ExpensesThe competent authority allowed deductions under three heads: road construction (Rs. 45,000), value of encroachment (Rs. 60,000), and filling up the plot (Rs. 50,000), totaling Rs. 1,55,000. The Tribunal added Rs. 30,000 for incidental expenses, bringing the total allowable deduction to Rs. 1,85,000. The High Court noted that the Tribunal failed to give clear findings on the actual permissible expenditure under each head, which was necessary for a final decision. The case was remanded to the appellate authority to determine the permissible expenditure under the agreed heads and to decide whether the acquisition should be permitted.Whether Acquisition Should Be PermittedThe High Court emphasized that acquisition under Chapter XX-A of the I.T. Act requires not only a difference of more than 15% between the apparent consideration and the fair market value but also satisfaction of conditions under Section 269C(2)(a) and (b). The Tribunal had observed that the contract of sale seemed genuine and that the price variation could be due to the time gap between the agreement and the execution of the conveyance. The appellate authority was directed to consider these factors and other relevant considerations before deciding on the acquisition.ConclusionThe High Court allowed the appeals, set aside the order of the appellate authority, and remanded the case for further hearing and disposal according to law. The appellate authority was instructed to provide clear findings on the permissible expenditure under the three heads and to decide on the acquisition in light of the provisions of Section 269C(2). The High Court also emphasized the need for the appellate authority to give all findings of fact to facilitate final disposal by the High Court, whose jurisdiction is limited to questions of law. No order as to costs was made.