Pre-emptive purchase proceedings require fair hearing, full disclosure of relied-upon material, and valuation based on relevant tenancy factors.

In pre-emptive purchase proceedings under Chapter XX-C of the Income-tax Act, the affected parties must receive a fair, adequate and effective opportunity to meet the proposed action, including disclosure of the material relied upon. A hearing fixed at the end of the limitation period without supplying valuation and sale-instance documents fails natural justice. Valuation must also rest on relevant considerations: a subsisting tenancy, the property's housing-society structure, mortgage and pending disputes, and comparable tenanted properties where appropriate. The authority cannot disregard these factors or question the legality of the underlying transaction. On the stated reasoning, the purchase order and valuation findings were unsustainable, and relief followed.

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Issues: (i) Whether the purchase order under Section 269 UD(1) of the Income-tax Act, 1961 was vitiated for breach of principles of natural justice. (ii) Whether the valuation and conclusion regarding tenancy were vitiated by consideration of irrelevant or extraneous material.

Issue (i): Whether the purchase order under Section 269 UD(1) of the Income-tax Act, 1961 was vitiated for breach of principles of natural justice.

Analysis: The opportunity afforded to the transferor, transferee and tenant was held to be illusory rather than effective, since the show cause notice was served only shortly before the hearing and the relevant valuation materials and sale-instance documents were not supplied. In compulsory purchase proceedings under Chapter XX-C, the affected parties must receive a fair, adequate and reasonable opportunity to meet the proposed action. A hearing fixed at the fag end of the limitation period, without disclosure of the material relied upon, did not satisfy the requirements of natural justice.

Conclusion: The issue is answered in favour of the assessee. The order of pre-emptive purchase was vitiated by gross breach of natural justice.

Issue (ii): Whether the valuation and conclusion regarding tenancy were vitiated by consideration of irrelevant or extraneous material.

Analysis: The authority proceeded on the footing that the tenancy was "not recognised" and ignored that the tenancy was subsisting on the date of the agreement to sell. It also failed to consider relevant factors affecting market value, including the subsisting tenancy, the cooperative housing society structure, the mortgage and pending disputes, and the need to compare like properties, including tenanted properties, while selecting comparable instances. The authority could not go behind the agreement to question the legality of the transaction or the vendors' title, and if the tenancy was subsisting the rent capitalisation method required serious consideration. The valuation exercise was therefore not objective or legally sustainable.

Conclusion: The issue is answered in favour of the assessee. The findings on tenancy and valuation were perverse and unsustainable.

Final Conclusion: The compulsory purchase order could not be sustained, and the assessee was entitled to relief with issuance of the statutory certificate to complete the sale transaction.

Ratio Decidendi: In proceedings for pre-emptive purchase, the authority must act within jurisdiction, give a fair and effective opportunity, supply the material relied upon, and determine value only on relevant considerations without questioning the legality of the underlying transaction or ignoring a subsisting tenancy.

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