1986 (1) TMI 133 - AT - Income Tax

Jurisdiction lacking in IT Act Section 269C case due to valuation flaws & insufficient evidence

The Competent Authority lacked jurisdiction to initiate proceedings under Section 269C of the IT Act as the fair market value did not exceed the apparent ... - Issues Involved:1. Jurisdiction of the Competent Authority2. Validity of the Valuation of the PropertyDetailed Analysis:1. Jurisdiction of the Competent Authority:The core issue revolves around whether the Competent Authority had the jurisdiction to initiate proceedings under Section 269C of the IT Act, 1961. The Competent Authority initiated proceedings based on the information provided by the assessee in Form No. 37-G and a report from the Inspector. It was held that for the Competent Authority to exercise powers under Section 269C, it must be established that the fair market value of the property exceeds the apparent consideration by more than 15%, and that the consideration for transfer has not been truly stated with the object of evading tax. The Competent Authority must have material evidence to support this belief. The judgment cited the Bombay High Court in Unique Associates Cooperative Housing Society Ltd. vs. Union of India & Ors., emphasizing that the mere fact that the apparent consideration is less than the fair market value by 15% is insufficient to assume tax evasion motives. The Punjab & Haryana High Court in CIT vs. Amrit Sports Industries also held that the Competent Authority must apply its own mind to the material before it and record reasons for initiating proceedings. In this case, the Competent Authority relied on the Inspector's report and the estimated market value in Form No. 37-G, which was only for stamp duty purposes and not a conclusive proof of fair market value. The report was not supplied to the assessee for comments, and the initiation of proceedings was deemed invalid and illegal.2. Validity of the Valuation of the Property:The valuation of the property was another significant issue. The Valuation Officer valued the plot at Rs. 68 per sq. yard, totaling Rs. 72,000, based on sales of other plots in the area. However, the assessee argued that the plot was in a low-lying, waterlogged area, requiring significant filling costs, and was purchased at the prevalent market rate. The sale deed mentioned rates between Rs. 25 to Rs. 50 per sq. yard, and the stamp duty was paid at Rs. 50 per sq. yard. The judgment noted that the Valuation Officer's comparative instances were of smaller plots situated far from the assessee's plot. The assessee provided instances of nearby plots sold at rates between Rs. 12.15 to Rs. 35 per sq. yard, including a significant instance of Shivi Talkies sold at Rs. 30 per sq. yard. The judgment emphasized that all instances should be cumulatively considered to determine the fair market value, as held by the Punjab & Haryana High Court in Mani Singh Avatar Singh vs. IAC and Allahabad High Court in CIT vs. Jumramal Sen. Taking into account the cost of filling the plot and the comparative instances provided by the assessee, the sale price of Rs. 25 per sq. yard was deemed reasonable. The Competent Authority's reliance on the Valuation Officer's report was found to be flawed, and the valuation itself was not upheld.Conclusion:The judgment concluded that the Competent Authority did not have the jurisdiction to initiate proceedings for the acquisition of the property, nor was the valuation of the property valid. Consequently, the order passed under Section 269F(b) of the IT Act was canceled, and the appeal was allowed.