1983 (3) TMI 76 - AT - Income Tax

Invalid Acquisition Proceedings Initiation under Income-tax Act: Tribunal rules lack of evidence for tax evasion intent.

The Tribunal held that the acquisition proceedings under Chapter XXA of the Income-tax Act were not validly initiated as the competent authority lacked ... Agricultural Land, Capital Gains Tax, Fair Market Value, Income Tax, Initiating Acquisition Proceedings, Tax Evasion, Wealth Tax Issues Involved:1. Validity of the initiation of acquisition proceedings under Chapter XXA of the Income-tax Act, 1961.2. Availability of material to show understatement of sale consideration with the object of tax evasion.3. Applicability of presumptions under section 269C(2) of the Income-tax Act, 1961 at the stage of initiating acquisition proceedings.Detailed Analysis:1. Validity of the initiation of acquisition proceedings under Chapter XXA of the Income-tax Act, 1961:The appeals challenge the order of the competent authority, IAC Acquisition Range, Jalandhar, acquiring agricultural land in Village Miranpur. The transferor and transferee contended that the competent authority lacked the 'reason to believe' that the property was sold for an apparent consideration less than its fair market value with the intent specified in section 269C(1) of the Act. They argued that the initiation of acquisition proceedings was invalid as the conditions precedent were not fulfilled, and thus the order should be quashed. The Tribunal found that the competent authority, acting as a prudent person, could not have had any reason to believe about the existence of the object or objects specified in section 269C(1), which is a prerequisite for initiating acquisition proceedings. The land sold was agricultural land situated in a village, and its sale could not give rise to capital gains under the Act. Both the transferor and transferee were agriculturists, and there was no material to suggest that either was liable to income-tax or wealth-tax, or that tax evasion or reduction of tax liability was involved.2. Availability of material to show understatement of sale consideration with the object of tax evasion:The Tribunal noted that there was no material available to the competent authority to show that the consideration of sale had been understated with the object of facilitating the concealment of any income or assets, or for facilitating the reduction or evasion of tax liability. The Inspector's report merely noted the understatement of consideration and recommended proceedings for acquisition without any material evidence. The competent authority's reasons recorded for initiating proceedings lacked any indication that either the transferor or transferee was liable to income-tax or wealth-tax. The Tribunal emphasized that the competent authority must have material to entertain the reason to believe that an immovable property has been sold for an apparent consideration less than its fair market value with the specified object or objects.3. Applicability of presumptions under section 269C(2) of the Income-tax Act, 1961 at the stage of initiating acquisition proceedings:The Tribunal held that the presumptions under section 269C(2) would not be available to the competent authority at the stage of initiating acquisition proceedings. The Tribunal relied on several authorities, including decisions from the Calcutta High Court, which held that the presumption under clause (b) of section 269C(2) is not applicable at the stage when the competent authority forms his belief under sub-section (1) of section 269C. The Tribunal distinguished the ruling in Mahavir Metal Works' case cited by the departmental representative and reiterated that the belief entertained by the competent authority must be based on relevant and material reasons. The Tribunal concluded that the competent authority lacked rational reason to believe, as there was no material available to show that either the transferor or transferee was liable to income-tax or wealth-tax.Conclusion:The Tribunal held that the proceedings for acquisition were not validly initiated by the competent authority, and the order acquiring the land was unsustainable. Consequently, the Tribunal canceled the acquisition order and allowed both appeals.