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Issues: (i) Whether the acquisition proceedings under Chapter XX-A were vitiated for want of strict compliance with the mandatory notice and initiation requirements under sections 269C and 269D; (ii) Whether the revenue had discharged the burden of proving understatement of consideration and non-disclosure of the true consideration so as to justify acquisition under section 269F.
Issue (i): Whether the acquisition proceedings under Chapter XX-A were vitiated for want of strict compliance with the mandatory notice and initiation requirements under sections 269C and 269D.
Analysis: The relevant provisions were held to be mandatory, and the proceedings under Chapter XX-A were treated as penal and quasi-criminal in nature. Initiation of proceedings was required to include the statutory steps of notice, publication, service on interested persons, affixation, and local proclamation. Mere publication or belated or defective service was insufficient. On the facts, the notice requirements were not duly complied with in the correct representative capacity, and the statutory machinery for valid initiation was not established.
Conclusion: The acquisition proceedings were invalid for non-compliance with the mandatory initiation and notice requirements, in favour of the assessee.
Issue (ii): Whether the revenue had discharged the burden of proving understatement of consideration and non-disclosure of the true consideration so as to justify acquisition under section 269F.
Analysis: The burden lay on the revenue to establish that the apparent consideration was less than the fair market value by the prescribed margin and that the statutory conditions under section 269C were satisfied. The order was found to rest substantially on valuation reports, while no independent inquiry or reliable supporting material was brought on record to justify the drastic step of acquisition. The valuation exercise was also found to be inconsistent and indecisive, weakening the basis for the impugned order.
Conclusion: The revenue failed to prove the statutory preconditions for acquisition and the order could not stand, in favour of the assessee.
Final Conclusion: The compulsory acquisition order was set aside because the statutory conditions for invoking Chapter XX-A were not met and the foundation for the acquisition was legally unsustainable.
Ratio Decidendi: In acquisition proceedings under Chapter XX-A of the Income-tax Act, the statutory notice and initiation requirements must be strictly complied with and the revenue must independently prove understatement of consideration and the requisite statutory object; a valuation report by itself is not enough to sustain acquisition.
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