Undervaluation in property acquisition demands sound market evidence; flawed comparisons cannot sustain Chapter XX-A acquisition.

Acquisition under Chapter XX-A of the Income-tax Act requires a sound factual basis to show that recorded consideration is understated against fair market value. Here, the Tribunal found the valuation report and comparable instances unreliable because they compared dissimilar properties and rested on confused facts. It treated actual rental evidence before and after sale, together with the transferor's correspondence and other materials, as stronger proof that the transaction was bona fide. On that basis, it held that the stated price was not more than 15 per cent below fair market value and that acquisition was not warranted.

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Issues: Whether the acquisition order under Chapter XX-A of the Income-tax Act was justified on the ground that the stated consideration for the immovable property was lower than its fair market value and that understatement was intended.

Analysis: The property had been sold for Rs. 75,000 after the transferor had corresponded with the trust regarding the sale and remittance of the sale proceeds. The competent authority relied upon a valuation report and comparable instances to infer understatement, but the Tribunal found that the valuation was built on confused facts and an inappropriate comparison with properties of a different character and rent profile. The Tribunal treated the rental evidence, including the rents actually fetched before and after sale, as the more appropriate basis and held that the comparable sale instances and surrounding circumstances did not support a conclusion that the recorded consideration was more than 15 per cent below fair market value. The Tribunal also noted that the transferee's and transferor's materials strengthened the bona fides of the transaction.

Conclusion: The acquisition order was unsustainable; the consideration was not understated and the case did not warrant acquisition.

Final Conclusion: The appeals succeeded and the acquisition order was vacated, with no finding necessary on the procedural validity of commencement of proceedings.

Ratio Decidendi: For acquisition under Chapter XX-A, the competent authority must have a sound factual basis to conclude that the recorded consideration is understated with reference to fair market value; where the evidence shows that the price reflects the market position and the valuation proceeds on flawed comparisons, acquisition cannot be sustained.

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