1988 (11) TMI 127 - AT - Income Tax

Tribunal quashes acquisition order due to insufficient evidence of fair market value surpassing apparent consideration.

C. LYALL & CO. (CONSTT) (P) LTD. Versus INSPECTING ASSISTANT COMMISSIONER.

The Tribunal allowed the appeal and quashed the acquisition order, finding the initiation of proceedings valid but lacking satisfactory establishment that ... - Issues Involved:1. Legality of initiation of acquisition proceedings under Section 269G of the IT Act, 1961.2. Validity of the valuation report and the fair market value determination.3. Presumption of tax evasion under Section 269C(2).4. Comparison of sale instances and their relevance.5. Consideration of development expenditures and other factors.Detailed Analysis:1. Legality of Initiation of Acquisition Proceedings:The Competent Authority initiated acquisition proceedings based on the Valuation Officer's report, which indicated that the fair market value of the land was significantly higher than the apparent consideration. The Competent Authority recorded reasons for initiating the proceedings, stating that the conditions specified in Section 269C(1) were satisfied. The Tribunal found that the Competent Authority had applied its mind on the material (Valuation report) and that the notice under Section 269D(1) was issued accordingly. The Tribunal concluded that the initiation of acquisition proceedings was valid and not mechanical.2. Validity of the Valuation Report and Fair Market Value Determination:The Valuation Officer's report determined the fair market value at Rs. 49,09,300, whereas the land was sold for Rs. 28,61,734, indicating a significant undervaluation. The Competent Authority reduced the valuation by 15% based on objections raised by the appellant. However, the Tribunal found that the Competent Authority did not provide a clear basis for the 15% reduction and that the highest sale instances should not be the sole basis for valuation. The Tribunal emphasized that comparable instances should be identified by proximity from time-angle and situation-angle, considering plus and minus factors.3. Presumption of Tax Evasion under Section 269C(2):The Tribunal noted that the presumption under Section 269C(2) could be available even during the proceedings prior to the publication of the notice under Section 269D. The Tribunal referred to the decision of the jurisdictional High Court of Punjab & Haryana in the case of Sutlej Chit Fund and Financiers P. Ltd. vs. CIT, which supported this view. However, the Tribunal concluded that the Competent Authority could not be said to have satisfaction in terms of Section 269F(6) that the fair market value exceeded the apparent consideration by more than 15%.4. Comparison of Sale Instances and Their Relevance:The appellant argued that the land in question was undeveloped and not comparable to the instances used by the Valuation Officer. The Tribunal found that the land rates of DLF Enclave, which was better located, were not comparable to the land in question. The Tribunal also noted that the Competent Authority accepted that the DLF land was slightly better in location. The Tribunal concluded that the comparable cases relied upon by the appellant rendered the finding of undervaluation factually unsustainable.5. Consideration of Development Expenditures and Other Factors:The appellant argued that significant development expenditures had been incurred on the land. The Competent Authority observed that every colonizer had to incur such expenditures, and thus, the appellant was not entitled to any benefit on that account. The Tribunal agreed with the Competent Authority on this point but found that the overall satisfaction required under Section 269F(6) was not met.Conclusion:The Tribunal allowed the appeal and quashed the acquisition order passed by the Competent Authority. The Tribunal found that while the initiation of acquisition proceedings was valid, the Competent Authority did not satisfactorily establish that the fair market value exceeded the apparent consideration by more than 15%. The Tribunal emphasized the need for proper identification of comparable instances and found the Competent Authority's reliance on the highest sale instances without a clear basis for reduction to be unsustainable.