Rational belief for acquisition proceedings fails when valuation material is dissimilar and full apparent consideration is ignored.

Service of the Chapter XX-A notice was upheld because publication in the official gazette was within time and personal service attempts, including affixture, were made when the parties were unavailable. The initiation under section 269C was held unsustainable because the Competent Authority lacked relevant material showing a rational belief that the fair market value exceeded the apparent consideration by the statutory margin. Reliance on valuation material for a dissimilar property, without properly accounting for the full apparent consideration, including unearned increase liability, vitiated the jurisdictional basis for acquisition.

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Issues: (i) Whether the notice initiating proceedings under Chapter XX-A was invalid for want of service within the prescribed time under section 269D of the Income-tax Act, 1961; (ii) Whether the Competent Authority had valid reasons to believe, on the material before it, that the fair market value of the property exceeded the apparent consideration so as to justify initiation of acquisition proceedings under section 269C of the Income-tax Act, 1961.

Issue (i): Whether the notice initiating proceedings under Chapter XX-A was invalid for want of service within the prescribed time under section 269D of the Income-tax Act, 1961.

Analysis: The notice dated 14 February 1986 was published in the official gazette on 22 March 1986, within the statutory period. The authority also made attempts at personal service, including affixture, when the transferors and transferees were not available at the recorded addresses or in India. Technical objections based on delay or mode of service were therefore not sustainable.

Conclusion: The notice under section 269D was not invalid on the ground of limitation or service.

Issue (ii): Whether the Competent Authority had valid reasons to believe, on the material before it, that the fair market value of the property exceeded the apparent consideration so as to justify initiation of acquisition proceedings under section 269C of the Income-tax Act, 1961.

Analysis: Proceedings under Chapter XX-A are penal in character and require strict compliance with the statutory preconditions. The authority had to act on relevant material giving rise to a rational belief, not mere suspicion. The valuation material relied upon was found to be of a dissimilar property and to involve special adjustments and assumptions that could not safely be transplanted to the disputed property. The authority also failed to take into account the full apparent consideration, including the liability relating to unearned increase, and did not have reliable material to support the conclusion that the fair market value exceeded the apparent consideration by the requisite margin. The formation of belief was thus held to lack a rational nexus with the material on record.

Conclusion: The initiation of proceedings under section 269C was bad in law and without jurisdiction.

Final Conclusion: The acquisition proceedings could not be sustained because the statutory conditions for valid initiation were not satisfied, and the acquisition order was liable to be cancelled.

Ratio Decidendi: In penal acquisition proceedings, the Competent Authority must have relevant material establishing a rational nexus between the facts on record and a bona fide reason to believe that the fair market value exceeds the apparent consideration by the statutory margin; failure to consider the full apparent consideration or reliance on dissimilar valuation material vitiates jurisdiction.

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