1988 (5) TMI 84 - AT - Income Tax

Tribunal annuls authority's order citing procedural errors, emphasizes valid acquisition proceedings & individual property evaluation.

The Tribunal annulled the competent authority's order dated 7th March, 1988, due to various reasons, including the invalid initiation of proceedings, ... Acquisition Proceedings, Immovable Property, Movable Property Issues Involved:1. Validity of the assumption of jurisdiction by the competent authority.2. Powers of the competent authority to continue acquisition proceedings.3. Validity of the initiation of proceedings under section 269C(1) of the Income-tax Act, 1961.4. Requirement of publication in the Official Gazette.5. Separate consideration of each transferor's property.6. Application of Circular No. 455 dated 16th May, 1986.7. Service of notice under section 269D(2)(a).8. Determination of fair market value.Detailed Analysis:1. Validity of the Assumption of Jurisdiction by the Competent Authority:The competent authority must have reason to believe that the fair market value of the property exceeded the apparent consideration by more than 15% and that the consideration was understated to facilitate tax evasion. The Tribunal found that the competent authority's belief was based on an Inspector's report, which lacked comparable cases and relied on ad hoc estimates. Thus, the assumption of jurisdiction was deemed invalid due to insufficient evidence to support the belief that the consideration was understated with the object of tax evasion.2. Powers of the Competent Authority to Continue Acquisition Proceedings:The Tribunal examined whether the competent authority could continue acquisition proceedings if they were validly initiated. It was concluded that without valid initiation, the continuation of proceedings was not justified. The Tribunal emphasized the necessity of satisfying all conditions precedent for valid initiation, including the publication of notice in the Official Gazette and the recording of reasons for the belief that the consideration was understated.3. Validity of the Initiation of Proceedings under Section 269C(1):The Tribunal held that the initiation of proceedings was ab initio void as the competent authority did not have sufficient evidence to believe that the apparent consideration was understated with the object of tax evasion. The presumptions under section 269C(2) do not apply at the stage prior to the initiation of acquisition proceedings. This conclusion was supported by various judicial pronouncements, including those from the Gujarat, Calcutta, Bombay, and Punjab & Haryana High Courts.4. Requirement of Publication in the Official Gazette:The Tribunal noted that the publication in the Official Gazette dated January 4, 1986, was within the stipulated period. However, the actual date when the Gazette reached the public was disputed. The Tribunal referenced the Allahabad High Court's view that the stipulated period should be when the Gazette comes to public notice, not just the date of printing. Despite this, the Tribunal did not quash the proceedings on this ground alone.5. Separate Consideration of Each Transferor's Property:Each transferor had a definite property, and the transfer was made through a single sale deed. The Tribunal held that each item of transfer should be separately considered under section 269C(1). The initiation of a single proceeding for multiple properties was deemed inappropriate. The Tribunal emphasized that the transferors were tenants-in-common, not joint tenants, and thus each transfer should be evaluated individually.6. Application of Circular No. 455 dated 16th May, 1986:The Circular stated that acquisition proceedings should be dropped if the apparent consideration of the immovable property was below Rs. 5 lakh. The Tribunal found that the properties transferred by transferors 3, 4, and 5 had apparent considerations below Rs. 5 lakh. Therefore, the acquisition proceedings for these properties should have been dropped, and the competent authority's failure to do so rendered the proceedings invalid.7. Service of Notice under Section 269D(2)(a):The Tribunal stressed the mandatory nature of serving notice on each transferor and transferee. In the present case, there was no material to show that such notice was served on the transferors. The Tribunal concluded that the lack of proper service of notice would have necessitated setting aside the acquisition order to be redone after proper service, even if the proceedings were otherwise valid.8. Determination of Fair Market Value:The Tribunal considered the Inspector's report, which estimated the fair market value based on local knowledge and certain rates for construction. Despite differences in opinion on the figures, the Tribunal found that the competent authority could have formed a prima facie belief that the market value was Rs. 39,61,940. However, without evidence of extra consideration passing, the competent authority could not validly believe that the apparent consideration was understated with the object of tax evasion.Conclusion:The Tribunal annulled the order of the competent authority dated 7th March, 1988, on multiple grounds, including the invalid initiation of proceedings, the application of Circular No. 455, and the lack of proper service of notice. The judgment emphasized the necessity of satisfying all conditions precedent for valid acquisition proceedings and the importance of individual consideration for each transferor's property.