Court quashes preemptive purchase order citing errors in evidence evaluation and lack of natural justice

The court quashed the preemptive purchase order under section 269UD(1) of the Income-tax Act, 1961, due to errors in considering evidence and violation of natural justice principles. The show-cause notice was found inadequate, vague, and lacking material disclosure, denying the petitioners a fair opportunity to rebut tax evasion presumption. The court emphasized the importance of considering comparable sale instances and providing sufficient time and reasons for response. Ultimately, the court set aside the order, ruling in favor of the petitioners without costs.

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Issues Involved:
1. Legality of the preemptive purchase order under section 269UD(1) of the Income-tax Act, 1961.
2. Validity and adequacy of the show-cause notice issued to the petitioners.
3. Consideration of comparable sale instances by the appropriate authority.
4. Alleged violation of principles of natural justice.
5. Adequacy of the opportunity given to the petitioners to rebut the presumption of tax evasion.

Issue-wise Detailed Analysis:

1. Legality of the preemptive purchase order under section 269UD(1) of the Income-tax Act, 1961:
The petitioners challenged the order dated April 27, 1993, by the appropriate authority exercising the right of preemptive purchase of the property for Rs. 24,00,000. The petitioners argued that the order was erroneous, illegal, and lacked proper application of mind. The court found that the appropriate authority's decision was based on non-comparable sale instances and failed to consider the petitioners' submissions adequately.

2. Validity and adequacy of the show-cause notice issued to the petitioners:
The show-cause notice dated April 13, 1993, was criticized for being vague and not disclosing any relevant material or reasons for the prima facie belief that the property was significantly undervalued. The court agreed with the petitioners, stating that the notice did not provide the petitioners with a fair opportunity to understand the case against them, thereby violating section 269UD(1) of the Act and principles of natural justice.

3. Consideration of comparable sale instances by the appropriate authority:
The petitioners highlighted a sale instance from February 3, 1993, in the same locality, which was allegedly ignored by the appropriate authority. The court noted that the respondents did not consider two identical and contemporary transactions in the same building, "Miranda Apartment," where NOCs were issued for lower sale prices. This failure to consider relevant evidence rendered the impugned order factually and legally flawed.

4. Alleged violation of principles of natural justice:
The court observed that the vague show-cause notice and the inadequate opportunity to rebut the presumption of tax evasion constituted a gross violation of the principles of natural justice. The court cited the case of Nirmal Laxminarayan Grover to support the petitioners' argument that the absence of material disclosure in the notice denied them a real opportunity to contest the authority's tentative view.

5. Adequacy of the opportunity given to the petitioners to rebut the presumption of tax evasion:
The court found that the four-day period given to the petitioners to respond to the show-cause notice was insufficient. Additionally, the respondents failed to disclose any material or reasons for the presumption of tax evasion, further denying the petitioners a reasonable opportunity to rebut the presumption. This inadequacy warranted the acceptance of the petitioners' contention that they were denied a fair hearing.

Conclusion:
The court concluded that the impugned order dated April 27, 1993, suffered from multiple legal and procedural errors, including the violation of natural justice and failure to consider relevant evidence. Consequently, the order was quashed and set aside, and the writ petition was allowed with no order as to costs.

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