2005 (11) TMI 51 - HC - Income Tax

Court quashes purchase order under Income-tax Act due to property valuation discrepancies

The court quashed the preemptive purchase order under section 269UD(1) of the Income-tax Act, 1961, due to the non-comparability of the Sale Instance ... Appropriate Authority has ordered preemptive purchase of the immovable property - SIP (sale instance property) relied upon by the Appropriate Authority is not comparable and it is not open to the Appropriate Authority to take into account sale instance of non-comparable properties and arrive at a conclusion that there is undervaluation of 15 per cent, or more by making additions and deletions of the advantages and disadvantages attached to the totally dissimilar properties - it is not necessary to go into the question as to whether the transfer of development rights is covered under Chapter XX-C of the Act or not. - petition succeeds. The impugned order dated February 23,1995, is quashed and set aside Issues Involved:1. Validity of the preemptive purchase order under section 269UD(1) of the Income-tax Act, 1961.2. Comparability of the Sale Instance Property (SIP) with the Property Under Consideration (PUC).3. Alleged undervaluation of the PUC by more than 15%.Issue-wise Detailed Analysis:1. Validity of the Preemptive Purchase Order:The petitioners challenged the order dated February 23, 1995, wherein the Appropriate Authority ordered the preemptive purchase of the immovable property under section 269UD(1) of the Income-tax Act, 1961. The petitioners argued that the findings of undervaluation by more than 15% were erroneous. The court examined whether the transfer of development rights falls under Chapter XX-C of the Act, but decided to address the comparability issue first.2. Comparability of the SIP with the PUC:The petitioners contended that the SIP referred to in the impugned order was not comparable to the PUC for several reasons:- The distance between the PUC and SIP is about 7 kms.- The PUC is outside the Pune Municipal Corporation limits, while the SIP is within the limits.- Different governing rules: Development Control Rules for PUC and Pune Municipal Corporation Rules for SIP.- The PUC lacks an approach road, internal road, and service road, unlike the SIP.- Different amenity open space requirements: 25% for PUC and 10% for SIP.- The PUC is approximately 10 kms from Pune station, while the SIP is about 5 kms away.The court agreed with the petitioners, noting the significant dissimilarities between the PUC and SIP. It was highlighted that the market value of properties near highways cannot be compared with those on hilltops due to distinct merits and demerits. The court referred to the decision in CIT v. Mrs. Rita Joseph, which held that SIP located 5 kms away from PUC cannot be used for determining fair market value.3. Alleged Undervaluation of the PUC by More Than 15%:The petitioners argued that even if the SIP's apparent consideration was considered, it did not establish undervaluation exceeding 15%. The court noted the Departmental working, which showed the net FSI available to the PUC as 19,122 sq. mtrs. and to the SIP as 16,575 sq. mtrs. The rate per square metre was Rs. 418 for PUC and Rs. 471 for SIP, indicating a difference of 11.25%, which is less than 15%. The court criticized the Appropriate Authority's method of adding and subtracting various advantages and disadvantages to arrive at a conclusion of undervaluation. It was also noted that the SIP was sold in an auction in January 1995, two months after the PUC agreement, during a period of increasing property prices.The court found the Appropriate Authority's deduction of 1,969 sq. mtrs. FSI from the SIP for Government nominees' reservation incorrect, as the same should apply to the PUC. The court concluded that the SIP was not comparable to the PUC and that the undervaluation inference was unjustified.Conclusion:The court quashed and set aside the impugned order dated February 23, 1995, due to the non-comparability of the SIP with the PUC and the improper method of determining undervaluation. The petition was allowed, and the rule was made absolute in terms of prayer clause (b), with no order as to costs.