TaxTMI 
TaxTMI 
1988 (6) TMI 98
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....St., West Mambalam, Madras-33, comprising an area of 9 grounds 488 sft. with an old superstructure thereon. In due course, the inspector attached to the office of the Competent Authority submitted the following report: F.No. 17276 May 82 LCC No. 1210/82 T. Nagar The property is located at West Mambalam adjoining T. Nagar Railway station. Transferee is a real estate dealer. The extent of land is 9 grounds and 488 sft. Building 72 years old 500 sft. Madras Terraced 1000 sft. Tiled. The fair market value (FMV) can be fixed as under: Building 72 Years old. Tumble Down Value Rs. 20,000 Land 9 grounds 488 sft. At. Rs. 75,000 Rs. 6,90,250 FMV Rs. 7,10,250 FMV exceed 25 per cent. Fit case for action satisfying the conditions laid down under s. 269C." On this, the Competent Authority passed the following order sheet entry: "Seen I am satisfied that the conditions prescribed under s. 269C are applicable. Initiate proceedings." And in pursuance thereof notices under s. 269D(1) were issued dt. 13th Jan., 1983 (at one stage the mention of 82 is a typographical error). 3. Eventually, the matter was referred for valuation to the Departmental Valuation ....
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....e represented by one Shri G. Parthasarathy, Chartered Accountant, who appeared before the Competent Authority on 12 Aug., 1987. Several opportunities appear to have been given to the transferees but finally Sri Appalasamy filed a letter on 8th Dec., 1987. The objections raised were as under: "(1) The property was registered by the registrar of documents when we purchased it because the consideration was reasonable according to the guideline obtains therein. (2) The very old, dilapidated building fit for demolition was the superstructure at the time of purchase. This was demolished and taken away by the demolished as the cost of demolition is more or less equal to the debris. Your valuation cell has not taken into consideration the cost of demolition. (3) Your valuation Department has not cited a single instance of comparable cases for fixing up the land value. (4) The land is situate on the western side of the Mambalam Railway Station and has no easy accessibility from any side except by jumping the overhead bridge of the railway station. The site land is situated in a fairly under-developed area. (5) The Valuation Officer has assumed a six floor construction while t....
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.... Rs. 14,77,500 Add: Scrap value of the building as per Valuation Officer's report Rs. 56,200 . Rs. 15,33,700 Thus, as per the actuals given by the transferee himself, the F.M.V. according to development method works out to Rs. 15,33,700. This compares well with the F.M.V. determined by the Valuation Officer at Rs. 14,16,000 after inspection. Thus, I adopt the F.M.V. at Rs. 15,00,000 roundly so as to meet the ends of justice. The apparent consideration is Rs. 5,70,000. The Fair Market Value as determined independently by me is Rs. 15,00,000." The difference between Rs. 15 lakhs and the apparent consideration was Rs. 9,30,000. The Competent Authority stated this exceed 25 per cent of the apparent consideration and accordingly he held that the presumptions mentioned in s. 269C(2)(a) and (b) were attracted. According to the Competent Authority, therefore, the statutory presumption of conclusive proof of the apparent consideration stated being not the real consideration and the transfer, having been made for avoidance of tax became applicable. He therefore, with the approval of the CIT passed the order of acquisition. The order of acquisition is the subject of appeal b....
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....ideration had been understated with the aforesaid object or objects." There are also the observations in the judgement of the Calcutta High Court in the case of Mahmudabal Properties (P) Ltd. vs. CIT (1972) 85 ITR 500 (Cal) where Their Lordships observed at page 518 as follows: "From the above illuminating observations of Lord Evershed M.R., it is patent that a clear and firm distinction is being drawn between matters which may be said to be a matter of local knowledge for judges or tribunals having a local jurisdiction. This is a knowledge which is derived by such judges or members of the tribunals as having come to their possessions as persons in the locality or to quote the words of Lord Evershed "of persons who are intelligently concerned in the relevant local affairs." This "local knowledge" is, however, quite distinct from what has been described as "specialised knowledge" or "personal specialised knowledge" which is an individual knowledge of the person himself and which may have been derived by him as a result of some association of a specialised nature with that particular branch of human affairs. The above decision is a clear authority for the proposition that if a ....
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....perated even at the initial stage. The learned counsel for the assessee stated that even the Delhi High Court in the later case of Himland Exports (Pvt) Ltd. vs. ITAT And Others (1987) 59 CTR (Del) 54 : (1987) 167 ITR 478 (Del) had only observed at page 482 that admittedly the presumptions were available at the stage of final determination. The learned departmental representative also relied on a decision of the Tribunal in the case of Ashwani Kumar vs. IAC (1987) 20 ITD 643 (Del) where the Tribunal had stated that special provisions had been made in sub-s. (2) of s. 269C creating a presumption in favour of the Revenue and, therefore, the principles laid down in the decision of the Supreme Court in K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) would not be applicable. He, if submitted that in view of the fair market value as determined by the Inspector having exceed the apparent consideration by more than 25 per cent the statutory presumptions arose that the apparent consideration was understated for facilitating avoidance of tax. 8. We have considered the rival submissions. We have had occasion to examine at length the various proceedings relied on by p....
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....apter shall be initiated in respect of the properties transferred after 30th Sept., 1986. As a consequential measure, s. 276AA of the Act is proposed to be omitted. These amendments shall take effect from 1st Oct., 1986" The view stated in the aforesaid memo is that before the provisions can be invoked it has to be proved that the consideration for transfer of an immovable property as agreed to between the parties has not been truly stated in the instrument of transfer with the object of avoidance of tax etc. by the transferor or the transferee. This view as put forth in the memo explaining the provisions to the finance Bill of 1986 whereby amendments were effected for dropping the Chapter of Acquisition w.e.f. 1st Oct., 1986, is in conformity with the ratio of the decisions of the Gujarat, Calcutta, Bombay and Punjab & Haryana High Courts extracts from the judgments of which Courts we have set out in extenso in our order referred to. It can, therefore, be considered that the view that the presumptions relating to avoidance do not apply at a stage anterior to the initiation of proceeding finds acceptance in the aforesaid reasons, the conclusion being that prior to the init....
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....ly, that the initiation of proceedings has not been validly made. 11. On merits, the learned counsel submitted that, in addition to the objections raised by the transferee before the Competent Authority, he would emphasis in particular that the development method, which was sought to be followed by the Valuation Officer, and the Competent Authority, had no application in the present case. He stated that the property in question was a fully developed residential site. The development method, if at all it was to be applied, could be considered only in the case of a property, say agricultural property, which was situate in the midst of residential properties, and had not been developed into a land which could be used for residential purposes by proper lay-out etc., unlike in the present case where no further development was necessary. According to the learned counsel, the only proper method to be adopted in the present case was to compare the price paid per ground, which was over Rs. 60,000, with any comparable sales in the neighbourhood of similar properties. He stated that though the Valuation Officer had mentioned in his report in para 5.1 that the fair market value arrived at c....
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..... The learned counsel went on to submit that the transferee had entered into an agreement on 1st July, 1982 to sell the entire land to a concern of building promoters (no doubt very fairly stated to be a family concern) by the name M/s Raviram Builders for Rs. 7,11,250. He stated that the price at which the property was agreed to be transferred to the nominees of the promoters was about 10 per cent higher than the price at which the property was purchased. The later transaction which involved sale of undivided share of land to about 80 different flat holders, he submitted, had not been impugned and, therefore according to the learned counsel, the value shown of Rs. 5,70,000 in the instrument of transfer depicted the correct market value as on 17th May, 1982. 13. Since the question of valuation was involved, we were of the view that the Valuation Officer should also be heard. The case was accordingly adjourned and we have had the benefit of hearing the learned Valuation Officer also. In the Valuation Report the following appears at paras 4.1 and 5.1: "4.1. Reasons for adoption: The old building was found to have been demolished. The land area is 9,280 grounds is in a purely re....
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....d in the document of Rs. 79,800 is added, the total comes to Rs. 6,49,000 or Rs. 6,50,000. The agreement to sell on 1st July, 1982 was for Rs. 7,11,250. The surplus receivable by the transferee was, therefore, Rs. 66,000, i.e., about 10 per cent more than the aggregate purchase consideration including the stamp and registration charges. Considering that the agreement is made about 11/2 month after the instrument of transfer, the surplus received is adequate. There is no material to suggest that the price receivable in terms of the subsequent agreement (though entered into with a family concern) of Rs. 7,11,250 did not represent the market value. In a case like this before proceeding to make an evaluation by hypothetical development method, it would have been advantageous at least if some instances of comparable sales were examined to see whether the apparent consideration had been under-stated. In the present case, no instance of comparable sale at all has been examined nor is there any material placed before the Tribunal on behalf of the Revenue of any instance of comparable sale for the records as available. Since in the present case the property purchased was a house site, we ar....
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....lly when the site in question was already a building site." Viewed in the light of the above observations, the present one is a case where the development method could not have been applied since the property in question was already a house site in a residential locality. That apart, even the development method, as adopted, suffers from an Ex-facie infirmity, which we put to the Valuation Officer, viz., if the flats were to be constructed, it would have taken about 3 or 4 years and the value to be taken could not exceed the "present value" of the final construction. No discount for this factor has been allowed in the valuation as made by the Valuation Officer or the Competent Authority by the development method. The Supreme Court in the case of Reghubands Narain Sigh vs. The Utter Pradesh Govt. through collector of Bijnor AIR 1967 SC page 465 at 467 has stated: "Market value on the basis of which compensation is payable under s. 23 of the Act means the price that a willing purchaser would pay to a willing seller for a property having due regard to its exiting condition, with all its existing advantages, and its potential possibilities when laid out in its most advantageous ma....
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....ons of sale at of abut the item of the preliminary notification are the usual, and indeed the best, evidence of market-value. Other methods of valuation are resorted to if the evidence of sale of similar lands is not available." To adopt a hypothetical development method without any reference to any figure of comparable sale would be to arrive at a figure of estimated market value, which, in our view will stand divorced of all reality. We consider that value arrived at by the development method by the Valuation Officer as well as by the Competent Authority in the present case cannot, therefore, be acted upon, because the site in question was already a building site. There is no informed discussion about the rate of progress of building in the said area etc. and there is no information of any comparable sale and further even from the hypothetical figures no discount has been given for the time large when the sale values of the flats, which were eventually constructed, could be received and the date of the instrument of transfer. We may also stress on the fact that while the Valuation Officer considered that for contractor's profit, entrepreneurship, and overheads, etc. about 22 1....