TaxTMI 
TaxTMI 
2007 (2) TMI 188
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....lows: Respondent No.5 was carrying on amongst other activities the business of manufacturing electric transformers at its factory situated at Nagar Road, Pune. Some time in March, 1993, Voltas Transformers Ltd. (the petitioner referred to by its earlier name) was incorporated as a wholly owned subsidiary of respondent No.5 with the main object of taking over the transformer business of respondent No.5. The entire shareholding of respondent No.5 in this Voltas Transformers Ltd. has been subsequently transferred in favour of the Kirloskar group of companies. The name of V voltas Transformers Ltd. was thereafter changed to the present name, viz.Kirloskar Power Equipments Limited (the petitioner herein). The certificate issued by the Registrar of Companies dated January 10, 1996, was produced in this proceeding by filing a civil application bearing No. 2133 of 2004 and this court by its order passed on December 16, 2004, permitted the substitution of the name of Kirloskar Power Equipments Limited in place of Voltas Transformers Ltd. as the petitioner. Four agreements were entered into after the incorporation of Voltas Power Equipments Limited between it and respondent No.5, detai....
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....otice called upon respondent No.5 to remain present at 3.30 p.m. on the very day of the receipt of notice, i.e., on February 14, 1995, at the Ayakar Bhavan, Pune. Hence, on the next day which was at the earliest, i.e., on February 15, 1995, the fifth respondent gave an application to the appropriate authority. It was signed by one Mr. B. D. Mehta, their general manager. The said letter reads as follows: "We have received your above notice dated February 9, 1995; on February 14, 1995 in the evening, asking us to attend before you on February 14, 1995. In view of the late receipt of the notice, we would request you to kindly let us have an another date for hearing with sufficient notice." It is the case of the petitioner that in spite of giving of this letter the proceeding was adjourned only to the next day, i.e., on February 16, 1995, when the officers of respondent No.5 were asked to give their written submissions which they accordingly submitted on that date. This reply consisted of 16 paragraphs. In paragraphs 12 and 13 with respect to the merits of their case respondent No.5 stated as follows: "12. Even on merit, we would like to submit as follows: (a) The proposed ....
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....6, 1995. Besides, the transferee, i.e. Voltas Transformers Ltd. which also has its office at the same location as the transferor, and who is a material party to the transaction does not appear to have received the said notice till February 15, 1995. 16. Having regard to what we have stated in respect of SIP, it would be just, fair and proper that we are furnished with more details of SIP and given sufficient time to make enquiries about SIP/other comparable transactions, if any, so that the transaction of PUC is evaluated in right perspective." The case of the petitioner is that the petitioner was not served with any notice and the representation made by respondent No.5 was also not properly considered. Respondents Nos. 1, 2 and 3 thereafter proceeded to pass an order directing the purchase. This order was passed on February 23, 1995. In paragraph 4 of the order, the appropriate authority rejected the submissions of respondent No.5. In sub-paragraph (i) thereof, it recorded that the present transaction related to the land only and not an entire business undertaking as claimed. In sub-paragraph (ii) it justified the calculation of the rate. In sub-paragraph (iii) it observe....
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...., the petitioner herein. I never appeared for the transferee and I was never employed by them. I further say that I had not signed the order sheet dated February 16, 1995." The respondents have thereafter placed the order sheet on record along with the affidavit of one Mr. G. M. Chauhan, Assistant Commissioner of Income-tax in the office of the appropriate authority affirmed on November 24, 2006. He has annexed thereto notings of the hearing. These notings also include the notings of February 16, 1995 which are to the following effect: "16/2/95 - S/Shri B. D. Mehta, general manager of transferor firm with Balghat, chartered accountant and D. G. Peo 160 for transferee company. Written submissions filed. (Sd.)" Mr. Pardiwala pointed out that there is no counter of the respondents to the affidavit of Mr. Deo. He submitted that Mr. D. G. Deo was never employed by the petitioner and did not represent them at the time of this proceeding. Similarly Mr. Balghat was chartered accountant of respondent No.5 and not of the petitioner and these facts can be ascertained from the audited report of the fifth respondent. The case of the respondents is that the offices of the petition....
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....ts that the impugned order is unjustified on the merits, apart from being in violation of the statutory requirement of providing reasonable opportunity under section 269UD(1A) of the said Act. Mr. Sethna, learned counsel appearing for respondents Nos. 1 to 4, submitted that under the second proviso to section 269UD, the statutory timeframe for the appropriate authority to pass the order was restricted to only three months in the cases of statements received after June 1, 1993. That being the position, when the 37-I Form was lodged on November 30, 1994, the time available was only up to February 28, 1995. It is the case of respondents Nos. 1 to 4 that the Government got the relevant information only on January 23, 1992, and thereafter the notice was issued on February 9, 1995, calling the party for the inquiry on February 14, 1995. The proceeding had to be completed by February 28, 1995 and, therefore, longer time could not be given. Mr. Pardiwala submitted thereupon that in any case there was still time of about 13 days after February 15, 1995 and surely, respondents Nos. 1 to 4 could have granted the time to the parties of at least one week, if not more. That apart, Mr. Seth....
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.... was in that court) in Hari Krishna Kanoi v. Appropriate Authority reported in [1994] 207 ITR 743. The learned judge took the view that the concept of locus standi is much wider than the concept of a person having an interest in the property. The learned judge observed that the person may be interested in the property without having an interest therein within the legal connotation of the phrase "interest in property". The learned judge has made it clear that the definition of the phrase "person interested" applies in connection with and is limited to the requirements in the provisions of Chapter XX-C itself. The learned judge has observed that any other interpretation will mean that the writ petitioners will be deprived of the valuable right of purchasing the property in question, a right which has been recognised and which is otherwise protected under section 40 of the Transfer of Property Act, 1882 and the Specific Relief Act, 1963. It is material to note that this judgment in the case of Hari Krishna Kanoi [1994] 207 ITR 743 (Cal) was rendered on September 11, 1992, i.e., two months prior to the judgment rendered by the apex court in C. B. Gautam's case [1993] 199 ITR 530 dec....
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....essary information to him by its letter dated December 8, 1994. The appropriate authority took more than a month and 10 days thereafter to take inspection of the property which it has inspected on January 18, 1995 and raised certain queries, with respect to which the petitioner wrote immediately on January 23, 1995. In paragraph 1.6 of this letter it was placed on record that Voltas has transferred its entire shareholding in Voltas Transformers Ltd. to the Kirloskar group of companies on December 1, 1994. Mr. Pardiwala points out that except this statement nothing new was stated in this letter. If the respondents wanted to issue a show cause notice to the petitioner and had a time constraint surely they could have issued it immediately but it was issued after 15 days on February 9, 1995 and served on the transferor on February 14, 1995, as pointed out earlier. When the transferor sought time on February 15, 1995, the matter was adjourned only to the next day. Surely, the respondents had time until the end of February 1995 and the matter could have been adjourned at least by about one week when some further information about the comparable property could have been obtained by the pa....
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....taken under this Chapter. It is material to note that this judgment later on records that there might be other genuine reasons which might have led the seller to agree to sell the property to a particular purchaser at less than the market value. The court, therefore, held amongst other reasons that the requirement of a reasonable opportunity being given to the concerned parties, particularly the intending purchaser and the intending seller must be read into the provisions of Chapter XX-C The court observed that the parties must be given an opportunity to show cause that there is no tax evasion since the basis of this entire provision is to take action in cases of tax evasion. The apex court also rejected the argument that giving of reasons can be a substitute to affording a hearing. Reasons are to be given for two different purposes firstly, so that the party aggrieved must know as to what were the reasons, as also the higher authority like the High Court or the Supreme Court if further action is required to be taken and secondly, it should act as a deterrent against arbitrary action by quasi judicial or executive authorities. The judgment next referred to was in the case of App....
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....covery Officer thereafter attached the property and brought it to sale. The appellant filed an application under rule 60 of the Second Schedule to set aside the sale and deposited the arrears of tax with interest under an authority from the assessee. The question was whether such a purchaser could file an application under rule 60 of the Rules in Schedule II to the Income-tax Act which permits a defaulter or any person whose interests are affected to apply to the Tax Recovery Officer to set aside the auction on depositing the amount specified in the proclamation of sale. The Supreme Court held that such a person had no locus. Surely, it is a situation which is clearly distinguishable from the one of a bona fide purchaser of a property which subsequently comes to be purchased compulsorily. Similar is the judgment in Union of India v. Shatabadi Trading and Investment P. Ltd. [2001] 2511TR 93 (SC). In the facts of that case; third party rights were created in pursuance of an earlier order of the Supreme Court and it was, therefore, in that context that the apex court held that the High Court should not have interfered in the rights of such a party at the instance of a purchaser. This ....
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....sorily under Chapter XX-C of the said Act. The next and alternative submission of Mr. Pardiwala is that assuming that the petitioner could be said to have been heard on February 16, 1995, due to the presence of Mr. Deo and Mr. Balghat, the order that was passed could still not be said to be sustainable. He relies upon grounds (h) to (q) in the petition. Mr. Pardiwala submitted that the impugned order did not contain any reasons to justify an order of compulsory purchase. He submitted that any such order must record as to what is likely to be the fair market value of the property and that due to the undervaluation, tax is going to be evaded. In the present case, nothing of the kind is disclosed in the order. In support of this proposition, he referred us to a judgment of a Division Bench of this court in Vimal Agarwal v. Appropriate Authority reported in [1994] 210 ITR 16. The Division Bench referred to the judgment in C. B. Gautam's case [1993] 199 ITR 530 (SC) and held that it flows therefrom that the appropriate authority must arrive at the figure of fair market value of the property in question, without which it is impossible to hold that the apparent consideration is lower b....
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....ing the order. The reasons given with the show cause notice and/or the sale instances specified therein should be carefully scrutinised. The instances furnished by the aggrieved parties cannot be brushed aside and no order can be passed without carefully considering the same and stating the reasons for not treating the same as comparable cases. It is further observed that each property is unique and two properties can hardly be totally alike. Therefore, various allowances have to be made for difference in qualities between two properties or flats. It is only after considering the attending circumstances that the fair market value must be arrived at on evidence on record. It cannot be a guess work. A sort of balance-sheet of plus and minus factors is expected to be drawn. Ultimately the right of pre-emptive purchase of the Revenue can be exercised only in cases where there is significant undervaluation in the agreement of sale with a view to evade tax. This judgment has been followed and the same approach is taken by other High Courts also. Thus, in Sarwarben Temas Khambata v. Appropriate Authority reported in [1995] 216 ITR 850, a Division Bench of the Gujarat High Court held as....
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.... "X". In the lease agreement it consists of the area of 39,545 sq. meters. To a query from the Valuation Officer, a reply dated December 8, 1994, was sent by the transferor-respondent No.5. Respondent No.5 annexed thereto the exemption order under section 20 of the Urban Land Ceiling Act as also the letter dated August 4, 1994, sent by them to the Directorate of Industries, to which they had enclosed the report dated July 28, 1994, of their architects M/s. S. S. Rawat and Associates. This report gave the particulars of area utilization of this plot No.1 and which shows ultimately that there is hardly any vacant land after considering the built up area permissible, land appurtenant to the balance built up area, open spaces, recreation space, internal roads, DP roads, etc. He, therefore, submitted that it is absurd for the Union of India to acquire the leasehold rights from the transferor for the consideration of Rs. 80 lakhs. If it is a case of the Revenue that at the highest the petitioner will become lessee of the Central Government or whoever is the purchaser, the Government will be putting an amount of Rs. 80 lakhs for getting just lease rent of Re. 1 per year. No sensible party....
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....ral justice are not a strait-jacket formula and that prejudice ought to be shown as resulting from the so-called denial of a fair opportunity. From the above narrations and submissions, the position emerging is as follows: (a) The petitioner was the purchaser of the property under consideration and it is its contention that it was entitled to a hearing before the order of compulsorily purchasing the said property was passed by respondents Nos. 1 to 3. This position is recognised under sub-section (1A) introduced in section 269UD of the Income-tax Act, 1961 with effect from November 17, 1992. The petitioner contends that the show-cause notice issued by the appropriate authority, being dated February 9, 1995, was not served on it at all; and that the impugned order is an ex parte order passed in violation of the principles of natural justice, and in any case, in violation of the statutory provision which mandates a prior hearing to the transferee. The submission of the Revenue is that the very notice was served on respondent No.5, the transferor, in the evening of February 14, 1995. The transferor is having its office in the same building as the transferee, and it is inconceiva....
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....m the above submissions with respect to compliance of the principles of natural justice and the statutory provisions in that behalf, the petitioner contends that there was a right to challenge the impugned order of compulsory purchase on its merits; and as far as that aspect is concerned, the locus of the purchaser cannot be disputed, inasmuch as once the purchaser/transferee is given the right to audience before the appropriate authority, obviously, the transferee cannot be denied the right to challenge the impugned order subsequently under article 226 of the Constitution. The petitioner has placed material on record of this petition to point out that the property, which is pressed into service for comparison, is situated in an altogether different area of the city and is totally dissimilar in various respects, and it is a sale transaction which has not gone through at all. The petitioner has placed the 7 x 12 extract on record to submit that the said comparable property continues under the ownership of the party which wanted to transfer. The submission of Mr. Sethna, thereupon, is that the Revenue cannot be in the know of this further development, and the purchase cannot be vitia....