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2002 DIGILAW 427 (CAL)

I. T. C. LTD. v. APPROPRIATE AUTHORITY

2002-07-04

KALYAN JYOTI SENGUPTA

body2002
KALYAN JYOTI SENGUPTA, J. ( 1 ) THE petitioner being the intended vendee has asked for quashing of the order passed by the appropriate authority, namely, respondent No. 1, dated January 28, 1993, purported to have been passed under Section 269ud (1) of the Income-tax Act, 1961 (hereinafter referred to as "the said Act"), and also for consequential relief for granting "no objection certificate" to purchase the two flats, bearing Nos. 1-C and 4-C, situate in the building commonly known as "sun Flower Court" at and being premises No. 7, Love Lock Place, Calcutta 700 019 (hereinafter referred to as "the said property" ). By the order impugned the Central Government has exercised its option to buy up the said property at a consideration of Rs. 50 lakhs. ( 2 ) THE short facts of the case are that the petitioner entered into an agreement for sale of the aforesaid property with respondents Nos. 4 and 5, being the vendor at a sum of Rs. 50 lakhs. Thereafter the petitioner under Section 209ud, filed an application in Form No. 37-1 of the Act. Therefore, a show-cause notice was served upon the petitioner on or about January 7, 1993, issued by the appropriate authority. The petitioner duly replied to the said show-cause notice by letter dated January 13, 1993. Before replying to the show-cause notice the petitioner duly demanded and was supplied with several documents, namely, details of scrutiny report, valuation report dated October 21, 1992 and site inspection report. By the impugned order respondent No. 1 did not accept the cause shown by the petitioner and held amongst others that the apparent consideration, mentioned in the agreement for sale is significantly understated and after having valued the said two properties it was decided that the said property would be purchased by the Central Government at a sum of Rs. 50 lakhs. ( 3 ) DR. 50 lakhs. ( 3 ) DR. Pal, learned senior advocate, appearing in support of the writ petitioner contends that if the methods and economics of the valuation of the property as done by the Superintendent Engineer are to be accepted then it is a clear case that the consideration for the purchase of the property in question is not lower than the consideration of the two flats at Trivoli Court offered by the petitioner and in any event less than 15 per cent, of the gross valuation which has been disclosed in the two comparable cases. He contends that the two properties at Trivoli Court cannot be comparable instances because the property situated at Trivoli Court is at a commercial complex and at the junction of the Ballygunge Circular Road and Circular Road, which is situate at a more locationally advantageous position. His further contention is that the impugned order suffers from apparent infirmities so far as the valuation report is concerned. This valuation in the impugned order proceeded upon a basis which the petitioner was not confronted with and the same was different from that was adopted in the valuation report. This basis of the valuation was never disclosed in the valuation report nor in the show-cause notice as such the petitioner has not even got any opportunity to controvert the same. His further contention is that the appropriate authority has also taken into account the rate of inflation at 1. 5 per cent, per month and added 10. 5 per cent, to the consideration for 56 Trivoli Court and at the rate of 9 per cent, to the consideration of 91 Trivoli Court and this has not been disclosed in the valuation report or at any stage of hearing before the appropriate authority. The rate of inflation taken by the Central Board of Direct Taxes is at one per cent, per month. Therefore, judged from all standards the basis of increase of the valuation is not only illegal but also flagrant violation of the principle of natural justice. The appropriate authority has thus introduced certain facts that is the age of the building, the time lag, the rate of inflation, etc. , which were absolutely new materials and were not disclosed even in the show-cause notice or at the time of hearing before order was passed and the assessee was never given any opportunity to controvert these materials. The appropriate authority has thus introduced certain facts that is the age of the building, the time lag, the rate of inflation, etc. , which were absolutely new materials and were not disclosed even in the show-cause notice or at the time of hearing before order was passed and the assessee was never given any opportunity to controvert these materials. The order of the. appropriate authority, therefore, suffers from blatant and flagrant violation of the principle of natural justice. ( 4 ) HE further contends that in order to attract Chapter XX-C, there must be significant understatement of valuation of the property concerned, namely, of 15 per cent, or more of the fair market value and the appropriate authority must be satisfied further that no undervaluation was done with a view to evade tax. He further contends that although presumption of an attempt to evade tax may be raised by the appropriate authority concerned in case of the aforesaid circumstances, such presumption is rebuttable and this would necessarily imply that the concerned parties must be given an opportunity to show cause as to why such presumption should not be drawn. Therefore, this court in exercise of its power of judicial review in the circumstances above should set aside the impugned order. In support of his contention, he had relied on the following decisions reported in K. P. Varghese v. ITO; CIT v. Smt. Vimlaben Bhagwandas Patel; Ridge v. Baldwin [1963] 2 All ER 66 (HL); C. B. Gautam v. Union of India; CIT v. Mahindra and Mahindra Ltd. [1983] 54 Comp Cas 651 (SC) and Lytton Hotel Pvt. Ltd v. Appropriate Authority. ( 5 ) MR. Pradip Ghosh, learned senior advocate appearing on behalf of the Revenue, while opposing the writ petition contends that the challenge of the writ petitioner against the show cause and proceeding is not sustainable, as the petitioner duly replied to the show-cause notice and participated in the hearing. The appropriate authority after giving reasonable opportunity to the petitioner has found considering comparable instances, apparent consideration in the agreement has been significantly understated to the extent of 23. 3 per cent, below the fair market value of the property. The appropriate authority has found the fair market value of the property of the said two properties would be Rs. 61. 65 lakhs on the date of the agreement. 3 per cent, below the fair market value of the property. The appropriate authority has found the fair market value of the property of the said two properties would be Rs. 61. 65 lakhs on the date of the agreement. Therefore, the appropriate authority rightly made an order of pre-emptive purchase under Section 269ud (1) of the said Act in respect of the said property at an apparent consideration of Rs. 50 lakhs. ( 6 ) THE writ court cannot redetermine the valuation of the property, nor can this court in the writ jurisdiction reappreciate or reappraise evidence acting as an appellate court. In support of his contention, he has placed reliance on the following cases : Appropriate Authority v. Smt. Sudha Patil; Chartered Housing v. Appropriate Authority [2001] 250 ITR 1, 28-29 (Karn); Union of India v. Shatabadi Trading and Investment P. Ltd. His further contention is that as the petitioner has been given full opportunity to be heard, therefore, the grievance of breach of natural justice is wholly unfounded. ( 7 ) I have considered the respective contentions of the parties, carefully. In this case what has fallen for consideration is : whether the decision of the pre-emptive purchase of the aforesaid two properties under Chapter XX-C of the Income-tax Act has been taken in accordance with law and upon principle of natural justice or not. Right to acquire property of his own choice in any part of India, by a citizen, is a fundamental right as well. However, such a right is always subjected to reasonable restriction as contemplated in Article 19 (2) of the Constitution of India. In my view, the pre-emptive purchase by the Central Government under the aforesaid Chapter is one of the measures to put reasonable restriction and this has been engrafted in the statute to check and prevent evasion of income-tax, which is more often adopted selling a property at under-valuation. Both learned counsel have drawn my attention to the decision of the Constitution Bench of the Supreme Court in C. B. Gautam v. Union of India [1993] 199 ITR 530. Before the aforesaid judgment was rendered in Section 269ud of the Chapter XX-C of the Act there was no provision for giving hearing or notice to the vendor or vendee, nor was there any provision to supply the materials and/or documents on which the Revenue is to rely. Before the aforesaid judgment was rendered in Section 269ud of the Chapter XX-C of the Act there was no provision for giving hearing or notice to the vendor or vendee, nor was there any provision to supply the materials and/or documents on which the Revenue is to rely. After the aforesaid decision was rendered the said section had undergone an amendment incorporating the provision for giving notice and also hearing to the prospective vendee as well. ( 8 ) BOTH Mr. Ghosh and Dr. Pal have reminded me in the perspective of their own cases of the extent and power of this court under Article 226 of the Constitution of India, of judicial review of the decisions like the present one. It is the settled position of law as has been rightly argued by Mr. Ghosh that even if there is no provision of appeal against a particular decision of a quasi-judicial authority or tribunal the power of the High Court under Article 226 of the Constitution of India does not get enlarged and it remains the same in that case also. Obviously the extent of power is much narrower than the power of the appellate and/or revising authority. ( 9 ) I am fully conscious of my power in exercise of jurisdiction under Article 226, and to what extent I can examine this case and interfere with this order. Decisions reported in Appropriate Authority v. Smt. Sudha Patil; Union of India v. Shatabadi Trading and Investment P. Ltd. ; Hindustan Motors Ltd. v. Members, Appropriate Authority and Chartered Housing v. Appropriate Authority [2001] 250 ITR 1, 28-29 (Karn), have settled well the aforesaid position of the law. It seems that keeping in view the parameters of power as above, it was held by the Supreme Court in the case of Appropriate Authority v. Smt. Sudha Patil that when the decision has been taken under Section 269ud without considering the appropriate materials such a decision cannot be supported or any decision which cannot be arrived at by a reasonable prudent man on the basis of the materials made available, this court under the power of judicial review can interfere with such order. ( 10 ) IT is urged by Dr. ( 10 ) IT is urged by Dr. Pal that the show-cause notice should be set aside at the threshold as the very basis on which the aforesaid impugned decision was rendered was not disclosed in the impugned show-cause notice. I am unable to accept this request of Dr. Pal to interfere with the show-cause notice at this stage, as the writ petitioner admittedly in response to the notice duly showed cause. Besides, on receipt of the impugned notice the petitioner demanded supply of all the documents and materials on which the Revenue has sought to rely and it was obliged with supply of the materials, thereafter the writ petitioner duly showed cause and dealt with all the allegations. The writ petitioner undeniably appeared and participated in the hearing. In such circumstances, the aforesaid preliminary plea has been and/or is deemed to have been waived. Accordingly, I reject this contention of the writ petitioner with the support of judicial pronouncement reported in Lytton Hotel Pvt. Ltd. v. Appropriate Authority. ( 11 ) IT is contended by Mr. Ghosh that when a decision was rendered upon hearing of the petition it is not for the writ court to substitute its own decision in the name of judicial review, under Article 226 of the Constitution of India. In principle, I accept the submission of Mr. Ghosh. But one cannot take a decision which is manifestly absurd, in the name of compliance with procedure, formality or rules of natural justice. I wish to examine as to whether the compliance with natural justice has been in true sense observed, following the principle laid down in C. B. Gautam's case or not, then again, whether the appropriate authority could hold on the given materials that the transaction between the petitioner and the private-respondents is sought to be made at gross undervaluation exceeding 15 per cent, of more than the real value of the property. The Revenue initially relied on detailed scrutiny report, valuation report of October 21, 1992, site inspection report, to form a belief in this direction. ( 12 ) IN the detailed scrutiny report the Department had sought reliance on the comparable sale instances in respect of three properties, namely, at 56 Trivoli Court, 1/c Ballygunge Circular Road and Flat No. 8d, 25, Ballygunge Circular Road, Calcutta 700 019. The rate of the aforesaid properties was shown to have been Rs. ( 12 ) IN the detailed scrutiny report the Department had sought reliance on the comparable sale instances in respect of three properties, namely, at 56 Trivoli Court, 1/c Ballygunge Circular Road and Flat No. 8d, 25, Ballygunge Circular Road, Calcutta 700 019. The rate of the aforesaid properties was shown to have been Rs. 1,152 per sq. ft. Rs. 1,290 per sq. ft. and Rs. 1,684 per sq. ft. These rates are taken to be the basis for determining the fair market rate of the property. Admittedly, the aforesaid properties, the sale instances of which have been relied on are not situate in and around or within close proximity of the subject property, rather they are situate at a fairly commercial area and have got commercial importance. It is found from the detailed scrutiny report, the aforesaid rates have been worked out taking into account the built-up area. I have gone carefully through the impugned order, I find in this case the appropriate authority while working out the market value of the subject properties have taken into account the super built-up area and excluding the garage space. I accept the submission of Dr. Pal that the appropriate authority, at the first instance should not have taken into consideration the super built-up area of the subject matter while working out the market rate. In this case had the built-up area been taken into account in working out the figure, then, the fair market rate would have been the same as in the comparable sale instances. Moreover, I find there is an apparent arithmetical mistake in calculation of the rate per square feet. In case of No. I sale instance, upon correct calculation the rate would be Rs. 1,060 per sq. ft. in lieu of Rs. 1,152 per sq. ft In case of sale instance No. II the rate would be Rs. 1, 199 per sq. ft. in lieu of Rs. 1,290 per sq. ft. In the subject property the total built-up-area of the two flats was 3403. 92 sq. ft. and if the apparent consideration is divided by the aforesaid built-up area the rate of price would be Rs. 1,470 per sq. ft and the same is more than the rate of the numbers I and II of sale instances. 1,290 per sq. ft. In the subject property the total built-up-area of the two flats was 3403. 92 sq. ft. and if the apparent consideration is divided by the aforesaid built-up area the rate of price would be Rs. 1,470 per sq. ft and the same is more than the rate of the numbers I and II of sale instances. However, the sum is less than 15 per cent, if the sale of the III instance is taken into consideration and, however, this cannot be a comparable instance as it is situate at a different place. Therefore, I have no hesitation to hold while accepting the argument of Dr. Pal that any reasonable prudent man could not have come to a conclusion applying the aforesaid sale instances, there is any understatement of the apparent consideration. ( 13 ) IT appears that the appropriate authority while assessing the value of the aforesaid two flats has not only relied on the amount of the consideration of the said two sale instances mentioned in the report at the time of sale, but has sought to value the same on the date of enquiry by adding time lag for seven months at the rate of 1. 5 per cent per annum. , age of the building of the Trivoli Court and architectural consideration. The aforesaid basis or method had never been disclosed to the petitioner, nor any opportunity was given to rebut the same. In my view, the appropriate authority ought not to have adopted such method or material for valuation, which were not supplied nor informed to the petitioner. They should have proceeded on the basis of the materials and/or information supplied to the petitioner. Therefore, in my view, the appropriate authority has substantially breached the principle of natural justice. ( 14 ) MOST importantly in this case the sale instances were taken in respect of the commercial transaction and in a commercial location and this action of the appropriate authority should not have been adopted in case of transfer and sale of the flat in a different area, which is at a considerable distance from the place of the properties of sale instances, which are located at a distance of 1 k. m. In a metropolitan city the distance of one kilometre is a significant distance that can hardly be overlooked for the valuation of the property. Moreover it is common sense that the sale instance of a commercial venture cannot be comparable with consideration of sale of the dwelling unit. The appropriate authority should have procured the sale instance of dwelling unit of the nearly same location. Accordingly, I hold that the decision of the appropriate authority cannot be sustained and the same is liable to be set aside. I do hereby set aside the decision. ( 15 ) IN order to render complete justice I direct the appropriate authority to issue "no objection certificate", within four weeks from the date of the communication of this order. ( 16 ) NO order as to costs.