Mohinder Pal Sharma vs Deputy Commissioner Of Income ...
1993 Latest Caselaw 258 Del

ORDER

VIMAL GANDHI, J.M. :

These are bunch of appeals by the transferees against order of Competent Authority acquiring under s. 269F(6) of IT Act. The property situated at 27-Park Avenue, Karol Bagh, New Delhi was sold to the appellants by Sardar L. Singh and others vide deed dt. 4th June, 1985 for a sum of Rs. 24 lakhs. The disputed property comprised of two floors and a barsati. The property was built on a plot measuring 1777 sq. mts. The ground and first floor had covered area of barsati 900 sq. fit.

2. The Competent Authority under Chapter XX-A of IT Act on getting information on Form 37-G obtained copy of sale deed, lay out plan etc. through his Inspector and for working out fair market value (FMV) of the property for purpose of initiating proceedings under s. 269C and 269D of the IT Act applied @ Rs. 3600 per sq. mtr. to land based on valuation in case F. No. SR-III/3/85/1037 dt. 28th Jan., 1986 in respect of property 17A/17 Karol Bagh, New Delhi. In the above report the Valuation Cell had worked out rate of land at Rs. 3,593 per sq. mtr. Taking into account above rate the Competent Authority thought that rate of Rs. 3,600 per sq. mtr., for working out the value of property sold at Rs. 46,39,831 as per the following calculation :

Rs

Rs

1.

Value of land measuring 1,077.06 sq. mtr. @ 3600 per sq. mtr.

38,77,416

2.

Value of structure after allowing depreciation @ 1.5 per annum for 28 years

7,62,467

46,39,831

3. Taking the aforesaid fair market value of property and the apparent consideration at Rs. 24 lakhs, the Competent Authority had reasons to believe that the transferor and the transferee had not truly stated the consideration in the instrument of transfer as agreed to between them with objects mentioned in cls. (a) and (b) of s. 269C(1) of IT Act. The Competent Authority also raised presumptions mentioned in S. 269C(2) of IT Act and initiated proceedings by issuing notice under s. 269D(1) dt. 14Feb., 1986 of IT Act. The said notice was published in the official gazette on 22nd March, 1986. As transferors were not residing at the address given in the sale deed, the notice was served on them through affixture. A copy of notice was also deed, the notice was served on them through affixture. A copy of notice was also given to transferees advocate for service but the same could not be served as the transferors were reported to be not residing in India. The notice on transferees were sent by registered post on 4th April, 1986. It is also claimed to be displayed on the notice board of the Competent Authority on 15th Dec., 1987.

4. No objections were filed to the acquisition proceedings on behalf of the transferors. The transferees raised objections through their counsel Shri P. N. Chawla and were also granted personal hearing from time to time. In support of the stated consideration, the transferees relied upon the valuation report of Shri Har Govind Rai Tukral who computed fair market value of property in question at Rs. 23,88,200.

5. The Competent Authority did not find any force in the objections raised by the transferees that presumption under s. 269C(2) were not available at the time of initiation of acquisition proceedings. In support of his view, he relied upon decision of Hon'ble Delhi High Court in the case of Mahavir Metal Works vs. Union of India (1974) 95 ITR 197 (Del) as also on the decisions of Hon'ble Punjab & Haryana High Court in the case of Sutlej Chit Fund and Financier (P) Ltd. vs. CIT (1986) 161 ITR 174(P&H). The decision of ITAT, A Bench in the case of Mrs. Moni Jai Dev vs. IAC (IT Acq. No. 9/Del/87) was also referred to and relied upon to reject assesseds above objection. The Competent Authority also rejected valuation report of registered valuer estimating value of property at Rs. 23,88,200. According to him, after taking into account permissible depreciation, the value of super structure on the basis given by the registered valuer should be Rs. 5,92,460. With reference to rate of land taken by registered valuer at Rs. 1,800 per sq. mtr., the rate prescribed by Land & Development Officer, the Competent Authority held that above rate was fixed in 1981 and was revised to Rs. 5,000 per sq. mtr. in 1987. The above, according to the Competent Authority showed that Land & Development Officers rate did not represent the market rate.

6. During the course of hearing of the matter, the Competent Authority further relied upon certain sale instances referred to in para 10 of his order. Out of the sale instances, the sale of property at 32-Park Area, Karol Bagh. New Delhi having same area with 2-1/2 storeyed structure transferred vide sale deed dt. 20th Jan., 1986 for a consideration of Rs. 50 lakhs was considered most appropriate for fixing FMV of the disputed property. He rejected assesseds claim that above said sale instance related to the property purchased with intention to exploit for commercial purposes. He maintained that sale instance of property at 32-Park are also related to residential premises without permission from the Municipal Corpn, to use the property for commercial purposes. The Competent Authority, however, conceded that most of the properties in the area were being used for commercial purposes without the requisite permission. This was applicable to property in question also. On the basis of sale instances of property at 32-Park Avenue and after making suitable adjustment for time gap of six months between sales of two properties and for better situation of property, the Competent Authority finally determined FMV of property in question of Rs. 41 lakhs against stated consideration of Rs. 24 lakhs. After obtaining final approval of CIT on 4th April, 1989, the property in question was directed to be acquired vide order dt. 25th April, 1989.

7. The transferees being aggrieved have filed this bunch of appeals. The appeals were heard from time to time. On the request of parties our learned predecessor made a spot inspection and recorded the following quorum regarding different properties :

"2-11-1989

House properties inspected :

27 Park Area, Karol Bagh, New Delhi.

This property is situated on a big plot and land facing the park. It is situated on a puce road, approximately 50' wide. This plot is open on both sides. On the back side of the house, there is a lane touching on one side Ajmal Khan Road, which is at a stones throw from the site. On this back lane is situated Desh Bandhu Gupta Market. This is on opposite side of the back lane touching Ajmal Khan Road. On that side of the lane, residential houses in some cases are being used as commercial ones. On the side of the transferees there is no such use of the residential house.

House No. 32 Park Area, Karol Bagh, New Delhi.

This house is situated on the back lane in the corner touching Ajmal Khan Road. Construction of the house is therefore on the Ajmal Khan Road as well as on back lane. It is a multistoreyed house under construction. The construction was, however, abandoned and the building is sealed here and there. We were given to understand by the persons at the site that it was sealed by order of DDA as the construction was unauthorised. No part of the plot of this building is open. Entire area is covered under construction. This property is at a stones throw from house No. 27 Park Area, Karol Bagh.

House No. 17A/17 W.E.A.

This house is situated in West Extension Area, Karol Bagh in a residential area. It is on a small plot. In the front of it, there is a puce road approx 20' wide. A small park is there in front of this house. It is a fully constructed house. The distance of this house from house No. 27 Park Area, Karol Bagh is about 2 kms. The land on which it is situated also touches Ajmal Khan Road at a stones throw.

House No. 6/83 W.E.A.

This house is situated also in the West Extension Area in a thick commercial area on Padam Singh Road next to DCM Suiting showroom. Opposite to this house is a 5 storeyed building marked as "Jammu House" having various commercial establishments including a bank. Although the house is situated in a residential area but the entire area is being used as a commercial area for all intents and purposes. This house is also at a stones throw from Ajmal Khan Road and is about 2 km. from 27 Park Area House, Karol Bagh."

8. At the time of hearing of appeals before us, Shri C. S. Aggarwal, learned counsel for the assessed, submitted that Competent Authority had no material to have reasons to believe that fair market value of property exceeded the apparent consideration by more than 15 or 25% to validly initiate acquisition proceedings under s. 269C of IT Act. The report relating to property at 17-A/17 Karol Bagh, New Delhi was not of property similarly situated. It related to very small property measuring 234 sq. yds. situated in different area and this could not furnish basis for having requisite reason to believe. Shri Aggarwal drew our attention to decisions of Hon'ble Delhi High Court in the case of CIT vs. Duncans Agro Industries Ltd. (1991) 192 ITR 310 (Del). It was emphasised that the Competent Authority could not act on a vague material. There should be a rational nexus between material available on record and formation of belief regarding the fair market value of property. The words used are "reason to believe" and not "reasons to suspect". It was contended that there was no material to fix value of property at Rs. 41 lakhs. Shri Aggarwal also challenged final determination of fair market value at Rs. 41 lakhs. According to him, the Competent Authority gave no basis for deducting 9% for time gap in sales of 6 months and 10% for batter situation of property at 32-Park Avenue, Delhi. Shri Aggarwal further submitted that although registered documents were executed on 4th June, 1985, the consideration of the disputed property between the parties were fixed on 11th May, 1984 when agreement of sale was executed between the parties. The execution of agreement was further supported by payment as evidenced from receipt dt. 11th May, 1984. Thus fair market value of property for purposes of proceeding under Chapter XX-A was to be seen on 11th May, 1984.

9. Shri Aggarwal further contended that no notice was served on the transferees within the prescribed period of 9 months. The notice under the statute was to be served by 31st March, 1986. Therefore, proceedings were liable to be quashed as out of time.

10. The Assessing Officer further did not score any of the alternative columns in notice under s. 269A of IT Act which showed notice was issued without application of mind. He drew our attention to notice at page 49 of the paper book which, according to Shri Aggarwal, was invalid. Shri Aggarwal further contended that presumption under s. 269C(2) was not available at the time of initiation of proceedings. In this connection Shri Aggarwal relied upon decisions of certain Courts. It was accordingly contended that in the present case Competent Authority illegally relied upon presumptions and initiated acquisition proceedings.

11. The final determination of fair market value of impugned property at Rs. 41 lakhs was similarly challenged by Shri Aggarwal. He contended that property situated at 32 Park Avenue was not comparable as the said property was purchased with intention to use for commercial purposes whereas the impugned property was admittedly used and sold for residential purpose. The Competent Authority on purely theoretically and conjectural grounds allowed deduction of 10 and 9 for time gap and better location of property. This action was impermissible under the law. Shri Aggarwal relied upon decision in the case of CIT vs. Arun Mehra. (1986) 157 ITR 308 (Del). It was emphasised that acquisition proceedings were penal in character. In support reliance was placed on the decision of the Hon'ble Delhi High Court in the case of Duncans Agro Industries Ltd. (supra).

12. The learned Departmental Representative, on the other hand, strongly supported the order of the Competent Authority. He emphasised that before initiation of proceedings, the Competent Authority served notices on the transferees, got a report prepared from the income-tax Inspector and took into account comparable sale instances to arrive at a reasonable FMV of property. It being difficult to have two exactly similarly situated properties for determining the FMV, the Competent Authorities relied upon the best available material and proceeded in accordance with law. During the course of hearing the Competent Authority further put to the assessed sale of property at 32-Park Avenue which was only 5 buildings away from the impugned property and comparable in all respects. The initiation of proceedings and raising of presumption under s. 269C(2) were supported by relying upon decision cited by the Competent Authority. As regards transferees objection that notice was not served in time on them, the learned Departmental Representative submitted that notice was duty published in the official gazetted and, therefore, should be deemed to be served in time. In this connection he drew out attention to the following reported cases :

CIT vs. Shilaben Kanchanlal Rana (1980) 124 ITR 420 (Guj);

2. Girnar Builders (P) Ltd. vs. IAC (1985) 156 ITR 403 (Kar) and

3. CIT vs. Smt. Asha Devi Agarwal (1988) 169 ITR 400 (Call)

The notice on the transferees was served through affixtures as they were not available on the address given in the sale deed or in India. The Departmental Representative read out order of Competent Authority to contend that FMV was fixed in a most reasonable manner. He thus supported acquisition of property.

13. In rebuttal Shri C. S. Aggarwal pointed out that there was no report of Inspector on the FMV of the property. There was further no material to have reasons to believe that provisions of s. 269C were applicable in this case.

14. We have given careful thought to the rival submissions of the parties. assesseds objection that presumption under s. 269C(2) were not available at the stage of initiation of acquisition proceedings does not have much force in view of decision of jurisdiction High Court in the cases of Mahabir Metal Works (supra) and CIT vs. Duncans Agro Industries Ltd. (supra). The other objection regarding non-services of notice under s. 269D within the statutory period is also not sound as notice s. 269D dt. 14th Feb., 1986 was duly published in the official gazette on 22th March, 1986 within the prescribed statutory period. The Competent Authority was made all reasonable attempts to effect personal service on the transferors and transferees and also through affixtures. We, therefore, do not find any substance in the above technical objections.

15. The other objection raised relates to initiation of valid acquisition proceedings under s. 269C of IT Act. The provision of s. 269C as applicable in the relevant time contained the following two provisos :

"Provided that before initiating such proceedings, the Competent Authority shall record his reasons for doing so :

Provided further that no such proceedings shall be initiated unless the Competent Authority has reason to believe that the fair market value of the property exceeds the apparent consideration therefore by more than fifteen percent of such apparent consideration."

16. The words "reason to believe" are also employed in s. 147 of IT Act and interpreted by the Apex Court to be stronger than words "satisfied". It has been held that belief of the authority must be that of an honest and reasonable person based upon reasonable grounds and not on mere suspicion, gossip or rumour. The power can be used where there is reason to believe and not merely on reason to suspect [kindly see ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), Ganga Saran & Sons P. Ltd. vs. ITO (1981) 130 ITR 1 (SC)]. It has further been held that authority would be acting without jurisdiction if reason for his belief that conditions are satisfied does not exist or is not relevant and the material does not have rational basis with the formation of belief. It is only those material which is before the authority at the time of initiating proceedings that has to be taken into account and not any further material which subsequently came to light in the course of the proceedings. With the above legal quoting we proceed to consider the material taken into account by the Competent Authority to initiate proceedings under s. 269C of the IT Act.

17. In the case of Duncans Agro Industries Ltd. (supra) their Lordships of the Hon'ble Delhi High Court emphasised that acquisition proceedings are of penal nature and that rate fixed by Land and Development Authorities are important. In the present the Competent Authority noted that rate fixed by Land and Development Officer for the area where the disputed property was situated was Rs. 1,800 per sq. mtr. on the relevant dates but were revised to Rs. 5,000 per sq. mtr. in 1987. In his view the rates between 1981 to 1987 could not have remained stagnant and jumped on the night of 31st March, 1987. There is no doubt that rates effective rate as on the date of the agreement of sale deed was Rs. 1,800 per sq. mtr. Subsequently much after the relevant dates it was revised to Rs. 5,000 per sq. mtr. The revised rates cannot be taken to be applicable to sales prior to 31st March, 1987.

(i) It is seen from the agreement of sale executed on 11th day of may, 1984 that the consideration between the parties was fixed on the above date. The agreement is further supported by payment of Rs. 5 lakhs through draft No. 27156 dt. 6th June, 1984 drawn on Jammu & Kashmir Bank Ltd., Karol Bagh, New Delhi. The said agreement has not been challenged as fictitious or unreliable. It, therefore, follows that stated consideration was bona fide fixed between the parties in May, 1984 although transfer of property took place through registered deed on 4th June, 1985.

(ii) That the Competent Authority while initiating acquisition proceedings took stated consideration at Rs. 24 lakhs. However, it is provided both in the agreement of sale as also in sale deed that apart from above amount, the transferees were obliged to pay unearned increase to the DDA or any other authority.

Para 3 of the sale deed provides as under :

"Any unearned increase (levy) if ever chargeable by the DDA or any other authority shall the responsibility of the venders (purchasers) and the vendors will not be liable under any circumstances."

The discharge of above obligation has undoubtedly to be treated as part of stated and apparent consideration. The Competent Authority did not take into account above clause and erroneously took stated consideration at Rs. 24 lakhs only. It is unnecessary for us to venture to determine the amount of unearned increase or to enter into the controversy whether the same is to be computed with reference to Rs. 1,800 or Rs. 5,000 per sq. mtr. fixed by the Land and Development Officer. In view of observations of the Hon'ble Supreme Court in the case of CWT vs. P. N. Sikand (1977) 107 ITR 922 (SC) we deem it sufficient to say that the unearned increase is a substantial amount and by not considering the same as part of apparent consideration, the competent Authority Committed an error apparent from the record.

(iii) The Competent Authority initiated acquisition proceedings after considering valuation report in case No. IAC Acquisition SR-3/9/85 relating to 17A/17 WEA Karol Bagh, New Delhi dt.28th Jan., 1986. ON perusal of aforesaid report we find that 2-1/2 storeyed structure was purchased by Shri M. S. Suri and other for a total consideration of Rs. 4,10,000. The property was fully tenanted for different floors paying Rs. 1,00,725 and 120 since 1957, 1977 and 1968 respectively. The vendee M. S. Suri was also a tenant of the first floor but portion under his occupation was taken as under self-occupation for purposes of valuation and land and building method was applied to that portion. With reference to other tenants the valuation officer observed the tenancies were genuine but tenant did not possess registered rent agreements in their favor. The valuation officer thus applying land and building method for one portion artificially divided and took its value at Rs. 3,03,300. The value of other portion was worked out to Rs. 5,15,200 by applying some mixed methods unrecognised by any law or rule. Thus total value of property was estimated at Rs. 8,18,500 for the purposes of acquisition. This report of a property measuring about 200 sq. yds. fully tenanted fetching rent of about Rs. 1,000 or so on the face of its looks absurd. In the above working value of land was taken at Rs. 3,593 per sq. mtr. The basis for the above working was sale instance of 117 sq. yd. sold for total consideration of Rs. 2,19,000 on 18th July, 1984. From the total consideration Rs. 6,000 was deducted as salvage value of building and balance amount was taken as value of 117 sq. yds. which on average gave figure of Rs. 2,426 per sq. mtr. or Rs. 2,902 per sq. yd. The above figures were enhanced to Rs. 3,592 by making following corrections for size and other factors :

"Sl. No.

"Sl. No.

Factors

Factors

Correction

Correction

1.

Size

2.

Shape

3.

No. of sides open

4.

Location/situation add better location & (+) situation

20%

5.

Utility

6.

F.A.R.

(-) 1.70%

7.

Land tenure

8.

Time gap add for 8.3 months @ 8% per year

(+) 5.50%

Total percentage corrections (+) 23.8% land rate due to corrections = Rs. 2,902 x 1.238 = Rs. 3,592.67

say Rs. 3,593 per sq. m."

It is clear from above that several adjustments on account of special circumstances and advantages of property were made to arrive at above figures. There is no finding and it is not shown that all special and peculiar circumstances and advantages were available in the case of the disputed property. There is nothing on record to show that this important aspect was considered. We do not know how a small property fully occupied by old tenants could fetch price of more than Rs. 8 lakhs and how the case of a totally dissimilar property could be considered to initiate penal acquisition proceedings. Only reliable thing available in report is sale of property (taken almost as open land) of 117 sq. yds. for Rs. 2,19,000. For applying this sale instances if taken to be of land similarly situated to the disputed property, some deduction was to be made as it is well settled that smaller size plots fetch much higher price than bigger plots. Without proper consideration, the sale instance or report relating to much smaller property located at about km. away from the disputed property could not furnish any basis for estimate of FMV of 2-1/2 storeyed building having 10 times more area. Thus on the basis of above data a reasonable prudent man could not have "reasons to believe" that FMV of property in question was Rs. 47 lakhs. We find no reasonable nexus between the material on record and formation of belief that disputed property had particular FMV. Except for the above valuation report, no other material was collected by the Competent Authority to initiate acquisition proceedings.

18. The application of proviso to s. 269C spins on three factors, namely, apparent consideration of property in question, fair market value of property and whether there is difference of more than 15/25 between the two. In the present case, as noted earlier, the Assessing Officer did not take into account correct apparent consideration, had no relevant material to determine fair market value so as to have reason to believe that the same exceeded the apparent consideration by a particular figure or percentage. The acquisition proceedings are penal in character and, therefore, conditions required for initiation of valid proceedings must be fully satisfied. From the material on record and for the reasons given above we hold that, in this case, the conditions for initiation of valid proceedings are far from satisfied. Therefore, we hold that the initiation of proceedings in this case is bad in law. We quash the notice issued by the Competent Authority under s. 269D of IT Act. The acquisition order is accordingly held to be bad in law and without jurisdiction and is cancelled.

In the result, appeals are allowed.