ORDER
T.V.K. Natarajachandran, Accountant Member
1. These are appeals filed by the Transferor and Transferee for immovable property acquired by the Dy. Commissioner of Income-tax, Acquisition Range, Pune, by order under Section 269F(6) of the Income-tax Act, 1961, dated 30-9-1991. Both of them raised common grounds to urge that the acquisition proceedings under Section 269C have been initiated beyond the time limit prescribed under Section 269D and therefore, the order of acquisition under Section 269F(6) of the Act is ab initio invalid and bad in law.
2. Another ground has been raised stating the Dy. CIT (Acquisition Range), did not have any material or evidence to establish that the consideration for transfer as occurred between the parties had not been truly stated in the instrument of transfer with the object of reduction or evasion of the tax liability of the transferor and transferee and therefore, initiation of proceedings under Section 269C(1) by relying on the presumption under Section 269C(2) is invalid or bad in law and therefore, the order of acquisition is without jurisdiction and should be annulled. The judgment of the Bombay High Court in the case of Unique Associates Co-operative Housing Society Ltd. v. Union of India [1985] 152 ITR 114 is applicable to the case of the transferor and transferee and is binding on the authorities. Without prejudice to the aforesaid ground, another ground has been taken to urge that the service of notice under Section 269D having not been effected within time or according to the prescribed manner and copy of notice not being published and served as per Section 269D(2), the entire proceedings for acquisition have vitiated and therefore, the acquisition order under Section 269F(6) should be annulled.
3. A further ground has been taken on merits of the case to urge that the Dy. CIT (Acquisition) erred in arriving at the market value at Rs. 57,85,000 by relying on certain sale instances which were not quoted by the Departmental Valuation Officer and which were not comparable to the facts of the case. Even the Departmental Valuation Officer improperly and incorrectly arrived at the market value without appreciating the facts and circumstances existing in this case, and the factors justifying the consideration for the transfer.
4. Another ground was taken to urge that the Dy. CIT (Acquisition) erred in holding that rebuttable presumption under Section 269C(2) was not rebutted and therefore, the presumption laid down thereunder was attracted to justify the acquisition of the property. Another ground is also taken to urge that the Dy. CIT (Acquisition) erred in rejecting the sale instances quoted by the transferor and transferee in support of apparent consideration shown and also in ignoring the fact that the proceedings have been dropped in respect of similar types of offices in the same building. Lastly, a ground was taken to urge that the Dy. CIT (Acquisition) erred in passing an order without giving proper notice of hearing particularly due to change in the incumbent of this office and the requirements of Section 129 of the Act were not fulfilled.
5. M/s Sharat Promoters, Pune is the transferor and as per agreement dated 16-11-1985 eight office premises bearing Nos. 8 to 15 on the first floor at Aurora Towers, 9, Moledina Road, Pune, admeasuring 11000 sq. ft. of built-up area for an apparent consideration of Rs. 44,00,000 was agreed to be transferred to M/s Peerless General Finance and Investment Co. Ltd. who is the transferee. A statement in respect of transaction in the prescribed Form No. 37EE was filed on 3-12-1985 as per Section 269AB(1) for the purpose of registration with the competent authority. The valuation of the property was referred to the Departmental Valuation Officer, Bombay under Section 269L and he has estimated the fair market value of the property by his report dated 24-1-1986 at Rs. 70.55 lakhs. According to him, the land is lease-hold tenure. The Aurora Tower building consists of basement, ground floor and five storeys. The built-up area of the premises transferred on first floor which is relevant for our consideration is 10,700 sq. ft. There is common facility to use common toilet on the first floor. He valued the property by land and building method. He observed that the property situated at junction of M.G. Road and Moledina Road and is abound 2 kms. from Pune Station. All the civil amenities are available nearby. It has commercial use. The Valuer Officer has cited two sale instances. The first is of the first and second floors of Aditi Commercial Centre, General Thimayya Road, Pune. The first property was purchased by Life Insurance Corporation of India in December 1983 at a rate of Rs. 475 per sq. ft. of super built-up area which was 9350 sq. ft. The basement of the property was completed in 1985 and the property is about 3 kms from Pune Station with all civic amenities and was also for commercial use. The second property consisting of ground floor of the same building was bought by Corporation Bank in September 1985 at the rate of Rs. 610 per sq. ft. of built-up area of 5,331 sq. ft. including 50 per cent of Mezzanine floor with similar civic amenities and commercial use. On the basis of the factors which have bearing on the valuation of the property, he considered that the plot under consideration was better and therefore, he valued the property transferred at the rate of Rs. 650 per sq. ft. and adding further amount of Rs. 1,00,000 for the facilities of common toilet arrived at the fair market value of the property at Rs. 70.55 lakhs.
6. After making preliminary enquiries regarding comparable transactions in similar types of areas, the Dy. CIT (Acquisition) was of the opinion that the apparent consideration shown by the assessee did not reflect correct fair market value of the property. He was also of the opinion that the fair market value of the said property exceeded by more than 25 per cent of the apparent consideration shown in the document. Based on this evidence of under-statement of apparent consideration, he has drawn a statutory presumptions, viz., consideration for such transfer has not been truly stated in the instrument of transfer, the object of such understatement is (a) facilitating the reduction or evasion of the liability of the transferor to pay the tax under the Income-tax Act in respect of any income arising from the transfer; (b) facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee for the purposes of Indian Income-tax Act, 1922 or Income-tax Act, 1961 or Wealth-tax Act, 1957.
7. Thereupon, he issued a notice under Section 269D(1) of the Income-tax Act, 1961 and this notice was published in the Official Gazette in Part III, Section I, page No. 23652 on 4-10-1986. Notices were also served on the transferor and transferee on 16-12-1986. In response to notice, several objections were raised by the counsel for the parties which are narrated in para 5 of the impugned acquisition order. The Dy. CIT (Acquisition) came to the conclusion that the property transferred is comparable with the property at Aditi Commercial Centre which has been purchased by Life Insurance Corporation of India and Corporation Bank as stated earlier. Certain sale instances were quoted by the Dy. CIT (Acquisition) in his letter dated 6-10-1987. According to him, one instance stated was, opposite to Aayakar Bhavan which was sold in 1983-84 at a rate of Rs. 1,311 per sq. ft. That property had Mezzanine floor. Therefore, he estimated fair market value at a rate of Rs. 650 per sq. ft. for that property. Another instance was a shop No. 5, Tej House, D.M. Road which was sold at Rs. 1,330 per sq. ft. in December 1985. The objection was raised by therepresentative of the parties that the sale instances related to the shops and those could not be compared with the office premises under consideration. This objection was rejected by the Dy. CIT (Acquisition). According to him though the shop could not be equated with office premises but those were certainly comparable cases. According to him, the fair market value of the office premises would not be less than 50 per cent of the fair market value of shops and therefore, he held that the fair market value of the office premises would be Rs. 650 per sq. ft. The Dy. CIT (Acquisition) also referred to the sale instances given by the registered valuer of the parties and held that they are not comparable cases. The first instance was that of a house and for the second instance there were no particulars of area. The two sale instances cited by the parties are located in Clover Centre and Sterling Centre. These instances were not held to be of comparable cases as higher sale instance in the same location were available to him. Consequently, he agreed with the Departmental Valuation Officer that the fair market rate of the property transferred could be estimated at Rs. 650 per sq. ft. vide para 6 of the impugned order. Invoking the provisions of Section 269C(2) of the Act containing statutory presumptions he concluded that the consideration for the transfer of the property is agreed to between the parties has not been truly stated with the twin objects of facilitating reduction or evasion of the liability of the transferor to pay tax and facilitating the concealment of any income or any moneys or other assets which have not been or which ought to be disclosed by the transferee.
8. The Dy. CIT (Acquisition) also reiterated the same conclusion by relying on the statutory presumptions only with reference to the fair market value of the property which has exceeded by 25 per cent more than the apparent consideration, to come to the conclusion that the consideration, for the transfer was not fully stated nor they rebutted the rebuttable on presumption vide para 8 of the impugned order. For coming to this conclusion, he has relied on the judgment of the Punjab and Haryana High Court in the case of Sutlqj Chit Fund and Financiers (P.) Ltd. v. CIT [1986] 161 ITR 174 wherein it has been held that the presumptions contained in Sub-section (2) of Section 269C are nothing but rules of evidence and the provisions of Sub-section 2(a) of Section 269C are neither unfair nor unjust and contain a rule of evidence most necessary to stem the everspreading menace of black money.
9. At the time of hearing, the learned Counsel for the parties, cited that the judgment of the Bombay High Court in the case of Unique Associates Cooperative Housing Society Ltd. (supra) in support of the contention that the notice issued under Section 269D(1) was invalid and the facts of that case are similar to the facts of the case under consideration. The Dy. CIT (Acquisition) simply observed that it was not known whether the said judgment of the Bombay high Court has been accepted or not and on that pretext he rejected the contention regarding validity of notice under Section 269D of the Act. Finally, he invoked the statutory presumptions contained in Section 269C(2)(a) and rebuttable presumption contained in Clause (b) of Sub-section (2) of Section 269 as if not rebutted. He concluded that the parties have not truly stated the consideration in the instrument of transfer with the twin object contained in Clauses (a) and (b) of Section 269C(1). Consequently, he ordered acquisition of the property under consideration under Chapter XXA of the Income-tax Act, 1961.
10. At the time of hearing, Shri K.A. Sathe, the authorised representative of the transferor and transferee appeared on behalf of them and raised various objections and contentions against the acquisition order passed by the Dy. CIT (Acquisition). His primary objection was that the initiation of proceedings for acquisition of the property was made beyond time limit. The period of limitation is specified under first proviso to Section 269D(1). According to him, a statement in Form No. 37EE was filed before the Competent Authority on 3-12-1985. As per proviso under Section 269D(1), the acquisition proceedings shall be initiated within a period of nine months from the end of the month in which the instrument of transfer or agreement of transfer is registered by the publication in Official Gazette. Since the agreement of sale is registered on 16-11-1985 the acquisition proceedings should have been initiated on or before 31-8-1986 whereas admittedly a notice was published in the Official Gazette on 4-10-1986 vide para 5 of order of acquisition. Therefore, he urged that initiation of proceedings were barred by limitation of time and a specific ground has also been raised in the grounds of appeal. In this connection, the learned Counsel for the parties submitted that this ground relating to limitation is purely a question of law and does not involve investigation of facts. It should be admitted even though this objection was not raised at the time of proceedings before the Dy. CIT (Acquisition). We consider that there is merit and force in the contention of the learned Counsel and therefore, he has been allowed to urge the ground.
11. The second objection raised was that initiation of proceeding was not valid, because, the statutory presumptions contained in Section 269C(2) were not available while initiating the acquisition proceedings, because, several High Courts have held that at the time of initiation of administrative proceedings, the presumptions under Section 269C(2) could not be invoked and there should be material to show that the consideration shown in the document was not truly stated with the object of facilitating reduction or evasion of the liability of the transferor or to pay the tax under the Income-tax Act in respect of any income arising from the transfer or facilitating concealment of any income or any monies or other assets which have not been or which ought to be disclosed by the transferee for the purpose of the Income-tax Act, 1922, Income-tax Act, 1961 or Wealth-tax Act, 1957. In this connection, he has cited the judgment of the Calcutta High Covirt in the case of Smt. Bani Roy Chowdhury v. Competent Authority, IAC [1978] 112 ITR 111, the Gujarat High Court in the case of CIT v. Smt. Vimlaben Bhagwandas Patel [1979] 118 ITR 134, Calcutta High Court in the case of Subhkaran Chowdhury v. IAC [1979] 118 ITR 777, TubeMill (India) P. Ltd. v. IAC [1980] 122 ITR 72, Gujarat High Court in Sarabhai M. Chemicals P. Ltd. v. P.N. Mittal, Competent Authority, IAC [1980] 126 ITR 1, Calcutta High Court in Rai Bahadur G.V. Swaika Estate P. Ltd. v. M.N. Tewari [1980] 126 ITR 310, Allahabad High Court in CIT v. Asharfi Lal Gupta [1983] 142 ITR 765, Jai Kumar Kankaria v. Competent Authority [1981] 130 ITR 593 (Cal.), Bombay High Court in Unique Associates Co-operative Housing Society Ltd.’s case (supra) and Udharam Aildas Thadani v. IAC [1990] 184 ITR 439 (Bom.) at 445. He also referred to the CBDT Circular No. 461 dated 9-7-1986 contained, in [1986] 161 ITR (Statute) 17 at page 42 – para 38.1. It has been stated therein that before the provisions of Chapter XX-A can be invoked it has to be proved that the consideration for transfer of immovable property as agreed to between the parties has not been truly stated in the instrument of transfer with the object of facilitating the reduction or evasion of the liability of the transferor to pay tax in respect of any income arising from the transfer or concealing of any income or any moneys or other assets not disclosed by the transferee for the purposes of income-tax or wealth-tax. In view of the aforesaid rulings and observations of the Board contained in the circular, the learned Counsel urged that the acquisition proceedings were not validly initiated under Section 269C(1). Further, he referred to para 6 of the order of acquisition to show that except discussing fair market value of alleged comparable cases of property, there was no material to show that higher amount of consideration was actually paid for transfer of the property or the consideration for the transfer as agreed between the parties has not been truly stated in the instrument of transfer. Referring to para 4′ of the acquisition order, he pointed out that only with reference to the subjective valuation of the fair market value of the property stating that it exceeded apparent consideration by more than 25 per cent, the provisions of Section 269C(1) were applied by the Acquisition Officer and relied on the judgment of the Punjab and Haryana High Court in the case of Sutlaj Chit Fund and Financiers (P.) Ltd. (supra). He further submitted that no adverse material has been brought on record in the assessment of the transferor who is a regular assessee and no adverse action was also taken in its assessment for the assessment year 1987-88 in which the transfer of property took place. He referred to page 49 of the paper compilation filed by him and pointed out that as a matter of fact, the assessment of the transferor for the assessment year 1987-88 has been completed under Section 143(1) on 10-3-1989. It was also submitted that even in the case of the transferee no adverse proceedings were taken by the department.
12. The learned Counsel further contended on merits that what has been transferred is eight individual offices in the first floor of the Arora Towers. In this connection, he referred to certain Court proceedings initiated in the Bombay High Court by the Bombay Environmental Action Group for alleged violation of certain bye-laws of Cantonment Board and stay order and injunction given by the Court regarding revolving restaurant proposed to be constructed. Relevant paper cuttings are contained in pages 38 to 43 of the paper compilation. These proceedings, according to the learned Counsel had affected the market value of the property. The land was purchased in 1981 and the construction was started in the year 1983. There is a cinema theatre in the building and it was constructed as it was in the original plan. In the circumstances, the transferee obtained Valuer’s report regarding valuation of the property. Shri R.S. Bodhani, Registered Architect valued the property transferred at Rs. 41,32,500 as per his report dated 10-3-1986 which is available in paper compilation filed at pages 17 to 30. The Registered Valuer has valued the property at Rs. 375 per sq. ft. of built-up area of 11,020 sq. ft. This valuation has been made on the basis of two comparable cases of flat and office premises. One instance is a flat in Miami Apartment No. 2 at St. Vincent Street, in which the sale rate is shown at Rs. 325 per sq. ft. In another instance, the sale of office premises at Cindrella Apartment 407 at Sachapir Street at Rs. 275 per sq. ft. Thus, the transferee has taken precaution to ascertain the valuation of the property transferred before entering into the sale agreement.
13. The learned Counsel referred to the valuation of the property of the Departmental Valuation Officer contained in pages 10 to 16 of the paper compilation. The valuation has been made on the basis of land and building method i.e., physical method. A comparable sale instance considered by the Departmental Valuation Officer is shown in Annexure ‘X’ contained in page 13 of the paper compilation. This annexure shows that the property is on the first and second floors of Aditi Commerce Centre, General Thimayya Road, Pune, which has been completed in the year 1985 for which the date of agreement entered into was 20-12-1983 for Rs. 44,41,250 for a built-up area of 9350 sq. ft. which works out to Rs. 475 per sq. ft. for super built-up area. The second instance is the ground floor of Aditi Commercial Centre, for which the date of agreement is 5-9-1985 for a consideration of Rs. 32.50 lakhs for a super built-up area of 5331 sq. ft. including 50 per cent of mezzanine floor, which works out to Rs. 610 per super built up area. The property is 3 kms away from Pune Railway station together with civic amenities and use for commercial purposes. It has to be pointed out at this juncture that the ground floor of the said property is occupied by the Corporation Bank while the first and second floor is occupied by the Life Insurance Corporation of India. The Departmental Valuer has estimated the fair market value of this property at a rate of Rs. 660 per sq. ft. of built-up area. Referring to the aforesaid Departmental Valuation Officer’s report the learned Counsel distinguished the property transferred stating that the property is situated at a height of 28 feet above the ground floor without having independent entrance and independent toilet facilities but depending upon the common toilet facilities whereas in the sale instances relied upon by the Departmental Valuation Officer it is the ground floor with a direct entrance from the main road having an independent facilities such as toilet, bath room etc. A further distinction made by the learned Counsel is that the property at Aditi Commerce Centre is built on lease of old grant whereas in the instant case the property is leased only for 40 years. He pointed out that the offices in Arora Towers are not allowed to display their sign boards on the road side so as to attract the attention of the public. He referred to the sale instance of the property in the same building which is occupied by the Punjab National Bank on the ground floor of the Arora Towers sold for Rs. 77,87,120 and yet the competent authority did not consider necessary to initiate the acquisition proceedings. This order of the competent authority is dated 19-1.-1985 and is placed at page 36 of the paper compilation. It is stated that the rate shown in the sale deed is Rs. 549 per sq. ft. for an area of 14,162 sq. ft. Similarly, the property transferred to M/s Blaze Enterprises (P.) Ltd. in the ground floor of the Arora Towers is shown at Rs. 488 per sq. ft. for an area of Rs. 3,522 sq. ft. at Rs. 17,20,000. This property was also not acquired by the Competent Authority as per order dated 21-1-1985 contained at page 37 of the paper compilation. Citing the aforesaid two sale instances in the ground floor of the same Arora Tower building, the learned Counsel vehemently urged that the valuation adopted by the Competent Authority at the rate of Rs. 650 per sq. ft. for the first floor of the same building is not fair value at all.
14. He pointed out that the sale instances cited in the ground floor of the same building or the sale instances in the adjacent building should be preferred to the sale instances of the property situated at a long distance, viz., Aditi Commerce Centre cited by the Departmental Valuation Officer. According to him, the sale rate of Rs. 400 per sq. ft. shown in the agreement of transfer is quite fair and the fair market value in any case, of the property transferred is not above the limit of margin of tolerance i.e., Rs. 460 per sq. ft. Therefore, in the circumstances, he urged that the Competent Authority has not fixed properly the fair market value of the property transferred and consequently, the entire proceedings of acquisition were vitiated and accordingly urged that the proceedings should be cancelled.
15. The learned departmental representative Shri A.K. Khaladkar on the other hand, pointed out that the acquisition proceedings were initiated on 10-2-1986 when notice of acquisition was sent to the Government press for publication and inasmuch as the notice was sent within the prescribed period of limitation, the provisions of Section 269D{1) is satisfied and therefore the initiation of proceedings were not barred by limitation as contended by the learned Counsel for the transferor and transferee. Secondly, relying on the Departmental Valuation Officer’s report fixing the value of the property transferred at Rs. 70.55 lakhs he vehemently urged that the rebuttable presumption contained in Section 269C(2)(b) was attracted and the issue is clinched in favour of the Competent Authority in the absence of proof adduced to the contrary by the Transferor and Transferee. In other words, the learned departmental representative contended that the Departmental Valuation Officer’s report itself is material gathered for invoking the rebuttable presumption contained in Section 269C(2)(b). Referring to the judgment of the Bombay High Court in the case of Unique Associates Co-operative Housing Society Ltd. (supra) he pointed out that the ratio of the Bombay High Court turned on the fact that the Departmental Valuation report in that case was challenged on the ground of mis-conception or defective basis of the report and which is not applicable for the case under consideration. Thirdly, referring to the newspaper report containing court proceedings filed by the learned Counsel for the transferor and transferee, he contended that they do not bear any date and the news item at page 41 of the paper compilation is dated 22-3-1985 and it is not established that the stay granted was in force when the agreement for sale was made in this case. In other words, he urged that the newspaper cutting regarding court proceedings filed by the learned Counsel for the transferor and transferee have no bearing on the market value of the property transferred. Fourthly, he contended that the Departmental Valuation Officer himself has cited comparable cases for fixing the fair market value of the property transferred and” therefore, he strongly supported such valuation and also the acquisition order of the Competent Authority.
16. In reply, the learned Counsel for the transferor and transferee vehemently urged that the initiation of proceedings under Section 269D must be only by publication of notice in the Official Gazette and not otherwise. Referring to the Allahabad High Court in the case of U.S. Awasthi v. LAC [1977] 107 ITR 796, he urged that it is the publication in Official Gazette within the specified time which confers the jurisdiction. In that case, the sale deed was registered on 29-12-1973. Notice was published under Section 269D in the Official Gazette on 28-9-1974 but it was made available to the public on 4-10-1974. It was held that the Competent Authority did not acquire jurisdiction to continue to the proceedings as the proceedings had not been commenced within the statutory period. Similar decision has been rendered by the jurisdictional High Court in the case of Manu Bharati Co-operative Housing Society Ltd. v. CIT [ 1986] 162 ITR 693 (Bom.) wherein it has been held that though the notice of acquisition was published in the Official Gazette within the statutory period, it was made available to the public only after the prescribed date and the proceedings for acquisition under Section 269F(6) were vitiated. Further, referring to the notice of acquisition issued by the Competent Authority, he stated that he has not scored “and”/”or” in the said notice and therefore, there was ambiguity in the mind of the Competent Authority and therefore, he had not made up his mind as to whether the transfer was with the object of reduction or evasion of the tax liability of the transferor or whether it was for the purpose of concealment of income or assets of the transferee or whether it was both or it was one or the other. The Bombay High Court in the case of Ashok Madhav Chitaley v. Competent Authority, IAC [1986] 162 ITR 697 has held that this requisite formation of belief or opinion was a jurisdictional fact and unless a fair prima facie opinion was formed in regard to the categories of infringements or any one of them, the authority, had no right to initiate a proceeding for acquisition. Finally, referring to the judgment of the Bombay High Court in the case of Unique Associates Co-operative Housing Society Ltd. (supra) which has been distinguished by the learned departmental representative, the learned Counsel for the transferor and transferee submitted that though there was a defective report by the Departmental Valuation Officer in that case, nonetheless the proposition laid down is that mere valuation of the D.V.O. was not enough for the Competent Authority to reach a conclusion that the object was to evade the tax from the mere fact that there is some material to indicate that the apparent consideration was less than the fair market value by 15 per cent of such apparent consideration. The Court pointed out that the Competent Authority must have some material to reach a conclusion that the consideration stated in the instrument of transfer was untrue and such untrue statement was made with the object of evading tax. Finally, he submitted that the fact remains that the revolving tower proposed to be constructed in the Arora building was restrained by the court.
17. We have duly considered the objections by the parties to the fixation of fair market value of the property, contentions before the Competent Authority, paper compilation filed before us and the record. The first and foremost objection raised by the learned Counsel for the appellants is that the acquisition proceedings have been initiated beyond the time limit specified. The appellants filed Form No. 37EE on 3-12-1985 while the notice of acquisition is published admittedly on 4-10-1986. As per proviso to Section 269D(1) no proceedings shall be initiated in respect of any immovable property after the expiry of the period of nine months from the end of the month in which the instrument of transfer in respect of such property is registered under the Registration Act. The agreement of sale for transfer of property has been registered on 16-11-1985 and therefore, the period for initiation of proceedings expires on 31-8-1986 whereas the notice has been published in Official Gazette on 4-10-1986 as stated in para 5 of the acquisition order. Therefore, we hold that the initiation of acquisition proceedings are barred by limitation of time and consequently the acquisition proceedings have become invalid in law. The order of acquisition passed by the Competent Authority also becomes invalid in law, inasmuch as it is based on invalid notice of acquisition. Therefore, there is force in the ground taken by the appellants and consequently, they are entitled to succeed and the order of acquisition under Section 269F(6) passed by the Competent Authority on 30-9-1991 is annulled. It is needless to emphasize or to point out that even in case where the notice has been published in the Official Gazette within the time or printed within the statutory time but the Gazette Notification was made available to the public only after the prescribed period, it was held by the jurisdictional High Court in the case of Ashok Madhav Chitaley (supra) and Manu Bharati Co-operative Housing Society Ltd. (supra) that the proceedings for acquisition were not initiated within the specified time and therefore, the proceedings were vitiated.
18. The second objection of the appellants that there was no material or evidence to show that the Competent Authority had reason to believe that the apparent consideration is less than the fair market value of the property and that the consideration for such transfer as agreed to between the parties has not been truly stated in instrument of transfer with the object of facilitating reduction or evasion of liability of the transferor to pay tax under the Income tax Act in respect of any income arising from the transfer or facilitating concealment of income or any monies or other assets which have not been disclosed by the transferee for the purpose of income-tax or wealth-tax. At the time of hearing, the learned Counsel for the appellants urged that there was no material brought on record by the Competent Authority to show that the apparent consideration agreed to between the parties has not been truly stated in the instrument of transfer. He vehemently relied on the judgment of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 in the context of Section 52(2) of the Income-tax Act, 1961 wherein it has been held by their Lordships that there must be proof to show that at least one rupee more than what is disclosed as consideration has been agreed between the parties for transfer of the property and the burden of proof lies on the department. The Supreme Court has made the following observations in the case of K.P. Varghese {supra) which is relevant to the issue, viz:
Thus, it is not enough to attract the applicability of Sub-section (2), that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeds the full value of the consideration declared in respect of the transfer by not less than 15 per cent of the value so declared, but it is furthermore necessary that the full value of the consideration in respect of the transfer is understated or, in other words, shown at a lesser figure than that actually received by the assessee. Sub-section (2) has no application in the case of an honest and bona fide transaction where the consideration in respect of the transfer has been correctly declared or disclosed by the assessee, even if the condition of 15 per cent difference between the fair market value of the capital asset as on the date of the transfer and the full value of the consideration declared by the assessee is satisfied. If therefore, the revenue seeks to bring a case within Sub-section (2), it must show not only that the fair market value of the capital asset as on the date of the transfer exceeds the full value of the consideration declared by the assessee by not less than 15 per cent of the value so declared, but also that the consideration has been understated and the assessee has actually received more than what is declared by him. There are two distinct conditions which have to be satisfied before Sub-section (2) can be invoked by the revenue and the burden of showing that these two conditions are satisfied rests on the revenue. It is for the revenue to show that each of these two conditions is satisfied and the revenue cannot claim to have discharged this burden which lies upon it, by merely establishing that the fair market value of the capital asset as on the date of the transfer exceeds by 15 per cent or more. The full value of the consideration declared in respect of the transfer and the first condition is, therefore, satisfied. The revenue must go further and prove that the second condition is also satisfied. Merely by showing that the first condition is satisfied, the revenue cannot ask the court to presume that the second condition too is fulfilled, because even in a case where the first condition of 15 per cent difference is satisfied, the transaction may be a perfectly honest and bona fide transaction and there may be no understatement of the consideration. The fulfilment of the second condition has therefore, to be established independently of the first condition and merely because first condition is satisfied, no inference can necessarily follow that the second condition is also fulfilled. Each condition has got to be viewed and established independently before Sub-section (2) can be invoked and the burden of doing so is clearly on the revenue. It is a well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is an understatement of the consideration and the second condition is fulfilled. Moreover, to throw the burden of showing that there is no understatement of the consideration, on the assessee would be to cast an almost impossible burden upon him to establish a negative, namely, that he did not receive any consideration beyond that declared by him.
From the above extract it is clear that the revenue has to show that not only the fair market value of the capital asset on the date of transfer exceeded the full value of consideration declared by the assessee by not less than 15 per cent of the value declared but also that the consideration has been understated and the assessee has actually received more than what is declared by him. The aforesaid observation of their Lordships of the Supreme Court have been incorporated by their Lordships of the Bombay High Court in the case of Unique Associates Co-operative Housing Society Ltd. (supra) which deals with the case of acquisition of property under Chapter XX-A of the Income-tax Act, 1961. In fact in that case it was contended on behalf of the appellant that the Competent Authority had no material to reach the conclusion that the consideration stated in the instrument of transfer was untrue and the object was to evade tax and in the absence of such material the Competent Authority had no jurisdiction to initiate the proceedings. Reliance was placed on the decision of the Gujarat High Court in the case of Smt. Vimlaben Bhagwandas Patel (supra). The relevant portion of order of the Division Bench of the Gujarat High Court contained at page 135 is extracted hereunder:
Having regard to the purpose underlying the power invested in the competent authority under Section 269C(1) and particularly the condition precedent for the exercise of such power and the presumptions to be raised in connection therewith under Section 269C(2) and more particularly having regard to the deeming fiction provided in Section 269J(4) with the clarification that the transferee will not be exposed to further penalty under the Income-tax Act or the Wealth-tax Act, it is clear that the nature of the power is a penal power and the proceedings in respect thereto are quasi-criminal. It is not merely the untrue statement of consideration in the instrument of transfer but, coupled with that, the ulterior motive of tax evasion or concealment of income is the gist of the offence and till that ulterior motive is established and found, the power in question cannot be exercised. Since for purposes of effectuating the said objective, immovable properties are transferred, Parliament has, in its legislative wisdom, thought it fit to provide for the acquisition thereof at something more than the grossly understated consideration, and consequently, provided, for forfeiture of the amount of the difference between the consideration and the fair market value to the Government as penalty. The decision of the Supreme Court in Joshi, STO v. Ajit Mills Ltd. [1977] 40 STC 497, establishes that forfeiture of property or a sum of money would amount to penalty. The power under Section 269C is penal in nature and the proceedings are quasi-criminal.
The Legislature has adopted a known and recognised phraseology for describing the condition precedent for initiating acquisition proceedings under Section 269C. The Competent Authority must have reason to believe that the fair market value of the property of more than Rs. 25,000 exceeds the apparent consideration stated in the instrument of transfer and the parties have agreed to make the untrue statement with the ulterior motive of tax evasion or concealment of income. The satisfaction of the Competent Authority for initiation of acquisition proceedings is a subjective satisfaction of the objective facts stated above. The reasons for the formation of the belief must have a rational and direct connection with the material coming to the notice of the Competent Authority, though the question of sufficiency or adequacy of the material is not open to judicial review.
The conditions precedent for the exercise of jurisdiction to initiate acquisition proceedings are (i) transfer of immovable property worth more than Rs. 25,000 in Value; (ii) fair market value of the property exceeding the apparent consideration by more than 15 per cent; (iiii) ulterior motive of tax evasion or concealment of income for such untrue statement of apparent consideration in the instrument of transfer of such property; (iv) recording of reasons by the Competent Authority; (v) publication of notice to that effect in the Official Gazette.
It is clear from the aforesaid observation of their Lordships of the Gujarat High Court that the ulterior motive of tax evasion or concealment of income is the gist of the offence and till that ulterior motive is established and found, the power in question cannot be exercised, because the power under Section 269C is penal in nature and the proceedings are quasi-criminal. Comparing the provisions of Section 147 relating to reopening of assessment and the provisions under Section 269C for acquisition of property both of which require a record of any evidence to belief of escapement of income or untrue statement of consideration for transfer of property in the document of transfer, it was observed that the Competent Authority must have reason to believe about the ulterior motive, of the transferor of tax evasion or tax reduction of the transferee about the concealment of income which he should disclose for tax purpose. This is an objective fact about which the Competent Authority must be satisfied besides common objective fact that the fair market value in question exceeds by the prescribed margin the apparent consideration shown in the document. This is necessary requirement for acquisition of property because before initiation of acquisition proceedings the Competent Authority shall record his reasons for doing so and as observed by their Lordships of the Supreme Court in the case of ITO v .Lakhmani Mewal Das [1976] 103 ITR 437 that the ground or reason for the formation of belief must have material validity on the question of escapement of income, because of his failure or omission to disclose fully and truly all material facts and such belief must be held in good faith and not by mere pretence. The Gujarat High Court also held that the statutory presumptions prescribed in clauses (a) and (b) of Section 269C(2) would not operate at any stage prior to the decision of the Competent Authority for initiation of acquisition proceedings.
19. Their Lordships of the Bombay High Court in the case of Unique Associates Co-operative Housing Society Ltd. (supra) at page 126 thereof held that the observations of the Supreme Court in the case of K.P. Varghese (supra) could be applied while considering the provisions of Section 269C of the Act. Their Lordships of Bombay High Court held that the powers under Section 269C could be exercised provided the requisite conditions for exercise of the powers are satisfied. In particular, it was observed that in the absence of any material whatsoever available to the competent authority it was impossible for any reasonable or prudent man to reach the conclusion that the consideration stated in the instrument of transfer was untrue and that was done with the object of facilitating reduction or evasion of tax. In particular, their Lordships have repelled the contention of the department and held that from the mere fact that there is some material to indicate that the apparent consideration was less than the fair market value by 15 per cent of such apparent consideration the competent authority cannot proceed to reach a conclusion that the object was to evade tax but he must have some material to reach the conclusion that the consideration stated in the instrument of transfer was untrue and the untrue statement was made with the object of evading tax. Again the contention of the department that with reference to Sub-section (2) of Section 269C it is open to the competent authority to presume that the consideration stated in the document has not been truly stated with the object of evading tax was repelled by stating that the presumption under Sub-section (2) is available not at the stage of the initiation of the proceedings but only at the latest stage when the enquiry is to be concluded. In this connection, the decision of the Gujarat High Court in the case of Smt. Vimlaben Bhagwandas Patel (supra) was folldwed by the Bombay High Court. Similar view has been expressed by the Bombay High Court in the case of Udharam Aildas Thadani (supra). At page 445 their Lordships of the Bombay High Court have referred to Circular No. 461 dated 9-7-1986 published in [1986] 161 ITR(St.)42. It has been stated that this circular was issued by the Board to explain the reasons for introducing Chapter XXC in the Act in place of Chapter XXA. The Board has categorically stated in the circular that, under the provisions of Chapter XXA, before the provisions, meaning thereby Sections 269C and 269D could be invoked, it had to be proved that the consideration for transfer of an immovable property as agreed to between the parties had not been truly stated in the instrument of transfer with the object of facilitating reduction or evasion of tax liability of the transferor or concealing the income or assets of the transferee. Since that was an impossible task and the provisions proved ineffective Chapter XXC was introduced. Taking a clue from the Board’s circular it was observed that one can easily say that the conditions requisite mentioned in Section 269C without the help of the presumptive clauses are required to be satisfied before the Competent Authority can assume valid jurisdiction to initiate the proceedings for acquisition under Section 269D/269C.
20. Now, in the impugned acquisition order passed by the Competent Authority apart from discussing the fair market value, there is no material brought on record to show that higher consideration was actually paid or apparent consideration shown in the document has not been truly stated. Section 269C(1) required as a condition precedent that the Competent Authority must have reason to believe that the apparent consideration has not been truly stated in the instrument of transfer with the twin object stated in Clauses (a) and (b) of Section 269C(1). On the other hand, solely relying on the fact that the fair market value of the property exceeds apparent consideration by more than 25 per cent the provisions of Section 269C(1) were applied by the Competent Authority. In view of the ruling cited earlier such presumption would not apply before initiation proceedings, but would apply only at the time of concluding proceedings. Though the decision of the Punjab and Haryana High Court in the case of Sutlqj Chit Fund and Financiers (P.) Ltd. (supra) has been relied upon by the Competent Authority, in view of the binding nature of judgments of the jurisdictional High Court, we are bound to follow the decisions of the Bombay High Court cited supra. At this stage, it is necessary to point out that the Competent Authority has not followed the ratio of the Bombay High Court in the case of Unique Associates Co-operative Housing Society Ltd. (supra) but ignored the judgment on the pretext whether the judgment has been accepted by the department or not for which there is no legal justification. In view of the authoritative judgment of the Supreme Court, the jurisdictional High Court of Bombay and the Gujarat High Court we hold that the conditions precedent under Section 269C(1) were not satisfied because in the absence of any material to show the understatement of consideration with the object of evading tax the Competent Authority had no reason to believe that the consideration in the document of transfer has been understated with the ulterior motive of tax evasion or concealment of the transferor or transferee or both. Therefore, we are satisfied that the acquisition proceedings were not validly initiated and hence the order of acquisition is bad in law.
21. The third objection taken by the learned Counsel for the appellants related to the validity of the individual notices issued to the appellants. According to him, the use of conjuncture “and/or” in the notice for the two clauses of Section 269C(1)(a) and (b) was significant inasmuch the Competent Authority had not scored out the relevant portion and therefore, the initiation of acquisition proceeding is not valid. After hearing the submissions of both the parties and following the judgment of the Bombay High Court in the case of Udharam Aildas Thadani (supra) and also in the earlier case of Ashok Madhav Chitaley (supra), we uphold the contention of the learned Counsel for the appellants that the requisite formation of belief or opinion was a jurisdictional fact and unless a fair prima facie opinion was formed in regard to the category of infringement or any one of them, the authority had no right to initiate the proceedings for acquisition. It was held that by use of conjuncture “and/or” for the two clauses of Section 269C(l)(a) and (b) of the Act, the pre-condition and requirement for assuming jurisdiction and exercise of the power was defective.
22. The fourth issue to be decided relates to the fair market value of the property transferred. The Departmental Valuation Officer has valued the fair market value of the property at Rs. 70.55 lakhs which works out to Rs. 650 per sq. ft. of built-up area. The comparative sale instances taken by him consists of ground floor of Aditi Commerce Centre, General Thimayya Road, Pune, which is occupied by the Corporation Bank and the other instance is the first and second floor of the same building which is occupied by the Life Insurance Corporation of India. The date of agreement for the ground floor is 5-9-1985 for a price of Rs. 32.50 lakhs consisting of super built-up area including mezzanine floor of 5331 sq. ft. The rate per sq. ft. of super built-up area is taken at Rs. 610. Size of premises is 50 per cent of premises under-valuation. The date of agreement for second and first floor is December 1983 for a price of Rs. 44,41,250 with super built-up area of 9350 sq. ft. and the rate per sq. ft. of super built-up area is Rs. 475 per sq. ft. The year of completion of the premises is 1985. This property is located at 3 kms. away from the Pune Railway Station provided with civic amenities nearby and the Mahatma Gandhi Bus Stand is close by wherefrom the buses are available to all parts of the city. This property is built on the lease of old grant (free hold). This property is situated at General Thimayya Road. There is a direct entrance from this road to the ground floor and it has individual facilities such as toilet, bath room. This is occupied by Corporation Bank and is used for commercial purposes like a shop. The first and second floor occupied by the LIC of India has also direct access to people from General Thimayya Road with provision for lift facilities. It has three toilets per floor and area of a floor is also small. Since the super built-up rate was Rs. 475 per sq. ft. the built-up rate was worked out to Rs. 550 per sq. ft. in December 1983. Its value in November 1985 was estimated by the Competent Authority at Rs. 700 per sq. ft. of built-up area on the basis of assuming appreciation of 12 per cent per annum for which there is no basis but based on guess work only. It is also based on value of certain property at B.J. Road, Opp. Aayakar Bhavan sold in 1983 at a rate of Rs. 1311 per sq. ft. Assuming that this property has a mezzanine floor, the built-up rate was taken at Rs. 650 per sq. ft. by the Competent Authority. He referred to another shop at No. 3 H. 848 D.M. Road, sold at Rs. 700 per sq. ft. more in 1983-84. He also referred to another shop No. 5, Taj House, M.G. Road, sold at Rs. 1330 per sq. ft. When it was objected that the shops could not be compared with the office premises the Competent Authority agreed that the shops could not be equated with the office premises but they are certainly comparable and he could fix the fair market value of the office premises on that basis shall not be less than Rs. 650 per sq. ft. Thus, it is seen the Competent Authority has cited the sale instances of two shops and another property for which description and details of area etc. were not available. Therefore, these sale instances cited by the Competent Authority could not be taken as comparable case with the property under consideration.
23. Coming to the property under consideration, it is seen that the office premises are situated at the back side of the building on lease hold land for a period of 40 years only. It is situated in the first floor at a height of 28 feet because the ground floor is on a height of 18 feet and service floor above it of 10 feet. Therefore, there is considerable disadvantage of entrance to the premises compared to the direct entrance to the Aditi Commerce Centre taken into account by the DVO. The market value of the property under consideration would be less than the market value of the property considered by the DVO because of the fact that it is built on lease hold land for 40 years. There is no separate sanitary facilities available to the property under consideration but there are only two common toilets for gents and for two for ladies at each floor sharing with other tenants. There is no parking facilities for the visitors provided for these premises and the visitors are to pay and park vehicles if space is available. The transferee is not allowed to display its board as is done by the various shops, bank and hotel Aurora Tower situated in the ground floor. Therefore, it is difficult for the public to locate the office and approach directly from the M.G. Road. The premises faces Bottee Street which is a small road off M.G. Road and the back side of Aurora Tower and there is entrance to the premises only through the narrow small lane. Compared to the building taken into account by the DVO the property transferred is not attractive in view of the height of the building and irregularity of electricity supply and even the common lift services provided is not reliable. The transferee had to incur for electricity connection, society charges and drinking water connection etc. separately. Further the sale instances taken by the D.V.O. is situated nearly 1 to 1.1/2 kms away from the property acquired by the Competent Authority and therefore, it is not situated in the same location of the property.
24. Coming to the sale instances relied upon by the Competent Authority we find that he has given only the sale instances of shops and even in respect of a house property correct particulars were not brought on record. Therefore, the sale instances cited by the Competent Authority are not comparable to the property acquired. Further, the two sale instances in Clover Centre and Sterling Centre cited by the appellants were ignored by the Competent Authority simply by stating that they are not comparable since higher sale instances in the same location are available and it is preferable to adopt higher sale instances. Even though he admitted that the sale instances taken by the D.V.O. are situated about 1 to 2 kms away from the property acquired, he did not agree that the distance would make any difference in the fair market value.
25. In this connection, we have to make a pertinent observation that the Competent Authority was not justified in ignoring the sale instances of office premises cited by the appellants in the very same Aurora Towers building and in the adjacent building of Clover Centre and the sale instance in Sterling Centre which is located in front of Aurora Tower building simply on the ground that they are not comparable and simply because some higher sale instances are available. In our opinion, the action of the Competent Authority is arbitrary and unjustified. It is pertinent to point out that in the very same Aurora Tower building sales were effected to Super Energey and Recovery Engg. P. Ltd. at a rate of Rs. 375 per sq. ft. covering an area of 651 sq. ft., M/s C.G. Narang and Co. at the same rate covering an area of 679 sq. ft. and Shri S.B. Navandhar at the same rate covering an area of 651 sq. ft. and the acquisition proceedings initiated by the Competent Authority were dropped in respect of those transactions. It is pertinent to point out that compared to these sale instances with small area the appellants property consists of an area of 10700 sq. ft. and that too consisting of eight shops premises taken together and the assessee has paid the entire amount of sale consideration before the date of registration of agreement. The appellants have also obtained the individual valuation reports from M/s R.S. Bodhani who has valued the property at Rs. 41.32 lakhs at a rate of Rs. 375 per sq. ft. He has also taken into account the two sale instances of Miammi Apartment No. 2 in St. Vincent Street sold at Rs. 325 per sq. ft. in 1984 and the sale of office premises in Cindrella Apartment 407, at Sachapir Street at a rate of Rs. 275 per sq. ft. in 1984. The’ reasons given by the Competent Authority for rejecting the comparable cases are not justified. Coming to the sale instances in the adjacent building of Clover Centre on the first floor of the building the office premises consisting an area of 324 sq. ft. was sold on 17-7-1986 by M/s Vijay Enterprises to M/s Surya Stores at a rate of 324 per sq. ft. Even that transaction has taken place nearly after eight months and this was not duly considered by the Competent Authority on the pretext that the higher sale instances are available in the same location whereas it is not situated in the same location but situated at far off places. In the opposite building viz.. Sterling Centre, an area of 300 sq. ft. in the first floor was sold on 17-10-1985 at a rate of Rs. 350 per sq. ft. which in our opinion is comparable sale instance in all respects.
26. At the time of hearing, the learned Counsel for the appellants has cited the instances of sale of ground floor premises of M/s Punjab National Bank consisting of ground floor of 7507 sq. ft. mezzanine floor of 3860 sq. ft. and basement floor of 2839 sq. ft. totalling to 14165 sq. ft. for a price of Rs. 77,87,120 at the rate of Rs. 549 on the date of sale Le., 23-5-1983. This premises is located in the best possible location facing the main road, viz., M.G. Road. It has a direct access from the M.G. Road on the ground floor which displayed the board in front of its premises. This sale instance can be considered as comparable case. Even from this sale instance point of view the rate of office premises on the first floor would be Rs. 200 sq. ft. subject to adjustment on the date of agreement for the property under consideration. There is another instance in the Aurora Tower building itself. M/s Blaze Enterprises (P.) Ltd. purchased the ground floor premises of 3522 sq. ft. on 6-1-1985 at a rate of Rs. 488 per sq. ft. This shop also got a direct approach from the M.G. Road. Even, with reference to this property, the first floor office premises would be 50 per cent of its rate which works out to Rs. 244 per sq. ft. In respect of Punjab National Bank and M/s Blaze Enterprises (P.) Ltd. premises the Competent Authority has dropped acquisition proceedings which contain in the paper compilation filed by the appellants at pages 36 and 37 respectively.
27. The sale instances given by the D.V.O. in the Aditi Commerce Centre situated in General Thimayya Road are not comparable cases for the simple reason that it is not situated in the same location but away at the distance of 1 to 1½ kms. We have already pointed out that the facilities available to this property and even from the point of the rate paid by the Corporation Bank for ground floor the rate per sq. ft. for the property under consideration cannot be said to be unreasonable or understated, because it is more than 50 per cent of the rate paid by Corporation Bank which is at Rs. 610 per sq. ft. Out of five instances given by the Competent Authority, four pertain to the ground floor shops which are not situated in the same location in which the property transferred under consideration is located. The Competent Authority has not given any valid reasons as to why the sale instances given by the appellants in the very same Aurora Tower building or the adjacent building or opposite building are not comparable cases. It is also surprising that the D.V.O. has enhanced the value of property transferred by Rs. 1,00,000 for the common sanitary facilities provided forgetting the fact that no independent or separate sanitary facilities are made available to the property under consideration. It is relevant to point out that like should be compared with the alike. If this principle is to be applied we find that neither the Competent Authority nor the D.V.O. has brought any comparable case of sale instance and they are also not justified in rejecting the comparable sale instances cited by the appellants in the very same Aurora Tower building, the adjacent clover building and the opposite Sterling building which are really comparable sale instances. Even from the point of view of sale instances of ground floor shops to Punjab National Bank and M/s Blaze Enterprises (P.) Ltd. and adopting 50 per cent of the sale rate thereof for first floor office premises as opined by the Competent Authority the sale rate of property under consideration cannot be said to below or unreasonable and not fair market value on the date of transfer. A perusal of the paper compilation shows that there has been paper reports regarding stay order granted by the Courts for building a revolving tower in the Aurora Tower building and therefore, there was uncertainty in the mind of the would be buyers of the property. The paper cuttings are placed at pages 38 to 43 of the paper compilation and the same bear the date of 22-3-1985. A perusal of the deed of agreement shows that the property under consideration is bounded in the north by the theatre and revolving restaurant. This shows that even on the date of agreement, viz., 16-11-1985 the prospects of construction or revolving restaurant was very much there and because of litigations it has been abondoned only thereafter. Various paper cuttings enclosed by the appellants in the paper compilation has therefore, relevance and this would affect the market rate of the property in the minds of the would be buyers. It is also seen from the paper compilation that no adverse inference has been drawn in the case of the transferor as seen from the fact that the assessment for the assessment year 1987-88 the income returned by the transferor was accepted under Section 143(1) as per order dated 10-3-1989. Similarly, the assessment order for the assessment year 1986-87 shows that though the assessment has been made under Section 143(3) the returned income was accepted by the department.
28. After considering all the facts and circumstances of the case, we are of the opinion that the Competent Authority has not established that the fair market value of the property exceeded the apparent consideration shown in the deed of transfer by more than 15 per cent as required in terms of second proviso to Section 269C(1). On the contrary, the appellants proved the contrary and rebutted the statutory presumptions under Section 269C(2). Therefore, we hold that the Competent Authority has not validly initiated the acquisition proceedings under Section 269C(1) of the Act. In view of the aforesaid circumstances, we are satisfied that the Competent Authority has not validly acquired the jurisdiction in view of the facts that the notice of acquisition was not published within the statutory time nor was it properly served and as conditions precedent under Section 269C(1) and 269D were not satisfied, the order of the acquisition is abinitio void and, therefore, it is annulled.
29. In the result, the appeals are allowed.