ORDER
George Cheriyan, Vice President
1. The appeal in the present case has been filed under the provisions of Section 269G of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by the transferee. The present appeal arises out of the order of the Competent Authority passed under Section 269F(6) of the Act dated the 29th January, 1988.
2. The subject-matter of acquisition are properties transferred under two sale deeds each dated 22-11-1982. These sale deeds are the “instruments of transfer” within the meaning of Section 269A(f) of the Act. These instruments of transfer were registered as Document Nos. 869 and 870 of 1982. The transferor in each of the instruments aforesaid was one Smt. V. Seshamma and the transferee was Mrs. Soundarya, the appellant before us. Each of the documents contained two Schedules-A and B. The matter contained in Schedule-A in each of the documents was identical and was as under:
All that piece and parcel of land together with the house, ground and premises thereon including all trees, shrubs, waters, water courses, drains, all structures and fixtures walls on all sides including the compound wall with all the electric installations light, bulbs, shades, fans, pumps and motors and all the rights by way of air light ways, easements, advantages and appurtenances to the same forming premises No. 20 (No. 7). Lake First Cross Street, Nungambakkam, Madras 34 bounded on the north by N. Srinivasa Rao’s house, east by M.G. Balu’s house, south by the aforesaid street and west by T. Manivanna Iyengar’s house with an extent of 2383 square feet and comprised in resurvey No. 590/5 in Nungambakkam village, Collector’s Certificate No. 6890 situate in the municipal division No. 55 and situated within registration district of Madras South and registration sub-district of. …
Schedule-B in Document No. 869 of 1982 read as under:
Undivided half share in the land in the Schedule-A property and the first floor building thereon.
In witness whereof the abovenamed vendor has set her hand and signature on the day, month and year first above written.
Schedule-B in Document No. 870 of 1982 read as under:
Undivided half share in the land in the Schedule-A property and the ground floor building thereon.
In witness whereof the abovenamed vendor has set her hand and signature on the day, month and year first above.
The apparent consideration within the meaning of Section 269A stated in each of the instruments of transfer was Rs. 1,20,000.
3. The first ground urged by the transferee-appellant in the present case is that the Competent Authority failed to take into consideration the instructions contained in the Circular of the Central Board of Direct Taxes (Circular No. 455, dated 16th May, 1986) reproduced in 159 ITR (Statutes) page 105. This Circular reads as under:
Circular No. 455, dated 16th May, 1986.
Subject: Acquisition of immovable properties under Chapter XXA of Income-tax Act, 3961 – Guidelines – Regarding.
The Finance Bill, 1986, has proposed that no proceedings shall be initiated under Section 269C of the Income-tax Act, 1961, in respect of a property transferred after the 30th day of September, 1986. The Bill also proposes to insert Chapter XXC providing for purchase by Central Government of immovable properties in certain cases of transfer.
With a view to achieve early finalisation of proceedings under the existing Chapter XXA of the Income-tax Act, 1961, the Board has decided that w.e.f. 1st Apri], 1986 acquisition proceedings under Section 269C will not be initiated in respect of an immovable property for which the apparent consideration is Rs. 5 lakhs or less and that where acquisition proceedings have been initiated by issue of notice under Section 269D, the proceedings will be dropped if the apparent consideration of the immovable property is below Rs. 5 lakhs.
The objection based on the Circular was raised before the Competent Authority who, however, considered it as irrelevant since, according to him, the directions of the Central Board of Direct Taxes were not applicable to cases where orders under Section 269F(6) had already been passed but set aside by the Income-tax Appellate Tribunal. According to him, acquisition order had been passed twice and the defects in the order as pointed out by the Tribunal were cured by giving fresh opportunity to the transferor and the transferee and the Tribunal had categorically upheld the validity of the acquisition proceedings and the issuance of notice u/s. 269D.
4. The learned counsel for the transferee has placed stress on the fact that the present was a case where the “apparent consideration” was less than Its. 5 lakhs in respect of which proceedings had been initiated by the issue of notice under Section 269D and, therefore, such proceedings were to be dropped and the Competent Authority was precluded from passing the order of acquisition dt. 29-1-1988.
5. Inasmuch as, the objection raised based on the Circular of the Board went to the very root of the matter, we adjourned the case so that the learned Departmental Representative could have time to take necessary instructions. Before we go to the arguments of the parties, it is necessary to briefly recount the background of this case.
6. In the present case, originally an order of acquisition had been passed on 27-3-1985. This order was the subject of appeal to the Tribunal and the matter was decided by the order of the Tribunal in IT (Acq.) A. No. 4/85, dated 30th October, 1985. The said order forms Annexure-A to this order because the full facts have been set out therein. At this stage we would point out that the date of the acquisition order as mentioned in the first paragraph of the order of the Tribunal of 30-10-1985 as 30-3-1985 is a typographical error and the correct date is 27-3-1985. Several contentions had been urged before the Tribunal and the finding of the Tribunal eventually given in paragraph 23 of its order was as under:
23. On a careful consideration of the ratio of the judgments of the Supreme Court, to which we have adverted to, as also of the Madras High Court, on which reliance has been placed on behalf of the Revenue, we consider that the infirmities adverted to would not on the facts of this case call for the entire order being quashed. We uphold the validity of initiation of proceedings and the notice issued. However, it is essential that before any observations are made against any one, a full and fair opportunity to the parties concerned has to be given. It is also essential that there should be an independent and proper determination of the fair market value. For this purpose also the evidence collected by the revenue would have to be put to the parties and their objections considered and findings arrived at thereon with reference to each such objection. All this remains to be done in order to determine whether eventually the order of acquisition has to be passed. In the course of arguments, the learned Standing Counsel had stated that were we to hold that an opportunity was required to be given for any particular purpose, a full and fair opportunity would be given in compliance with our directions. We accordingly set aside the findings of the Competent Authority directing acquisition of the properties and restore the matter to the file of the Competent Authority for giving a full and fair opportunity of being heard to all parties concerned and thereafter to pass such orders as warranted in law and as the circumstances may merit. On all aspects which are to be considered afresh by the Competent Authority, the appellant will have a full opportunity to adduce any evidence on which they may seek to rely or put forth any argument.
Thereafter, the Competent Authority again passed an order on 31-3-1986. This order was appealed against and the Tribunal decided the appeal by its order in IT (Acq.) A. No. 5/Mds/86, dated the 29th July, 1986. (Copy of the said order forms Annexure ‘B’ to this order). As the time given by the Competent Authority was apparently ex facie inadequate, the Tribunal again set aside the order of the Competent Authority to re-do the case in accordance with and in the true spirit of the directions of the Tribunal contained in the earlier order of the Tribunal dated 30-10-1985. The present order passed by the Competent Authority is a sequel to this.
7. From the facts set out aforesaid, it is clear that when the Competent Authority passed the original order on 27-3-1985, the Circular of the 16th May, 1986 had not been issued and even the Finance Bill of 1986 had not been introduced. It was by this Bill that the provisions of Section 269RR were introduced by which the chapter relating to acquisition proceedings (Chapter XX-A), it was stated, would not apply to transfer of immovable property made after 30-9-1986. When the Tribunal decided the matter on 30-10-1986 also neither the Finance Bill of 1986 had been introduced nor had the Board’s Circular been issued. When the Competent Authority passed the order for the second time on 31-3-1986, still the Circular of the Board of 16th May, 1986 had not been issued and the Finance Act of 1986 had not yet received the assent of the President. By the time the Tribunal came to decide the appeal for the second time on 29-7-1986, the Circular of the Board of 16th May, 1986 had been issued but it was not brought to the notice of the Tribunal nor was it noticed by the Bench.
8. The case has been very ably argued at length on behalf of the Revenue by the learned Departmental Representative. The first submission made by the learned Departmental Representative was that when the Tribunal sets aside an order of the Competent Authority, the crucial date with reference to which matters have to be considered is the date of the original order of the Competent Authority because matters revert back to that date. Hence, the submission of the learned Departmental Representative was that in the present case the date was 27-3-1985, i.e., the date of the original order and since on 27-3-1985 the Circular of the Board of 16th May, 1986 was not in existence, the question of dropping the acquisition proceedings in terms of the Board’s Circular of the 16th May, 1986 did not arise. According to the learned Departmental Representative, suppose an order of the ITO is set aside by the CIT (A) and after some time the Tribunal sets aside the order of the CIT (A) and restores the order of the ITO, though the Tribunal has passed its order at a much later date, the order of the ITO stands revived from the original date when such, original order was passed. So also he submitted that when the Tribunal set aside an order to be re-done, the date of the original order of the Competent Authority would stand, unchanged. According to the learned Departmental Representative, the law relating’ to the periods of limitation as prescribed under the various provisions of the Act went to support his view.
9. The learned counsel for the assessee, on the other hand, stated that when the Tribunal had set aside the order of the Competent Authority then matters reverted to the stage when proceedings had been initiated by the issue of notice under Section 269D and the case squarely fell within the terms of the Circular.
10. We have considered the rival submissions. Dealing with the point of limitation which, is said to have a bearing on deciding the crucial date in set aside matters, we consider that this contention does not advance the case of the Revenue. In the case of CIT v. National Taj Traders [1980] 121 ITR 535, the Supreme Court had occasion to consider what would be the position when a period of limitation had been prescribed for passing orders under revision by the Commissioner against orders prejudicial to the interests of Revenue passed by the Income-tax Officer under the Act of 1922 when there was no saving clause like that in the Act of 1981 [Section 263(3)] that the period of limitation would not apply to orders passed to give effect to the findings of the Tribunal, etc., to make a fresh order. The decision of the Supreme Court was that the time limits applied only where the Commissioner suo motu initiated action for revision and not to those cases where orders were passed to give effect to appellate decisions because any contrary interpretation would not advance the case of justice. According to the Supreme Court, what was set out in Section 263(3) was only declaratory of the position as it always stood. The Supreme Court held that the consequential order which would be passed by the Commissioner would not be barred by limitation not because on setting aside of the Commissioner’s order by the Tribunal the date of the original order of the CIT stood restored as the crucial date but because the interpretation to be placed was that limitation did not apply when orders were passed to give effect to appellate orders.
11. It may be true that when an assessment order is set aside by the first appellate authority and it is restored by the second appellate authority, then the assessment order still bears the original date. This is because the order of the intervening appellate authority has been rendered non est by the order of the second appellate authority and the status quo ante is restored. Such is not the case, however, where an assessment order stands set aside by the first appellate authority and the order of the first appellate authority holds the field as on that date. In such a case, there is no subsisting order of assessment and once the original assessment order is set aside, the date on which such order was made ceases to exist because the order stands effaced and only when a de novo assessment is made would there be an assessment order with a specific date. There are many cases where proceedings validly initiated, and yet, the assessment or penalty order is set aside by a higher appellate authority because of a supervening illegality. In such cases, the assessing authority can start from the point of the supervening illegality. If authority for such a proposition is required, there is the decision of the Supreme Court in Guduthur Bros. v. ITO [I960] 40 ITR 298 where the Court has observed at page 300 as under:
Sub-section (3) of Section 28, however, requires that the penalty shall not be imposed without affording to the assessee a reasonable opportunity of being heard. This opportunity was denied to the appellants and, therefore, the order of the Income-tax Officer was vitiated by an illegality which supervened, not at the initial stage of the proceedings, but during the course of it. The order of the learned Appellate Assistant Commissioner pointed out the ground on which the illegality proceeded and his order directing the refund of the penalty, if recovered, cannot but be interpreted as correcting the error and leaving it open to the Income-tax Officer to continue his proceedings from the stage at which the illegality occurred.
For aforesaid reasons, we are unable to agree with the learned Departmental Representative that the date of the order of the Competent Authority has to be taken as either 27-3-1985 which was the date of the first order because such order stood set aside to be re-done, or 31-3-1986 which was the date of the second order because such order also stood set aside to be re-done by the orders of the Tribunal referred to.
12. This brings us to the second argument of the learned Departmental Representative. The learned Departmental Representative submitted that there is a difference between an acquisition proceeding which is pending after initiation by issue of notice under Section 269D and prior to the passing of the acquisition order for the first time, and an acquisition proceeding which is to be re-done in pursuance of an order of an appellate authority setting aside the case to be re-done after holding that the initiation of proceeding was valid. This contention was opposed by the learned counsel for the assessee who submitted that there was no difference.
13. In the present case, by the order of the Tribunal dated 30-10-1985, the Tribunal expressly upheld the validity of initiation of proceedings and the notice issued. The Tribunal thereafter set aside the finding’s of the Competent Authority and directed the Competent. Authority after giving a full and fair opportunity of being heard to all parties concerned “to pass such orders as warranted in law and as the circumstances may merit”. This is, therefore, clearly a case where after the order of the Tribunal of 30-10-1985, the position was that acquisition proceedings stood initiated by issue of notice under Section 269D and there was nothing more to it. The Competent Authority again passed an order on 31-3-1986 and the Tribunal again passed an appellate order thereon on 29-7-1986. In this order, the Tribunal set aside the order of the Competent Authority and directed the Competent Authority “to re-do the case in accordance with and in true spirit of our directions contained in IT (Acq.) A. 4/Mds./85 dt. 30-10-85”. Therefore, again on 29th July, 1986, the position was that the proceedings stood initiated by issue of notice under Section 269D and there was nothing more at that stage. We, therefore, cannot find any difference on the facts of the present case between a case where acquisition proceedings had been initiated by issue of notice under Section 269D and an order had not been passed by the Competent Authority and the position in the present case where it had reverted back to that stage consequent to the appellate decision. This is clearly a case where after the order of the Tribunal on 29-7-1986 was passed, the acquisition proceedings remained initiated by issue of notice under Section 269D and the question remained open as to whether any further order was to be passed, or not, depending upon the investigations to be made and opportunities for hearing to be afforded by the Competent Authority.
14. At this stage it would be relevant to state that by the Finance Bill of 1986, the new provisions of Section 269RR enacted that the provisions of the chapter relating to acquisition would not apply in relation to transfer of immovable property made after 30th September, 1986. The reason for discontinuing the provisions relating to acquisition of immovable properties as given in the memo explaining the provisions of the Finance Bill, 1986 [158 ITR (Statutes) 130] is as under:
The existing provisions of Chapter XX-A envisage acquisition by the Central Government of immovable properties, etc., on payment of the consideration shown in the instrument of transfer and 15 per cent of the said amount. Before these provisions can be invoked, it has to be proved that the consideration for transfer of an immovable property as agreed to between the parties has not been truly stated, in the instrument of transfer with the object of facilitating’ the reduction or evasion of the liability of the transferor or transferee to pay tax or for concealing any income or asset. These provisions have not proved effective and generated a great deal of litigation and harassment.
In view of the aforesaid, it is proposed to provide that no proceedings under Section 2690 of this Chapter shall be initiated in respect of the properties transferred after 30th September, 1986.
As a consequential measure, Section 276AA of the Act is proposed to be omitted.
These amendments shall take effect from 1st October, 1986.
Therefore, the provisions relating to acquisition in all cases become inapplicable for transfers after 80th September, 1986. The Central Board of Direct Taxes by its Circular dated 16th May, 1986, which bears repetition, stated as under:
Circular No. 455, dated 16th May, 1986.
Subject: Acquisition of immovable properties under Chapter XXA of Income-tax Act, 1961 – Guidelines – Regarding.
The Finance Bill, 1986, has proposed that no proceedings shall be initiated under Section 2690 of the Income-tax Act, 1961, in respect of a property transferred after the 30th day of September, 1986. The Bill also proposes to insert Chapter X.XC providing for purchase by Central Government of immovable properties in certain cases of transfer.
With a view to achieve early finalisation of proceedings under the existing Chapter XXA of the Income-tax Act, 1961, the Board has decided that w.e.f. 1st April, 1986 acquisition proceedings under Section 269C will not bra initiated in respect of an immovable property for which the apparent consideration is Rs. 5 lakhs or less and that where acquisition proceedings have been initiated by issue of notice under Section 269D, the proceedings will be dropped if the apparent consideration of the immovable property is below Rs. 5 lakhs.
Therefore, the Board decided that to bring to quick end of all pending matters relating to acquisition of properties, no further proceedings were to be initiated in respect of immovable properties for which the apparent consideration was Rs. 5 lakhs or less or where acquisition proceedings had been initiated by issue of notice under Section 269D, the proceedings would be dropped if the apparent consideration of immovable property was below Rs. 5 lakhs. The relevant portion of the term “apparent consideration” stood denned in Section 269A(a)(7) as under:
269A. Definitions.–In this Chapter, unless the context otherwise requires,–
(a) ‘apparent consideration’,–
(1) in relation to any immovable property transferred, being immovable property of the nature referred to in Sub-clause (i) of Clause (e) means–
(i) if the transfer is by way of sale, the consideration for such transfer as specified in the instrument of transfer ;
In the present case, the transfer is by way of sale and the apparent consideration as stated in each of the instruments of transfer was Rs. 1,20,000 and if both instruments were taken together, even then it was only Rs. 2,40,000, which was much below Rs. 5 lakhs. In the case of K.P. Varghese v. ITO [1981] 131 ITR 597, the Supreme Court has clarified the position relating to the effect of the instructions issued by the Board under sec, 119 as under at pages 012 and 613:
The two circulars of the CBDT to which we have just referred are legally binding on the revenue and this binding character attaches to the two circulars even if they be found not in accordance with the correct interpretation of Sub-section (2) and they depart or deviate from such construction. It is now well settled as a result of two decisions of this court, one in Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 and the other in Ellerman Lines Ltd. v. C1T [1971] 82 ITR 913 that circulars issued by the CBDT under Section 119 of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act.
The Supreme Court has categorically stated that the circulars issued by the Board are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act. Such is the law as laid down by the Supreme Court as far as the beneficial circulars are concerned. Adverting specifically to acquisition matters and circulars issued thereunder, the High Court of Karnataka in the case of B.M. Marappa v. IAC [1986] 160 ITR 842 (the circular was a different one than the one under consideration), observed us under:
Sri Srinivasan contends for affirming the acquisition without reference to the circular of the Board issued during the pendency of these appeals before this court.
When the Tribunal and the Inspecting Assistant Commissioner decided the cases, the 1976 Act had not been enacted and the Board issuing circular instructions thereunder did not arise. But the Board, with due regard to the later enactment, has issued circular instructions on November 17, 1975, which it was competent to do under the Central Boards of Revenue Act, 1963 (Act No. 63 of 1963), under which it has been constituted as also Section 119 of the Act which are binding on all the authorities functioning under the Act.
** ** **
This general circular issued by the Board is undoubtedly binding on all the authorities under the Act. We are exercising our powers in these cases as an appellate authority under the Act and, therefore, we are bound to take note of the subsequent events and the circular instructions issued by the Board and regulate these appeals on that basis. What is true of this court is also true of the other authorities under the Act.
In the light of the aforesaid pronouncements, it is clear that we are bound to take note of the circular instructions issued by the Board and to regulate our appellate decision on that basis. We have no choice in the matter. If that be so, we have to hold that in the present case, after the order of the Tribunal dated 29th July, 1986, the matter stood restored to the Competent Authority and the case was clearly one where the apparent consideration was less than Es. 5 lakhs and proceedings under Section 269D just stood initiated without anything more. The Competent Authority, in view of the circular of the Board referred to above of the 16th May, 1986, should have in compliance with the instructions in the Board’s Circular, dropped the proceedings. The Competent Authority did not do this. Even if the Competent Authority had processed the case and had sent the same to the Commissioner, we are of the view that the Commissioner also being bound by the instructions of the Board could not in the present case have given his approval to the passing of the order under the provisions of Section 269F(6) of the Act. Therefore, the order of the Competent Authority dated 29-1-1988 has to be quashed.
15. According to the Board’s Circular of 16th May, 1986, where the apparent consideration is less than Rs. 5 lakhs and proceedings had been initiated by issue of notice under Section 269D, the proceedings were to be dropped. Proceedings under Section 269D are initiated only if the Competent Authority has reason to believe that the apparent consideration was lower than the market value by specified percentages, etc. (See Section 269C). The belief has to be bona fide one. The adequacy of the reasons of course may not be justiciable. This aspect has been dealt with elaborately in our original order dated 30th October, 1985. Therefore, proceedings in all cases where notice under Section 269D had been validly issued have arisen because the Competent Authority had reason to believe that there was under-statement. When the Circular says that in such cases where the apparent consideration is less than Rs. 5 lakhs, the proceedings are to be dropped, it would apply to all cases where the final order has not yet been passed. It would not matter, that in some cases no investigation may have been done, and in some other cases investigations may have reached a point of finality short of passing the final order, in all matters the Competent Authority has no option but to drop the proceedings, if the apparent consideration was less than Rs. 5 lakhs, if the Competent Authority has not passed his final order when the Circular of the Board came into effect. No distinction can be made between one case and another. Hence the mere fact that in the present case, there may have been a letter from the transferor that he had received a total sale consideration of Rs. 5,70,000, that would not make any difference because, as we have discussed in our order of 30-10-1985 by which we set aside the original order of the Competent Authority, much investigation remained to be done.
16. The learned Departmental Representative, in the present case, submitted that he would like to address arguments on merits. The question of addressing arguments on merits would arise only if the initial objection of the assessee that the Circular of the Board dt. 16th May, 1986 was not followed was found unacceptable. In the present case, we find that the assessee’s preliminary objection has to succeed and the Competent Authority had no option but to drop the proceedings. Having come to this finding, the question of hearing the arguments on merits by the parties does not arise.
17. We are quashing these acquisition proceedings on the basis of the Circular of the Board. If extra consideration has passed or if any other provisions of the Income-tax Act are proved to have been violated, those matters will take their own course. All that we are concerned with in the present case is whether the acquisition can stand or not. We have held that these proceedings have to be dropped in view of the beneficial Circular of the Board which the Competent Authority and the Commissioner were bound to follow. The result is the appeal of the transferee-appellant is allowed.