M/s. Zeal Real Estate Limited v. Union of India

3. (2007) 298 ITR 336 (Bom.) consideration, that limit cannot be applied mechanically but a reasonable margin for probable error must be factored.

8 Mr. Sharma submitted as under: (a) petitioner has no locus because petitioner is a transferee and not a transferor. We would reject this submission because this Court has in Kirloskar Power Equipments Ltd. V/s. R.R. Bajoria and Ors.[4] held that the transferee also had a right to have the hearing before a competent Authority and then to file a Writ Petition. This Court in Kirloskar Power Equipments Ltd. (Supra) has followed C.B. Gautam (Supra). This Court in S. Krishnan V/s. U.V. Shahadadpuri & Ors.[5] has held that even if the transferor does not challenge the order of compulsory purchase, the transferee certainly can. The transferors are respondent nos.[3] and 4 to the petition. (b) it is not possible for the Appropriate Authority to ascertain and determine the fair price without giving an opportunity to the parties and the Appropriate Authority cannot be expected to determine the fair price at the time of issuance of Show Cause Notice. Mr. Sharma relied on Shrichand Raheja and Anr. V/s. S.C. Prasad (Appropriate Authority) and Ors.[6]

4. (2007) 291 ITR 150 (Bom)

5. 1999 (240) ITR 274

6. 1995 (213) ITR 33 Though the Court had made such an observation, these observations will not be applicable to the present case because this Court had set aside the second order stating that the Department has not determined the fair market value of the said property before passing the order and this Court had specifically directed the Appropriate Authority to determine the fair market value.

(c) the Appropriate Authority with the Executive Engineers exercising administrative functions does not function as statutory valuation authority like the district valuation officer under the Act or the Wealth Tax Act and, therefore, the administrative noting made by the said officer has no statutory consequences. Mr. Sharma also stated that this contention of petitioner that the noting made by the Valuation Officer has been raised for the first time and was not raised on the earlier occasions.

9 First of all, it would not help Mr. Sharma because the Court has to consider all documents. Secondly, this document was disclosed and relied upon by department for the first time by enclosing with the notice issued during the last personal hearing. In fact, this Court had, by its order dated 8th April 2022, called upon respondents to produce its file and also produce the reasons which have been separately recorded as noted in its order dated 29th April 1991 which was never provided earlier. Those reasons were provided to this Court based on our directions. We will deal with those reasons separately. We have also to note that during the hearing, Mr. Sharma stated that the noting was made by the Executive Engineer who is from the Central Public Work Department on deputation to the Income Tax Department. He assists and values the property of the Appropriate Authority. Therefore, to say that he has no authority is not logical and if he had no authority, we fail to understand why he was asked to inspect the property and permitted to make notes for the official records. In the noting, it is written “VO’s recommendation” and VO is, we were informed, Valuation Officer. He has recommended on 22nd April 1991 that the declared value is reasonable. The file thereafter was put up by him to his superior officer, who Mr. Sharma states was the Deputy Commissioner of Income Tax (A.A.). He has also recorded a note on 24th April 1991 that the declared rate is not grossly understated and it may be only marginally low. The said file has been put up to the Appropriate Authority thereafter but there are no notings by the Appropriate Authority that the valuation made by the Executive Engineer or his superior (Deputy Commissioner of Income Tax) was defective or perverse or not valid for any reason.

10 Having said this, in our opinion, as the decision to acquire the property was taken in 1991, this Court has to refer to the documents relevant to that period. Petitioner had received the first order on 29th April

1991. On 18th April 1991, the property was inspected by the Valuation Officer who has given his report by comparing it with three sale instances. The same, for ease of reference, is reproduced hereinbelow: SALE INSTANCES OF FLATS/BUILDINGS Flat no. 71, 7th floor Summer Ville Bhulabai Desai Road, Bombay Sr. No. Case No. Date of Agreement Details of property & year of construction Transferor Transferee Consideration B.U.A. in sq. ft. Rate per sq. ft. Remarks

1 Sold in public auction on 23/11/90 (Purchase d by A.A. in Sept. 90) Gulistan, 34, Desai Road, Bombay - 26 Govt. of - D.O. Rs.49,27,555/ sq. ft. Rs.3653/- Y.O.C. 1962 1st Floor, G+9 Sea View 2 6137 26/7/90 (Purchase d by A.A.) Mrs. Leela

- D.O. Rs.50,62,398/ sq. ft. Rs.3027/- Y.O.C. 1 to 7th in 1959 8th Floor, G+8 Panoroma Sea View 3 5901 21/5/90 Flat No.3, A Wing, Heera Panna, Mrs. Halimunn a Shaikh Mr. Rs.37,00,000/ - D.O. Rs.36,36,397/ sq. ft. Rs.2721/- Y.O.C. - 1st Floor, G+20 No Sea View

11 In the order dated 29th April 1991, respondent no.2 has noted “in view of the reasons which have been separately recorded in writing, it is decided that the said property is fit for purchase by Central Government”. Since those reasons had not been provided ever, as stated earlier, we called upon respondents to produce the reasons so recorded (said reasons). In the said reasons, respondent no.2 has recorded that it has carefully considered the report of Valuation Officer dated 22nd April 1991 and note dated 24th April 1991 of Deputy Commissioner of Income Tax (A.A.). As noted earlier, both these persons have recorded that the declared value was not understated. The said reasons, however, does not mention why the opinion of these two persons have not been accepted. In the said reasons, the Appropriate Authority relies upon two other transactions of sale which from the documents filed are not close to the said property are not comparable. Petitioner has filed in the petition google search location printouts. In fact, the three comparable given by the Valuation Officer are closer and comparable to the said property. We should mention here that in the said reasons recorded, there are no addition and subtraction of various advantages and disadvantages to the two properties which respondent no.2 has used as comparable. The second property, i.e., Navroze Apartment, the rate is shown as Rs.3,741/- per sq. ft. whereas, the rate for the said property was Rs.3,399/- per sq. ft. In our view, since the difference was only about 9%, respondent no.2 for reasons which are obvious, has in its supplementary show cause notice dated 7th January 2009 read with statement of valuation annexed thereto, resorted to mathematical calculations and by adding and subtracting advantages and disadvantages arrived at a conclusion that there is undervaluation in excess of 15%. This is most improper on the part of respondent no.2. Respondent no.2 has, conveniently, also not resorted to addition or subtraction of various advantages and disadvantages with regard to the said property and only if it had done, perhaps the undervaluation would have been 9% or lesser.

12 Respondent no.2 has not even explained anywhere why they chose the two properties of “Sea Face Park” and “Navroze Apartment” as comparable and from where they got details of those two properties. Respondent no.2 ought to have disclosed everything in transparent manner to enable petitioner to effectively respond. As held by this Court in Jugal Kishore Jajodia V/s. S.C. Prasad, Chief Engineer and Ors.7, it is settled law that issuance of a show cause notice is not an empty formality. Its purpose is to give a reasonable opportunity to the affected persons to contend that the apparent consideration as per the agreement to sell is the market price or that there is no undervaluation because of peculiar facts. It will be apposite to quote paragraph 8 of the said judgment, which reads as under:

8. It is settled law that issuance of a show-cause notice is not an empty formality. Its purpose is to give a reasonable opportunity to the affected persons to contend that the apparent consideration as per the agreement to sell is the market price or that there is no undervaluation because of peculiar facts. The appropriate authority should give to the person likely to be affected by the order proposed to be made a notice of the action intended to be taken, inform him about the materials on the basis of which the appropriate authority proposes to take action for pre-emptive purchase

7. Writ Petition No.1018 of 1993 dated 23.09.2021 and give a fair and reasonable opportunity to such person to represent his case and to correct or controvert the material sought to be relied upon against him. Hence, in the showcause notice under Section 269UD of the Act, provisional conclusions are required to be briefly specified. These provisional conclusions are required to be briefly specified so that the affected persons could correct or controvert the same effectively. If a vague show- cause notice is given without specifying anything as has been done in this case or without specifying the grounds for holding that the property is required to be purchased under Section 269UD of the Act, then it can be held that reasonable opportunity of showing cause has not been given. The transferor and transferee would be totally unaware of the grounds which had prompted the appropriate authority to arrive at prime facie conclusion that the power under Section 269UD(1) of the Act was required to be exercised and the property should be compulsorily purchased. xxxxxxxxxxxxxxxxxxxxxxx

13 We have to also note that as held by the Apex Court in C.B. Gautam (Supra), even the limit of 15% prescribed cannot be mechanically applied and the reasonable margin for probable error has to be considered. This Court in Mrs. Amarjit Thapar (Supra) has held that the order of the Appropriate Authority was invalid and void ab initio as there is no positive finding that there was an attempt to evade tax. It will be useful to reproduce the following portions from Mrs. Amarjit Thapar (Supra), which read as under:

33. Where the Appropriate Authority has failed to clearly determine the fair market value and to specify that undervaluation was intended to evade tax and refused to consider the comparable sale instances submitted by the affected party, its action stands vitiated on the face of it see Himmatlal Vadalia v. Union of India.

34. The order of the Appropriate Authority is invalid and void ab initio as there is no positive finding that there was an attempt to evade tax. The apex Court in the case of C.B. Gautam v. Union of India (supra) held that the very historical setting in which the provisions of this chapter were enacted indicates that it was intended to be resorted to only in cases where there is an attempt to evade tax by significant undervaluation of immovable property agreed to be sold. In the case of Nirmal Laxminarayan Grover (supra), this Court held that recourse to compulsory purchase of the immovable property; under Chapter XX-C of the Act should be taken only in clear cases of gross undervaluation from which the interference must clearly flow that it is done for evasion of taxes.

35. In view of the judgment of the Supreme Court in C.B. Gautam (supra), unless the difference in the apparent effective consideration and the market value is more than 15 per cent, the Appropriate Authority cannot assume jurisdiction under Section 269UD of the Act. The same does not mean that the mere fact that such difference is more than 15 per cent will, automatically, lead to the conclusion that there has been undervaluation of property with the motive of evading tax. In Vimal Agaiwal case (supra), this Court has reiterated that right of pre-emptive purchase under Section 269UD is not a right of pre-emption simpliciter but is a right which can be exercised only in the cases where there is significant undervaluation in agreement of sale with a view to evade tax. The onus of establishing that undervaluation is with a view to evade tax is on the Revenue. No such finding is to be found in the impugned order.

36. In the circumstances, the impugned order passed by the Appropriate Authority is liable to be quashed and set aside holding it to be in breach of principles of natural justice and bad in law. The view taken by the Appropriate Authority is palpably erroneous and cannot stand to the scrutiny of law even on merits.

14 In the case at hand, there is no finding that the undervaluation was intended to evade tax, let alone discharge the onus of establishing that undervaluation was with a view to evade tax. In the impugned order, it is only stated that the transaction under consideration was proposed to take place at a rate lower than the fair market value by more than 15% considering the fair market value determined by the Appropriate Authority. On this ground alone, the impugned order is liable to be quashed and set aside. In our view, the view taken by the Appropriate Authority is palpably erroneous and cannot stand to the scrutiny of law even on merits.

15 Therefore, to recap, the Valuation Officer has noted on 22nd April 1991 and the Deputy Commissioner of Income Tax (A.A.) has noted on 24th April 1991 that the said property was not undervalued. The Appropriate Authority (respondent no.2) has not stated in its reasons recorded in 1991 why they did not accept these two reports. The Appropriate Authority (respondent no.2) has not stated anywhere why it was not accepting the three comparables mentioned by VO. The Appropriate Authority (respondent no.2) has not given the basis for comparing “Sea Face Park” and “Navroze Apartment” with the said property, when those two properties were farther away than the three properties used by VO to compare. In any case, the valuation of Navroze Apartment used in the first order dated 29th April 1991 by the Appropriate Authority (respondent no.2) was only about 9% more compared to the said property. The mathematical calculations by adding and subtracting advantages and disadvantages to arrive at a conclusion that there was undervaluation in excess of 15% limit can be stated to be far from being honest. This 15% limit also cannot be applied mechanically but a reasonable margin of error has to be considered. There is also no finding that the undervaluation was intended to evade tax, which, as held in Mrs. Amarjit Thapar (Supra), was mandatory vitiating the stand of respondents. Even for a moment we assume there was a difference of 15%, the Appropriate Authority cannot assume jurisdiction under Section 269UD of the Act automatically. Various factors determine the price for a property like demand, supply, terms of payment, the urgency for the seller to sell or for the buyer to buy, relationship between parties, dominance of a party etc. None of these points are also considered by the Appropriate Authority while arriving at its conclusions in the impugned order. The impugned order, therefore, requires to be set aside. Respondent no. 2 could not have acquired the said property under Section 269UD.

16 Petition accordingly allowed in terms of prayer clauses – (a) and (b), which read as under: (a) This Hon’ble Court in its jurisdiction under Article 226 of the Constitution of India, be pleased to issue a Writ of Certiorari and/or any other writ in the nature of certiorari and/or order and/or direction, calling upon the respondent no.2 to produce petitioner’s case papers and after perusing the same as to the legality and propriety of the order impugned to set aside and quash the order dated 9th January 2009 passed by respondent no.2; (b) This Hon’ble Court in its jurisdiction under Article 226 of the Constitution of India be pleased to issue a Writ of Mandamus and/or any other writ in the nature of mandamus and/or such other order and/or direction, calling upon respondent no.2 to handover the possession of the said property to the petitioner.

17 We hold that petitioner shall be entitled to the said property alongwith the shares in the society upon payment to respondent nos.[1] to 4 of consideration of Rs.61,77,411/-. If this amount is not paid within twelve weeks from today, interest thereon at 12% p.a. shall become payable until payment / realisation. Petitioner shall pay all society charges payable at the relevant time, i.e., 1991, together with interest, if any, for getting the shares transferred in its name.

18 The Prothonotary and Senior Master shall refund to respondent nos.[1] to 4 the sum of Rs.1,75,500/- deposited during the second petition together with accumulated interest, if any. This amount shall be paid provided (a) respondent nos.[1] to 4 file a declaration that they are not challenging this order or judgment or (b) the SLP or petition to be filed by respondent nos.[1] to 4 is dismissed or rejected.

19 From the minutes of the order dated 13th September 1991 filed in the second petition, there is a sum of Rs.1,22,589/- that would become payable to respondent nos.[5] to 7 in that petition together with interest thereon at 10% per annum from 13th September 1991 until payment. Mr. Dada states that two out of the three respondents, i.e., respondent nos.[5] to 7 are respondent nos.[3] and 4 in this petition. They are not before us. Therefore, petitioner to deposit an amount of Rs.1,22,589/- together with interest thereon at 10% per annum from 13th September 1991 until payment/realisation with the Prothonotary and Senior Master who shall invest the same in a fixed deposit with a nationalised bank initially for a period of one year to be renewed year to year unless otherwise ordered. Prothonotary and Senior Master shall also forward a copy of this order to respondent nos.[3] and 4 at the address given in the cause title. Mr. Dada states that this amount will be deposited within two weeks from today. Statement accepted.

21 Mr. Sharma seeks stay of this order for a period of 120 days. Mr. Dada strongly opposes. We are inclined to grant the stay of 120 days which we hereby do. (N.R. BORKAR, J.) (K.R. SHRIRAM, J.)