bgp bgp bgp IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION WRIT WRIT WRIT PETITION NO.961 OF 1993 PETITION NO.961 OF 1993 PETITION NO.961 OF 1993 Pramila V.Rao & Anr. ..Petitioner Vs. M.B.Kodnani & Ors. ..Respondents Mr.J.D.Mistry i/b.A.Mehta Laljee & Co.for the Petitioner. Mr.R.Ashokan for the Respondents. CORAM CORAM CORAM :- DR.S.RADHAKRISHNAN & :- DR.S.RADHAKRISHNAN & :- DR.S.RADHAKRISHNAN & V.C.DAGA, V.C.DAGA, V.C.DAGA, JJ. JJ. JJ. DATE DATE DATE : 15TH DECEMBER, 2008 : 15TH DECEMBER, 2008 : 15TH DECEMBER, 2008 (PER (PER (PER : DR.S.RADHAKRISHNAN,J.) : DR.S.RADHAKRISHNAN,J.) : DR.S.RADHAKRISHNAN,J.) 1. The Petitioners by the present Petition have impugned the order dated 29th March, 1993 passed by Respondent Nos.1 to 3 under Section 269 UD(1) of the Income tax Act,1961 (hereinafter referred to as "the Act"). By the said order, Respondent Nos.1 to 3 have ordered purchase of Flat No.501 situated in a building named Pratiksha situate at Plot No.7A, Maulana Abdul Gafar Khan Road, Worli, Bombay - 400 018, hereinafter referred to as "the said flat". 2. Brief facts giving rise to the filing of the present Petition are as under: a. The Petitioner by and under an Agreement dated 27th November, 1987 entered into with Respondent No.5, agreed to purchase the said flat from Respondent No.5 for a total :2: consideration amount of Rs.29,70,116/- of which Rs.22,00,000/- had been prior to the agreement date. The built up area of the said flat amounts to approximately 1396 sq.ft. The Petitioners and Respondent No.5 thereafter, submitted Form No.37(I) to Respondent Nos.1 to 3 on 17th December, 1987. By an order dated 16th February, 1988 passed under Section 269 UD (1) of the Act, Respondent Nos.1 to 3 ordered the purchase of the said flat. The said order, did not discuss the reasons allegedly recorded by Respondent Nos.1 to 3 and was otherwise bad in law for various diverse reasons, according to Mr.Mistry, the learned Counsel for the Petitioners. b. The Petitioners thereafter filed a Writ Petition being Writ Petition No.751 of 1988 challenging the said order dated 16th February, 1988. by an order dated 20th January, 1993, the said Writ Petition was disposed of and the matter was remanded to Respondent Nos.1 to 3 for deciding the same afresh as per the law laid down in the judgment of C.B.Gautam Vs. Union of India, AIR (1993) 199 ITR 530. c. Respondent no.1 vide its letter dated 9th :3: Febraury, 1993 forwarded to the Petitioner copies of the reasons allegedly recorded by Respondent NOs.1 to 3 and on the basis of which the impugned order dated 16th February, 1988 was passed. The said reasons note that the rate per sq.ft. built up area (bua) amounts to 2128 per sq.ft. and that case Nos.2414 and 2352 disclosed similar rates, although the exact rates were not disclosed. However it appears that these instances in the very same building were ignored on the ground that the agreements in those cases were of July and August, 1987. No other comparable case was mentioned and without any basis whatsoever Respondent Nos.1 to 3 had ordered the purchase of the said flat under Section 269 UD (1) of the Act. d. The Petitioners by their letter dated 2nd March, 1993 set out their written submissions pursuant to the hearing before Respondent Nos.1 to 3 on 4th March, 1993. e. During the hearing of the Petition, Mr.Mistry, the learned Counsel for the Petitioner pointed out that the very same flat had been agreed to be sold earlier for Rs.22.95 lakhs and a no-objection certificate dated 25th June, 1987 had been issued by the :4: Respondent authorities. Further proceedings initiated under Chapter XX A of the Act had been dropped. It was also pointed out that 2 other flats in the very same building had been agreed to be sold at comparable rates and Respondent NOs.1 to 3 had not sought to purchase the same. Further, the Petitioners agreement had been reached much earlier and that payments had been made right from May, 1987. 3. By the impugned order dated 29th March, 1993, Respondent Nos.1 to 3 have yet again ordered the purchase of the said flat under Section 269 UD(1) of the Act. In the said order, Respondent Nos.1 to 3 have: a) recorded that the said flat was locked and "an inspection" was carried out; b) referred to some report of a valuation officer which has not been provided to the Petitioners at all. c) stated that no evidence was provided of the date of making payments which was never requested from the Petitioners. d) held that the fact that an occupation :5: certificate was granted only on 4th March, 1989 was to be ignored based on alleged physical inspection of the predecessors of Respondent NOs.1 to 3. e) held that it was not necessary to determine the fair market value of the property in question (as it is essential to establish that the disclosed rate was 15% lower thereto.) f) held that it was not necessary to consider the sale instances in the very same building/or other building. g) placed reliance on some undisclosed internal evidence etc. h) referred to some 4 new instances which were never put to the Petitioners and those different flats in vastly different locations. i) referred to another instance in another building which was also relied upon which had never been put to the Petitioners. and finally made the bald statement that the margin of 15% was "far exceeded" although no basis whatsoever has been disclosed for this critical finding, and admittedly there was no "fair market value" determined. :6: 4. The Petitioners being aggrieved by the said order have filed the present Petition. The main thrust of Mr.Mistry, the learned Counsel for the Petitioners challenge to the impugned order is that the same is contrary to the rules of natural justice inasmuch as Respondent Nos.1 to 3 while passing the impugned order have referred to and relied upon instances of sale in the adjoining area as also the valuation report, and copies of the instances of sale as well as valuation report were not furnished to the Petitioners. Equally the Petitioners say that there has been no determination of the fair market value of the property which is the sine qua non for deciding whether any alleged undervaluation exceeded 15% of fair market value. The Petitioners have also challenged the impugned order on certain other grounds as more particularly set out int he Writ Petition including complete non application of mind on the part of Respondent Nos.1 to 3 in view of the fact that Respondent NOs.1 to 3 had granted their consent and/or approval for sale of a flat situate in the same building as the said flat is situated and the sale consideration in the said case was lower than that agreed to be paid by the Petitioners for the purchase of the said flat. 5. Mr.Ashokan for the Respondents, referred to :7: the Affidavit-in-reply, that the impugned order was passed after giving due opportunity to the Petitioners. Respondent Nos.1 to 3 in their Affidavit have also averred that on the basis of the facts produced by the Petitioners, it was not possible for Respondent Nos.1 to 3 to come to a conclusion that the price greed to be paid by the Petitioners was a fair market value and/or the relevant prevailing price of the said flat. However, Respondent Nos.1 to 3 in their Affidavit in Reply have not controverted and/or denied the fact that the petitioners were not provided with the instances of sale as referred to by Respondent Nos.1 to 3 in the impugned order. 6. The Hon’ble Supreme Court of India and this Court have dealt with the issue of purchase of immovable property by the Central Government Notice under Section 269 UD(1) of the Income Tax Act,1961. The Apex Court in the judgment of C.B.Gautam Vs. C.B.Gautam Vs. C.B.Gautam Vs. Union Union Union of India of India of India and this Court in other judgments passed from time to time have consistently held that the party whose property has been purchased ought to get an adequate opportunity to defend. This opportunity to defend implies knowledge about the comparable instances with which the property under question is to be compared to arrive at any finding as to whether there is any undervaluation or not. In fact, it is necessary that the show-cause notice itself must refer to and mention the comparable :8: instances which are to be relied upon so that the party concerned gets an appropriate opportunity. In the instance case, the instances relied upon by Respondent Nos.1 to 3 were not furnished. In the absence of furnishing any such information, it is totally unfair to just refer to some allegedly comparable case in the order and then to say that there is undervaluation without referring to the particular characteristics of the property concerned on the comparable case. The order arrived at by such method apart from being in violation of the principles of natural justice is also unsupportable on the merits. In the circumstances, the impugned order suffers from serious infirmity. 7. This Court in the matter of Mrs.Nirmal Mrs.Nirmal Mrs.Nirmal Laxminarayan Laxminarayan Laxminarayan Grover Grover Grover Vs. Appropriate Authority (Income Vs. Appropriate Authority (Income Vs. Appropriate Authority (Income Tax Tax Tax Department) and others reported in (1997) 223 ITR Department) and others reported in (1997) 223 ITR Department) and others reported in (1997) 223 ITR 572 572 572, has held that if in the Show Cause Notice that is issued by the Income Tax Department, the relevant material upon which the prima facie view of the Appropriate Authority that the property in question is undervalued was based, was not disclosed the order of the Appropriate Authority passed pursuant to such a defective Show Cause Notice was illegal and vitiated for not being in consonance with the basic principles of natural justice. It was further held that when an obligation is cast upon an authority to give a notice to show cause before reaching any final conclusion :9: against the person affected by its action, the purpose and the requirement of such a show cause notice is two fold : (i) the noticee must get an opportunity to meet the case against him: and (ii) he must have an opportunity to set forth his own case to show why an order adverse to him should not be passed. The show cause notice issued by the Department for pre-emptive purchase by the Central Government under Chapter XX-C of the Income Tax Act,1961, must disclose how the tentative or prima facie conclusion was arrived at by the appropriate authority that the property sought to be compulsorily purchased was significantly undervalued which means that if any particular sale instance(s) is/are relied upon to show how the property in question was significantly undervalued, it is necessary for the appropriate authority to refer to the said details in the show cause notice so that the transferor and/or the transferee would have real and proper opportunity to meet the case of the Department. It is necessary to see that issuing a show cause notice is not merely an empty formality. 8. This Court in the matter of Jai Nadershah Jai Nadershah Jai Nadershah Karani Karani Karani and Another Vs. C.M.Betgeri, Commissioner of and Another Vs. C.M.Betgeri, Commissioner of and Another Vs. C.M.Betgeri, Commissioner of Income Income Income Tax and Others reported in (2007) 290 ITR 594 Tax and Others reported in (2007) 290 ITR 594 Tax and Others reported in (2007) 290 ITR 594 while referring to the Gautam’s case (Supra) has held that the party whose property has been acquired ought to get an adequate opportunity to defend. This opportunity to defend implies knowledge about the :10: comparable instances with which the property under question is to be compared to arrive at as to whether there is any undervaluation. it was further held in the said judgment that in fact, it is necessary that the show cause notice itself must refer to and mention the comparable instances which are to be relied upon so that the party concerned get an appropriate opportunity. In the instant case, the ratio of this judgment squarely applies. Even on the merits, there is no discussion whatsoever about the merits and demerits of the five flats which have been relied upon. For appropriate comparison, one must have the data such as the date of construction of the building, on which floor the flat is situated, whether the flat is furnished, whether any parking space is available and what kind of view is available from the flat concerned and what are the surroundings. It is only when all these factors are considered, that one could arrive at a somewhat approximate value of a property. In the absence of furnishing any such information, it is totally unfair to just refer to some cases and then to say that there is undervaluation without referring to the particular characteristics of the property concerned. The order arrived at by such a method apart from it being in violation of the principles of natural justice, is unjustified on the merits also. In the circumstances, the impugned order suffers from serious infirmity. :11: 9. This Court in the matter of Dhirajlal Dhirajlal Dhirajlal Chhotalal Chhotalal Chhotalal Parekh & Anr. Vs. Appropriate Authority & Parekh & Anr. Vs. Appropriate Authority & Parekh & Anr. Vs. Appropriate Authority & Anr. Anr. Anr. reported in (2008) 298 ITR 27 reported in (2008) 298 ITR 27 reported in (2008) 298 ITR 27 and also in the matter of Kishore Tulsidar Choksi and Ors. Vs. Kishore Tulsidar Choksi and Ors. Vs. Kishore Tulsidar Choksi and Ors. Vs. Appropriate Appropriate Appropriate Authority & Anr. (2008) 298 ITR 228 Authority & Anr. (2008) 298 ITR 228 Authority & Anr. (2008) 298 ITR 228 has held that the appropriate authority must refer to the details in the show cause notice so that the transferor and/or transferee would have real and proper opportunity to meet the case of the Department. It is necessary to see that issuing a show cause notice is not entirely an empty formality. The order of an appropriate authority passed pursuant to such a defective show cause notice would be illegal and vitiated for not being an in consonance with the basis principles of natural justice. This Court held that the notice in question was not a show cause notice but a pre-determined order. All relevant materials were never furnished to the Petitioners, thereby violating the principles of natural justice. The order was liable to be quashed and set aside. 10. This Court in the matter of Vimal Agarwal Vs. Vimal Agarwal Vs. Vimal Agarwal Vs. the the the Appropriate Authority & Ors. 1995(2) BCR 626 Appropriate Authority & Ors. 1995(2) BCR 626 Appropriate Authority & Ors. 1995(2) BCR 626 has held that the Appropriate Authority must consider all the relevant factors carefully and record its reasons for passing of the order. The sale instances furnished by the aggrieved person assume more importance if they have already undergone scrutiny in the hands of the Appropriate Authority and No :12: objection Certificate issued in this regard. The instances furnished by the aggrieved parties ought to be considered and the same cannot be brushed aside. It was held that an order passed merely on the basis of the sale instances given by the Appropriate Authority without considering sale instances referred to and furnished by the aggrieved parties without setting out cogent reasons for not acting upon the same, cannot be a proper and valid order. 11. It was also held in Vimal Agarwal’s case (supra) that in order to draw inference of undervaluation, it is necessary for the Appropriate Authority to first determine the fair market value of the property in question in the light of all the attending circumstances. Without doing so, it is not only difficult but impossible to say that the apparent consideration is lower than the fair market value by 15% or more. To justify an order u/s.269 UD(1), the Appropriate authority must come to a definite conclusion that the undervaluation is more than 15% of the fair market value. The instances referred to and relied upon by the aggrieved parties, more so, in cases where application in Form No.37-I has been filed and No objection Certificate issued, should be meticulously scrutinised as the burden of proving that the sale instances are not comparable with the property under consideration is on the Appropriate Authority. If the instances relied upon by the :13: aggrieved parties are taken into account, the margin will be much lesser than 15%. In some of the cases the apparent consideration will be even higher than the sale price shown therein. In such a situation, no presumption of undervaluation with a view to evade taxes can be drawn. It is important to note that in view of the C.B.Guatam’s (supra) the compulsory purchase can be ordered only when it is evident that there is evasion of tax. 12. The Vimal Agarwal’s case has been consistently followed by this Court in two other unreported cases (a) Govardhandas Odhavji Dhakan & Anr. Vs. S.K.Kaul Govardhandas Odhavji Dhakan & Anr. Vs. S.K.Kaul Govardhandas Odhavji Dhakan & Anr. Vs. S.K.Kaul & Ors. Ors. Ors. WP No.570 of 1993, (b) Vishwa Bandhu Pearyelal WP No.570 of 1993, (b) Vishwa Bandhu Pearyelal WP No.570 of 1993, (b) Vishwa Bandhu Pearyelal Gupta Gupta Gupta & ANr. Vs. S.K.Kaul & Ors. WP No.554 of 1993 & ANr. Vs. S.K.Kaul & Ors. WP No.554 of 1993 & ANr. Vs. S.K.Kaul & Ors. WP No.554 of 1993. 13. This Court in the matter of Mrs.Amarjit Thapar Mrs.Amarjit Thapar Mrs.Amarjit Thapar & Ors. Ors. Ors. Vs.S.K.Kaul Chief Engineer & Ors. reported in Vs.S.K.Kaul Chief Engineer & Ors. reported in Vs.S.K.Kaul Chief Engineer & Ors. reported in 2007 2007 2007 (6) AIR BOM R 794 (6) AIR BOM R 794 (6) AIR BOM R 794 has held that the show cause notice issued and order of compulsory purchase passed by the Appropriate Authority is illegal and invalid as it does not disclose as to how the tentative or prima facie conclusion was arrived at by the Appropriate Authority that the property in question was significantly undervalued. 14. Mr.Ashokan also fairly stated that "fair market value" was not determined in this case and stated that the Department is now determining the same, :14: after the judgment in Vimal Agarwal case. Vimal Agarwal case. Vimal Agarwal case. 15. For the reasons stated above, the Petition is allowed. The impugned order of compulsory purchase is hereby quashed and set aside. The appropriate authority is directed to issue a NOC in favour of the petitioners. 16. Rule is made absolute in terms of prayer clauses (a) and (b) with no order as to costs. (V.C.DAGA,J.) (V.C.DAGA,J.) (V.C.DAGA,J.) (DR.S.RADHAKRISHNAN,J.) (DR.S.RADHAKRISHNAN,J.) (DR.S.RADHAKRISHNAN,J.)