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.607 PETITION NO.607 PETITION NO.607 of 1993 of 1993 of 1993 Ross Ross Ross Murarka (India) Pvt. Ltd.. Petitioner Murarka (India) Pvt. Ltd.. Petitioner Murarka (India) Pvt. Ltd.. Petitioner Vs. Vs. Vs. Appropriate Appropriate Appropriate Authority,constituted Authority,constituted Authority,constituted of of of the Member Shri S.K.Laul & ors.. Respondents the Member Shri S.K.Laul & ors.. Respondents the Member Shri S.K.Laul & ors.. Respondents Mr.Percy Mr.Percy Mr.Percy Pardiwalla with Mr.A.K.Jasani i/b Kanga Pardiwalla with Mr.A.K.Jasani i/b Kanga Pardiwalla with Mr.A.K.Jasani i/b Kanga & Co for Petitioners. Co for Petitioners. Co for Petitioners. Mr.A.K.Asokan Mr.A.K.Asokan Mr.A.K.Asokan with Mr.A.K.Jasani for Respondent with Mr.A.K.Jasani for Respondent with Mr.A.K.Jasani for Respondent nos. nos. nos. 1 & 2 1 & 2 1 & 2 None None None for Respondent no. 3 for Respondent no. 3 for Respondent no. 3 CORAM CORAM CORAM : Dr.S.Radhakrishnan and : Dr.S.Radhakrishnan and : Dr.S.Radhakrishnan and A.V.Nirgude, A.V.Nirgude, A.V.Nirgude, JJ JJ JJ DATED DATED DATED : 9th : 9th : 9th June, 2008 June, 2008 June, 2008 JUDGMENT JUDGMENT JUDGMENT ( Per A.V.Nirgude, J ) ( Per A.V.Nirgude, J ) ( Per A.V.Nirgude, J ) 1. 1. 1. This Writ Petition challenges the order dated This Writ Petition challenges the order dated This Writ Petition challenges the order dated 26th 26th 26th February 1993 passed by the Appropriate February 1993 passed by the Appropriate February 1993 passed by the Appropriate Authority Authority Authority under section 269 UD (1) of the Income under section 269 UD (1) of the Income under section 269 UD (1) of the Income Tax Tax Tax Act, 1961 (the Act for short). Act, 1961 (the Act for short). Act, 1961 (the Act for short). Before Before Before the arguments could begin, learned the arguments could begin, learned the arguments could begin, learned counsel counsel counsel for the Petitioners Mr.Pardiwalla stated for the Petitioners Mr.Pardiwalla stated for the Petitioners Mr.Pardiwalla stated that that that the petitioners would not proceed against the petitioners would not proceed against the petitioners would not proceed against the the the respondent respondent respondent no.3 and accepting this no.3 and accepting this no.3 and accepting this statement, statement, statement, the respondent no.3 is dropped. the respondent no.3 is dropped. the respondent no.3 is dropped. The The The relevant relevant relevant facts of the case may be stated as facts of the case may be stated as facts of the case may be stated as under under under : : : 2 2. 2. 2. One flat in a building called as ’Twin Towers’ One flat in a building called as ’Twin Towers’ One flat in a building called as ’Twin Towers’ situated situated situated at Prabhadevi, Mumbai was offered for at Prabhadevi, Mumbai was offered for at Prabhadevi, Mumbai was offered for sale sale sale by its owner one Scale Investments Ltd to the by its owner one Scale Investments Ltd to the by its owner one Scale Investments Ltd to the petitioners petitioners petitioners in November, 1984. The petitioner in November, 1984. The petitioner in November, 1984. The petitioner agreed agreed agreed to purchase the flat (Flat No.A-271 and to purchase the flat (Flat No.A-271 and to purchase the flat (Flat No.A-271 and four four four covered car parking spaces) for an aggragate covered car parking spaces) for an aggragate covered car parking spaces) for an aggragate consideration consideration consideration of Rs.44,00,000/- on 5th March, 1985 of Rs.44,00,000/- on 5th March, 1985 of Rs.44,00,000/- on 5th March, 1985 paying paying paying Rs.4,00,000/- as earnest and agreeing to Rs.4,00,000/- as earnest and agreeing to Rs.4,00,000/- as earnest and agreeing to pay pay pay the remaining amount of Rs.40,00,000/- by 30th the remaining amount of Rs.40,00,000/- by 30th the remaining amount of Rs.40,00,000/- by 30th April, April, April, 1985. It was specifically contemplated 1985. It was specifically contemplated 1985. It was specifically contemplated that that that either the petitioners would buy the said either the petitioners would buy the said either the petitioners would buy the said flat flat flat or it would be bought by one of its associate or it would be bought by one of its associate or it would be bought by one of its associate companies. companies. companies. 3. 3. 3. Ultimately, one of the petitioner’s associate Ultimately, one of the petitioner’s associate Ultimately, one of the petitioner’s associate company company company Ross Murarka Finance Ltd, the respondent Ross Murarka Finance Ltd, the respondent Ross Murarka Finance Ltd, the respondent no.3 no.3 no.3 (whose name is deleted from the array of the (whose name is deleted from the array of the (whose name is deleted from the array of the respondent respondent respondent no.3 today,) paid the balance amount of no.3 today,) paid the balance amount of no.3 today,) paid the balance amount of Rs.40,00,000/- Rs.40,00,000/- Rs.40,00,000/- to the owner on 17th April 1985. to the owner on 17th April 1985. to the owner on 17th April 1985. The The The owner on 24th April 1985 made an application owner on 24th April 1985 made an application owner on 24th April 1985 made an application under under under Chapter XXA of the Act in Form No.37EE for Chapter XXA of the Act in Form No.37EE for Chapter XXA of the Act in Form No.37EE for transfer transfer transfer of the flat in favour of respondent no.3. of the flat in favour of respondent no.3. of the flat in favour of respondent no.3. The The The Competent authority did not chose to take any Competent authority did not chose to take any Competent authority did not chose to take any steps steps steps under the said chapter. In October, 1985 under the said chapter. In October, 1985 under the said chapter. In October, 1985 the the the respondent no.3 company decided to sell the respondent no.3 company decided to sell the respondent no.3 company decided to sell the flat flat flat to the petitioner for Rs.44,00,000/. The to the petitioner for Rs.44,00,000/. The to the petitioner for Rs.44,00,000/. The 3 petitioner petitioner petitioner disbursed the amount in three disbursed the amount in three disbursed the amount in three instalments instalments instalments in October and November 1985 and took in October and November 1985 and took in October and November 1985 and took possession possession possession of the flat. They also handed over of the flat. They also handed over of the flat. They also handed over Rs.2 Rs.2 Rs.2 lac more soon after. In December 1985 the lac more soon after. In December 1985 the lac more soon after. In December 1985 the respondent respondent respondent no.3 made an application to the no.3 made an application to the no.3 made an application to the Cooperative Cooperative Cooperative Housing Society for transfer of the Housing Society for transfer of the Housing Society for transfer of the flat flat flat in the name of the petitioner but, the in the name of the petitioner but, the in the name of the petitioner but, the society society society agreed to effect the transfer only after agreed to effect the transfer only after agreed to effect the transfer only after November, November, November, 1986. The society in February 1987 1986. The society in February 1987 1986. The society in February 1987 further further further delayed the transaction of transfer. In delayed the transaction of transfer. In delayed the transaction of transfer. In the the the meantime, the respondent no.3 filed its return meantime, the respondent no.3 filed its return meantime, the respondent no.3 filed its return of of of Income Tax for the Assessment year of 1987-88 Income Tax for the Assessment year of 1987-88 Income Tax for the Assessment year of 1987-88 wherein wherein wherein it declared capital gain arising on the it declared capital gain arising on the it declared capital gain arising on the sale sale sale of flat based on the said consideration of of flat based on the said consideration of of flat based on the said consideration of Rs.46,00,000/-. Rs.46,00,000/-. Rs.46,00,000/-. Similar returns the petitioner Similar returns the petitioner Similar returns the petitioner filed filed filed in which it claimed depreciation on the in which it claimed depreciation on the in which it claimed depreciation on the flat. flat. flat. On the formal agreement of sale of the flat On the formal agreement of sale of the flat On the formal agreement of sale of the flat was was was entered into between the petitioner and the entered into between the petitioner and the entered into between the petitioner and the respondent respondent respondent no. 3 recording various events that no. 3 recording various events that no. 3 recording various events that took took took place since then and they agreed that the place since then and they agreed that the place since then and they agreed that the petitioner petitioner petitioner would pay Rs.65,00,000/- as would pay Rs.65,00,000/- as would pay Rs.65,00,000/- as consideration consideration consideration of the flat. Thereafter, of the flat. Thereafter, of the flat. Thereafter, application application application in Form No.37 (i) of the Act was filed in Form No.37 (i) of the Act was filed in Form No.37 (i) of the Act was filed in in in which the apparent consideration for transfer which the apparent consideration for transfer which the apparent consideration for transfer was was was mentioned as Rs.65,00,000/-. The respondent mentioned as Rs.65,00,000/-. The respondent mentioned as Rs.65,00,000/-. The respondent no.3 no.3 no.3 further informed the respondent no.1- further informed the respondent no.1- further informed the respondent no.1- 4 competent competent competent authority appointed under section UB of authority appointed under section UB of authority appointed under section UB of the the the Act in March 1988. That the effective price Act in March 1988. That the effective price Act in March 1988. That the effective price of of of the flat was more than Rs.65,00,000/-. They the flat was more than Rs.65,00,000/-. They the flat was more than Rs.65,00,000/-. They said said said they had received the amount of they had received the amount of they had received the amount of Rs.46,00,000/- Rs.46,00,000/- Rs.46,00,000/- earlier and used it and thereby earlier and used it and thereby earlier and used it and thereby interest interest interest at 18 % p.a. on the said sum was at 18 % p.a. on the said sum was at 18 % p.a. on the said sum was incurred. incurred. incurred. They stated that the amount of interest They stated that the amount of interest They stated that the amount of interest would would would be Rs.19,17,258. However, on 23rd March be Rs.19,17,258. However, on 23rd March be Rs.19,17,258. However, on 23rd March 1988 1988 1988 the competent authority passed the order the competent authority passed the order the competent authority passed the order under under under section 268 UD (I) of the Act and directed section 268 UD (I) of the Act and directed section 268 UD (I) of the Act and directed purchase purchase purchase of the flat for apparent consideration of of the flat for apparent consideration of of the flat for apparent consideration of Rs.65,00,000/-. Rs.65,00,000/-. Rs.65,00,000/-. The petitioner filed a Writ The petitioner filed a Writ The petitioner filed a Writ Petition Petition Petition Petition bearing No.1007 of 1988 in March Petition bearing No.1007 of 1988 in March Petition bearing No.1007 of 1988 in March 1988. 1988. 1988. This Court disposed of the Writ Petition on This Court disposed of the Writ Petition on This Court disposed of the Writ Petition on 16th 16th 16th December 1988 in the light of the judgment of December 1988 in the light of the judgment of December 1988 in the light of the judgment of the the the Supreme Court in the C.B.Gautam and directed Supreme Court in the C.B.Gautam and directed Supreme Court in the C.B.Gautam and directed the the the Appropriate Authority to treat the application Appropriate Authority to treat the application Appropriate Authority to treat the application filed filed filed under Form No.37 A as filed on that day. In under Form No.37 A as filed on that day. In under Form No.37 A as filed on that day. In December December December 1992 the Competent Authority issued a 1992 the Competent Authority issued a 1992 the Competent Authority issued a show show show cause notice directing the petitioner and the cause notice directing the petitioner and the cause notice directing the petitioner and the respondent respondent respondent no.3 to show cause as to why the order no.3 to show cause as to why the order no.3 to show cause as to why the order of of of purchase should not be passed against them. purchase should not be passed against them. purchase should not be passed against them. Along Along Along with this notice, reasons recorded on 23rd with this notice, reasons recorded on 23rd with this notice, reasons recorded on 23rd March March March 1988 in support of the earlier order of 1988 in support of the earlier order of 1988 in support of the earlier order of acquisition acquisition acquisition were also enclosed and the petitioner were also enclosed and the petitioner were also enclosed and the petitioner was was was asked to deal with them. The petitioner filed asked to deal with them. The petitioner filed asked to deal with them. The petitioner filed 5 a detailed reply on 19th January 1993 but, on 26th detailed reply on 19th January 1993 but, on 26th detailed reply on 19th January 1993 but, on 26th February February February 1993 the impugned order under section 269 1993 the impugned order under section 269 1993 the impugned order under section 269 UD UD UD (1) of the Act came to be passed. (1) of the Act came to be passed. (1) of the Act came to be passed. 4. The question before the Court is whether the The question before the Court is whether the The question before the Court is whether the Appropriate Appropriate Appropriate Authority was justified in passing the Authority was justified in passing the Authority was justified in passing the impugned impugned impugned order. order. order. 5. 5. 5. Mr.Pardiwalla, learned counsel appearing for Mr.Pardiwalla, learned counsel appearing for Mr.Pardiwalla, learned counsel appearing for the the the petitioner firstly submitted that the petitioner firstly submitted that the petitioner firstly submitted that the Appropriate Appropriate Appropriate Authority did not determine the fair Authority did not determine the fair Authority did not determine the fair market market market value of the flat. He said that the value of the flat. He said that the value of the flat. He said that the material material material used by the Appropriate Authority namely used by the Appropriate Authority namely used by the Appropriate Authority namely report report report dated 29th February 1988 of the District dated 29th February 1988 of the District dated 29th February 1988 of the District Valuation Valuation Valuation Officer and the noting dated 8th March Officer and the noting dated 8th March Officer and the noting dated 8th March 1988 1988 1988 of the inspecting Assistant Commissioner of of the inspecting Assistant Commissioner of of the inspecting Assistant Commissioner of Income Income Income Tax were not furnished for perusal and Tax were not furnished for perusal and Tax were not furnished for perusal and therby therby therby principles of natural justice were principles of natural justice were principles of natural justice were breached. breached. breached. He also took us through the facts of He also took us through the facts of He also took us through the facts of the the the case to suggest that even on facts, the flat case to suggest that even on facts, the flat case to suggest that even on facts, the flat in in in question was not transferred below the market question was not transferred below the market question was not transferred below the market value. value. value. 6. 6. 6. On the other hand, Mr.Asokan, learned counsel On the other hand, Mr.Asokan, learned counsel On the other hand, Mr.Asokan, learned counsel appearing appearing appearing for the revenue explained that prior to for the revenue explained that prior to for the revenue explained that prior to the the the decision of this Court in the case of Vimal decision of this Court in the case of Vimal decision of this Court in the case of Vimal 6 Agarwal Agarwal Agarwal vs Appropriate Authority (210 ITR page 16) vs Appropriate Authority (210 ITR page 16) vs Appropriate Authority (210 ITR page 16) there there there was no practice for determining the fair was no practice for determining the fair was no practice for determining the fair market market market value. He also said that was for the value. He also said that was for the value. He also said that was for the petitioner petitioner petitioner to proceed before the Appropriate to proceed before the Appropriate to proceed before the Appropriate Authority Authority Authority on such material and also as to justify on such material and also as to justify on such material and also as to justify the the the amount for which the flat was purchased. Mr. amount for which the flat was purchased. Mr. amount for which the flat was purchased. Mr. Asokan Asokan Asokan also suggested that since the competent also suggested that since the competent also suggested that since the competent authority authority authority had inspected the flat and since the had inspected the flat and since the had inspected the flat and since the order order order came to be passed after hearing the came to be passed after hearing the came to be passed after hearing the petitioner petitioner petitioner unless it is shown to be perverse, it unless it is shown to be perverse, it unless it is shown to be perverse, it cannot cannot cannot be interpreted. be interpreted. be interpreted. 7. 7. 7. On a careful consideration of the rival On a careful consideration of the rival On a careful consideration of the rival contentions, contentions, contentions, it is difficult for us to uphold the it is difficult for us to uphold the it is difficult for us to uphold the impugned impugned impugned order. order. order. 8. 8. 8. The first and foremost reason : This Court The first and foremost reason : This Court The first and foremost reason : This Court had had had remanded the matter back to the Appropriate remanded the matter back to the Appropriate remanded the matter back to the Appropriate Authority Authority Authority with a specific direction to decide the with a specific direction to decide the with a specific direction to decide the case case case in the light of the directions given by the in the light of the directions given by the in the light of the directions given by the Supreme Supreme Supreme Court in the case of C.B.Gautam in which Court in the case of C.B.Gautam in which Court in the case of C.B.Gautam in which the the the Apex Court categorically mentioned that the Apex Court categorically mentioned that the Apex Court categorically mentioned that the provisions provisions provisions under section 269 of the Act can be under section 269 of the Act can be under section 269 of the Act can be resorted resorted resorted only when there is significant under only when there is significant under only when there is significant under valuation valuation valuation of the property to the extent of 15 % or of the property to the extent of 15 % or of the property to the extent of 15 % or more more more than the "fair market value." In view of than the "fair market value." In view of than the "fair market value." In view of 7 this, this, this, it was necessary for the competent authority it was necessary for the competent authority it was necessary for the competent authority to to to first record a finding about the flat’s " fair first record a finding about the flat’s " fair first record a finding about the flat’s " fair market market market value." The impugned order does not show value." The impugned order does not show value." The impugned order does not show any any any attempt being made to determine the fair attempt being made to determine the fair attempt being made to determine the fair market market market value. The respondent no.1 did have value. The respondent no.1 did have value. The respondent no.1 did have certain certain certain material on their record such as the material on their record such as the material on their record such as the District District District Valuation Officer’s report, one sale Valuation Officer’s report, one sale Valuation Officer’s report, one sale instances instances instances of the adjoining property namely flat of the adjoining property namely flat of the adjoining property namely flat no. no. no. 3 of Taragni Apts and certain notings of the 3 of Taragni Apts and certain notings of the 3 of Taragni Apts and certain notings of the inspecting inspecting inspecting Assistant Commissioner of Income Tax. Assistant Commissioner of Income Tax. Assistant Commissioner of Income Tax. On On On utilising this material or by resorting to any utilising this material or by resorting to any utilising this material or by resorting to any other other other method such as obtaining valuation report method such as obtaining valuation report method such as obtaining valuation report from from from the District Valuation Officer, the the District Valuation Officer, the the District Valuation Officer, the respondent respondent respondent no.1 could have certainly first no.1 could have certainly first no.1 could have certainly first determined determined determined the fair market value of the flat at the fair market value of the flat at the fair market value of the flat at the the the relevant date. Then they would have compared relevant date. Then they would have compared relevant date. Then they would have compared the the the price the petitioner paid for the flat. Had price the petitioner paid for the flat. Had price the petitioner paid for the flat. Had the the the price being less by 15% or more than the fair price being less by 15% or more than the fair price being less by 15% or more than the fair market market market value, then probably they could have taken value, then probably they could have taken value, then probably they could have taken further further further steps in the matter, there would have been steps in the matter, there would have been steps in the matter, there would have been rebuttal rebuttal rebuttal presumption of attempt of evade tax etc. presumption of attempt of evade tax etc. presumption of attempt of evade tax etc. This This This important exercise as said above was important exercise as said above was important exercise as said above was essential essential essential but, was not resorted to and is but, was not resorted to and is but, was not resorted to and is conspicuously conspicuously conspicuously absent. absent. absent. 9. 9. 9. Mr.Asokan’s submission noted earlier that Mr.Asokan’s submission noted earlier that Mr.Asokan’s submission noted earlier that 8 earlier earlier earlier to the decision in the case of Vimal to the decision in the case of Vimal to the decision in the case of Vimal Agarwal Agarwal Agarwal there was no such practice is a lame there was no such practice is a lame there was no such practice is a lame excuse. excuse. excuse. We have mentioned above as to why the We have mentioned above as to why the We have mentioned above as