1. The petitioners, Blue Star Limited, a company registered under the Companies Act, is challenging the legality of the notice dated April 30, 1979, issued by the IAC, Acquisition Range II, Bombay, in exercise of the powers under s. 269A of the I.T. Act, 1961. The fact giving rise to the issuance of notice are required to be stated briefly to appreciate the grievance of the petitioners.
2. By an agreement of sale dated March 21, 1972, the petitioners agreed to purchase from M/s. Modern Sixteen Cline Laboratories Pvt. Ltd., the second floor of building admeasuring 5,200 sq. ft. and a portion of land for a parking place for a total consideration of Rs. 3,60,000. The property agreed to be purchased is in a building known as Suhas, at Prabhadevi, Bombay. The petitioners paid the entire consideration on March 22, 1972, and recovered possession of the property agreed to be purchased. The agreement also provided that all the liabilities including municipal taxes in respect of the property were to be borne by the petitioners. The petitioners got the conveyance executed from the vendors on June 29, 1977, and lodged it for registration along with the certificate under s. 230A of the I.T. Act. The conveyance was registered on October 5, 1978. The transaction entered into by the petitioner-company was disclosed to the income-tax authorities at the time of completion of the assessment for the period commencing form the assessment year 1973-74 onwards. The transferor had also disclosed the agreement to sell and the receipt of the consideration to the income-tax authorities, but the ITO purported to treat the vendor as the owner of the property as the conveyance was not complicated. The ITO added the notional income in respect of the property of the vendor for the assessment years 1973-74 to 1975-76. The vendor challenged the order before the Settlement Commissioner, and the Settlement Commissioner by his order dated May 31, 1978, directed that the notional income should be taken as 'nil' in view of the agreement of sale and the receipt of the consideration.
3. By letter dated November 27, 1978, the IAC called upon the petitioners to file the particular in respect of the transaction of purchase, and the petitioners having done that, a notice under s. 269L of the I.T. Act was served upon the petitioner of February 21, 1979, by the Valuation Officer, Unit VI, Bombay, informing the petitioners that the determination of fair market value of the property has been referred to him by the IAC for assessment, on the date of transfer. The Petitioner thereafter received the valuation report calling the property at Rs. 5,48,000 as on June 29, 1977. The petitioners made certain inquires with the Department and the petitioners appeared before the authorities and complained that no notice was served on the petitioners and the gazette in which the notice was published was not made available. Objection raised by the petitioners was overruled and thereafter the petitioners have filed the present petition in this court under article 226 of the Constitution of India.
4. Shri Kolha, learned counsel appearing in support of the petition, submitted that the action commenced by the Department under Chapter XXA of the Act is entirely misconceived as the IAC has commenced proceedings by taking into consideration the value of the property on June 29, 1977, that is the date on which the conveyance was lodged for registration. The learned counsel submitted that the agreement of sale was executed in March, 1972, and the entire consideration was paid by the petitioner to the vendor and that fact was made known to the income-tax authorities immediately. The assessments of both the purchaser and the vendor were completed on the basis of the transfer of the property and what was left was only to get the conveyance registered. Shri Kolha submits that the income-tax authorities never informed that the value paid by the petitioners for the purchase of the property was inadequate or unreasonable. Shri Joshi, learned counsel appearing for the Department, accepted that the IAC of Income-tax had commenced proceedings on the basis of the fair market value of the property as on June 29, 1977. The satisfaction of the IAC that the fair market value of the property exceeds Rs. 3,60,000 which was the consideration for purchase by more than 15% of such consideration is arrived at on a total misconception that the property was transferred on June 29, 1977. It is clear from the facts recited hereinabove that the property was sold on March 21, 1972, and what was only left to be done was execution of the conveyance and the registration thereof. The mere fact that the conveyance was lodged for registration June, 1977, is no ground for the Department to conclude that the value available on that date was the fair market value at the time of agreement of sale. In my judgment, the action commenced by the Department cannot be sustained on the facts of the present case and the notice dated April 30, 1979, is required to be quashed.
5. Accordingly, the rule is made absolute in terms of prayer (a) of paragraph 27 of the petition. In the circumstances of the case, there will be no order as to costs.