Per Shri U. S. Dhusia, Judicial Member - Since a consolidated order unde section 269F (6) of the Income-tax Act, 1961 (the Act), had been passed by the competent authority, for the adjoining plots, we combine the appeals and dispose them of by a common order.
2. It was found by the competent authority that Shri Mitter Paul Khanna, s/o Shri Narsingh Dass, Civil Lines, Jalandhar, sold two plots, measuring 18M-104 sq. ft. and 17M-177 sq. ft. of vide two separate registration deeds, No. 2826 of 18-7-1980 and for 2860 of 2-7-1980 for apparent considerations of Rs. 37,000 and Rs. 35,710, respectively. The two plots, total in area to 36 marlas 74 sq. ft. for which a total consideration of Rs. 72,710 was received. The transfer, for both these plots was Shri Gurmit Singh, s/o Kartar Singh of village and P. O.Dolika Sunderpura, Jalandhar. The competent authority apprised himself from a report of the Inspector that another plot in front of the plots in question was sold at the rate of Rs. 3,100 per marla in the year 1977. Therefore, according to the Inspector, after allowing 30 per cent for the time gap and 20 per cent rebate on account of the bigger size of the plot, he worked out the fair market rate of the plot transferred to Shri Gurmit Singh at Rs. 3,224 per marls. At this rate, he worked out the fair market consideration of the plots at Rs. 1,17,210, while the apparent consideration, as indicated above, in the two deeds aggregated to Rs. 72,710. On the basis of this report, which showed that the fair market value exceeded the apparent consideration by the more than 15 per cent the competent authority reached a finding that the acquisition proceedings were called for and he initiated the same in accordance with the provisions laid down in Chapter XX-A of the Act.
The transfer filed his protest agaisnt the finding of the competent authority that the apprarent consideration had been understated in the sale deeds. The sale deeds, according to him, correctly stated the consideration paid for acquiring the two plots. He pointed out in his objections that he plots he had purchased for Shri Mitter Paul were much below the level of the ground level. According to him, there was a depression of 7' to 8' in the plot, which required filling by him. He gave out that an expenditure of Rs. 35,000 and odd, he incurred for filling the plot and removing the depression. For the expenditure incurred from the New Bank of India Ltd., which showed the drawals on different dates from 1-4-1980 to 15-7-1980 aggregating to Rs. 1,02,000.
He also produced a certificate from Shri Mitter Paul certifying that he had charged a rate of Rs. 2,000 per marls for effecting the sale of two plots to the transfer, Shri Gurcharan Singh. He also referred to certain sale instances to show that the rate at which he had purchased the plot was the fair market rate and that there was no understatement in the sale deeds. But the competent authority was not satisfied with his pleas and, in his view, the correct rate could be estimated at Rs. 2,000 per marls. According to this, rate the fair market value of the plot would come to Rs. 90,888 for the undeveloped plot. Realising this to be the fair market value, according to him, one could not help finding that there was understatement of the consideration in the sale deeds. He passed an order under section 269F (6) on 10-8-1983 to acquire the two plots. The transfer felt aggrieved and is in appeal before the Tribuna 3. The learned counsel for the transfer has assailed the order passed under section 269F (6) on several grounds. One of the grounds, on which he had sought to assail the order, is that there was no material, valid in the eye of law, which could have justified or led the competent authority to have reason to believe that there was understand of consideration in the sale deeds. According to him, the only material before the competent authority was the Inspectors report dated 10-3-1981 on which he formed his belief that the fair market value of the property transferred, was more than the consideration stated in the sale deeds. There was no other material with the competent authority.
According to him, this report of the Inspector was a bald report, which could not be considered as a proper material for leading the competent authority to find that the consideration was understated. There was no proper description of the dimension of the plot regarding the length and breath of the plot. There was no description about the shape of the plot, which also affects the valuation of the plot. There was no description about the condition of the plot. It did not appear according to him that the Inspector had visited the site. Otherwise, he would not have failed to notice that the plot was filed and boundary had been erected. If he had made any local inquires, he would have found out that the plots were not level with other plots, surrounding plots. The assessee had to incur a lot of expenditure which had been accepted by the competent authority. Therefore, he made the estimate of the fair market value on the basis of the rate of the adjoining plot, without noticing the fact that when he had purchased the plot, the plot being greatly depressed, the transfer had to incur an expenditure of about Rs. 35,000 to Rs. 40,000. If the expenditure over filling is taken out from the fair market value, assessed by the Inspector, it will decrease the value to a little over Rs. 75,000, which will not show that the aggregate consideration of Rs. 72,700 paid by the assessee, was an understatement within the meaning of Chapter XX-A which entitled the competent authority to proceed to acquire the plots.
Therefore, according to the learned counsel, such an ill-informed report by an Inspector could not form a proper or valid material in the eye of law to enable the competent authority to have reason to believe that there was understatement of the consideration. He also referred to the certificate of the seller, Shri Mitter Paul Khanna, who had certified that the plot was sold at Rs. 2,000 per marla. The competent authority therefore, was not justified in ignoring the material brought on record by the transfer, and proceed on the basis of report, which could not be considered a valid material in the eye of law. He further made out a plea that the competent authority did not record a finding that the understatement was effected with the object of facilitating reduction or evasion of the liability of the transferor or the transfer in the matter. No doubt, the competent authority has noted that understatement was done to facilitate the reduction or evasion of the liability of the transferor, but his remark cannot amount, without there being any material, to show that the same amounted to a finding the eye of law. He, therefore, objected to the assumption of the jurisdiction under section 269C of the Act to issue notice under section 269D of the Act and set the process for acquiring the two plots as provided in the Act. On the other hand, the learned departmental representative submitted that the Supreme Court has held, that, for acquiring satisfaction, there must be some material, but is was not necessary that teh Court should question he adequacy of teh material in this respect. It was not open to assail the satisfaction of the competent authority on the ground that there was no adequate material.
The adequacy of the material could not be looked into by the Courts. He therefore, rebutted the plea advanced on behalf of the assessee that authority had erroneously assumed jurisdiction to proceed under section 269C to acquire the proper satisfaction for understatement of the consideration in the sale deeds.
4. Having considered the facts on record, we cannot turn down the plea on the transfer that the competent authority had no valid material in the Inspectors report to deprive reason to believe that the consideration had been understated in the two sale deeds. A bare look at the Inspectors report would confirm the allegation of the learned counsel for the teansferee that he had not visited the site and had made out the report on the basis of the information, collected by him, regarding the adjoining plot. If he had visited the plot, he would not have failed to refer to the improvement made in the plot. He would not have failed to refer the depression in the plot, which had required the transferee to undertake the expenditure for its filling and which the competent authority himself has accepted. There is no whisper of this aspect or of development in the report of the Inspector. If he had considered this aspect, he would not have found that the consideration was understated in the two sale deeds. He had worked out the cost of the plot at Rs. 1,17,710 as on 10-3-1980. Taking out the cost of the improvement, effected by the transferee, it would give an amount which would not be far remote from the consideration stated in the sale deeds. Looked at from the point of view, there would be no basis to justify the proceedings to acquire the two plots. Besides, we find that, in this report there is no light available regarding the exact location of the plot. It is mentioned that the plots are measuring 36 marlas and 74 sq. ft. and are on Sodal Road, Jalandhar. There is no reference to the neighborhood or the locality of the plots. There is no description of the exact site of the two plots given in this report.
There is no reference to the shape of the plots. There is no information available, as we have already indicated about the condition of the plots as it requires filling, at a considerable expenditure undertaken by the transferee, a fact, which have been accepted by the competent authority. The value of a plot depends mainly on three factors, viz., location, its shape and condition and the neighborhood.
There is no information available regarding any of them. There is no mention that there were two plots which had been sold together to one transferee. There is no light why the two plots had to be sold to one transferee. Was it because, either of the plots could not be sold separately because of any inherent defect in the plots, say for example, arising from the smallness of their size that the transferor had a find a buyer who would be willing to take both the plots. It is common knowledge that such plots did not fetch very good rate.
Therefore, we cannot turn down the plea of the transferee that the report of the Inspector could not provide a material valid in the eye of law, which could justify the competent authority to have reason to believe that the consideration in the sale deeds was understated. As has been correctly stressed that the term Reason to believe indicate the state of mind, which cannot be equated with reason to suspect or surmise. We also cannot turn down his second plea on the issue that no finding, as we understand the expression to indicate, has been recorded by the competent authority that the understatement was done with the object of facilitating the reduction or evasion of the liability of transferor or the transferee. There must be a clear and conclusive finding, based on material to show that evasion of tax liability by the transferor or the transferee was the object of understatement. Unless there was a finding based on material, the prerequisite for assuming jurisdiction under section 269C for the issuance of the notice to acquire the properties cannot be fulfilled. In this view of our finding, it is not possible to uphold the action of the competent authority to acquire three properties which he had initiated without fulfilling the prerequisites prescribed in the Act for taking any action to acquire the property under Chapter XX-A. Accordingly, we cancel the order of the competent authority and direct that the properties should be released forthwith if already acquired.