UNITECH LTD. &ANR. versus UNION OF INDIA & ANR.

6. Upon the submission of the statement under Section 269UA of the Act, the Appropriate Authority issued a show cause notice dated 8. 7.1994 stating that the consideration for the transaction appears to be too low and appears to be underst.ated by more than 15%, having regard to the sale c instance of a land in Hanuman Nagar, an adjoining locality. The show cause notice contains the following table: P.U.C. Sale instance ___ —————–""Pr~op.,_,.e~rt"-y __ 1. File No. 2. Dt. of agreement 3. Description property 4. Consideration: Apparent of 17.3.1994 Land bearing Plot No. 34, 35, 36, Ind. Area Scheme NIT. Dahipura and . Untkhana, Rambag Rd. Nagpur 1,00,40,000/- 1.3.1994 Land at Sur. No. 19 Sheet No. 32, Ward No. 10, Hanuman Nagar, Nagpur. 19, 50,000/- 5. Land Area 2024.22 sq. ft. 736 sq. mtrs. 6. F.S.I. available 7. Rates per sq. ft. of FSI apparent 56473 sq. ft. Rs. 184/- 6877 sq ft. Rs. 283/-

7. It is obvious from·the table that the authority took the price the consideration for the land to be Rs. 1,00,40,000/- (rupees one crore forty thousand) which is the consideration stated by the appellant in the statement as a consideration for H the transfer of subject property i.e. plot nos. 34, 35 and 36 UNITECH LTD. &ANR. v. UNION OF INDIA&ANR. [S. A. BOB DE, J.] admeasuring 2595.152 sq. mtrs. = 27,934 sq ft. It is however, difficult to imagine how or why the authority has considered the consideration to be for 56,473 sq ft (of available FSI). This has obviously resulted in showing a lower price of Rs.184/- pe·r sq ft of FSI and enabling the authority to draw a prima facie conclusion that the consideration is understated by more than 15% in comparison to the sale instance for which the price appears to be Rs. 283/- per sq ft of FSI. If the authority had to take into account the consideration of Rs. 1,00,40,000/- for c 27 ,934 sq ft to a piece of larid as stated by the appellants the rate would have been Rs. 359.41 per sq ft. and the rate of the sale instance would have been Rs. 246.14 per sq ft. The authorities thus committed a serious error in taking the consideration quoted by the appellants for the entire subject D land i.e. 27 ,934 sq ft as consideration for the transfer of the available FSI i.e. 56,473 sq ft. thus showing an unwarranted undervaluation.

8. Moreover, as rightly contended by Shri Mohta the authorities have treated the consideration for subject land, which is an industrial plot, as understated by more than 15% on the basis of a sale instance of a land which is in a residential locality. More importantly, it is obvious that the area of the sale instance is of a much smaller plot i.e. 736 sq mtrs whereas the subject land which is said to have been undervalued is 2,024 sq mtrs. It is well known that the price of a small residential plot would be more than a large industrial plot. The show cause notice which has subsequently been confirmed is vitiated by a gross non-application of mind.

9. In reply to the show cause notice the appellants raised several objections to the alleged undervaluation including the A existence of encumbrances and the aspects mentioned hereinabove. In particular, the appellants pointed out a sale instance of a comparable case approved by the authorities where the FSI cost on the basis of apparent consideration B comes to Rs. 90/- per sq ft. This was in respect of a property in the very same locality in which the subject land is locat_ed. c ORDER .UNDER SECTION 269UD OF THE INCOME TAX ACT

10. The appropriate authority considered the objections filed by the appellants and rejected them by an order dated 29.07 .1994 passed under section 269UD of the Income Tax Act. The authority rejected all the objections taken by the ap- pellants. The authority validated the sale instance relied on in the show cause notice without giving any finding on the spe- cific objections raised. It rejected the sale instance relied on by the appellants of a property in the same locality on the E ground that that property does not have road on the three sides like the property under consideration; there is a nallah carry- ing waste water near that property and it has a frontage of only 12.5 mtrs. It took into account the consideration of Rs. F 1,00,40,000/- and deducted from it an amount of Rs. 24,09,600/- being discount calculated at the rate of 8% per annum since the consideration had been deferred for a pe- riod of three years. It therefore determined the consideration G for purchase of the subject property at Rs. 76,30,400/-.

11. The authority fell intp a gross and an obvious error while conducting this entire exercise of holding that the con- sideration for the subject property was understated in holding H that Vidarbha Engineering has transferred property to the ex- UNITECH LTD. &ANR. v. UNION OF INDIA&ANR. [S. A. BOBDE, J.] tent of 78% to Unitech. There is no warrant for this finding A since Vidarbha Engineering was never to be the owner of the entire built up area. It only had a share of 22% in it. Unitech, which had built from its own funds, was to retain 78% share in the built up area. And in any case the appellants had never stated that the consideration for Rs. 1,00,40,000/-was in_ re- spect of the built up area but on the other hand had clearly stated that it was for transfer of the subject land. Thus, there was no evidence on record nor is any referred to in the order c for coming to the conclusion that Vidarbha Engineering had transferred 78% of the built up area to Unitech and retained 22%. The order of appropriate authority thus suffers from a gross perversity. IMPUGNED JUDGMENT OF THE HIGH COURT

12. By the writ petition before the High Court, the appellants raised several contentions. They maintained that the impugned order did not contain any finding that the consideration for the transaction was undervalued by the parties in order to evade taxes, which is the mischief sought to be prevented. Shri Mohta, the learned senior advocate, maintained that it was necessary for the authority to come to the conclusion that there is an attempt to or in fact an evasion of taxes before directing compulsory purchase. The learned senior counsel referred to a decision of the Bombay High Court in Amarjit Thaparv. S.K. Lau/ & Ors. [2008] 298 ITR 336. The Bombay High Court G observed as follows: · · "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 H C.B.Gautam v. Union of India (1993) 1SCC78, held that c . 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 Ni rm al 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. o 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%, the Appropriate Authority cannot assume jurisdiction under section 269-UD of the Act. The same does not mean that the mere fact that such difference is more than 15% will, automatically, lead to the conclusion that there has been undervaluation of property with the motive of evading tax. In Vimal Agarwal 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". It is not possible to agree with this view in its entirety. UNITECH LTD. &ANR. v. UNION OF INDIA&ANR. [S. A. BOBDE, J.] Undoubtedly one of the objects of the provision is to prevent A evasion of taxes by showing an undervaluation which is more than 15% of the true value of the property and which in turn carries an implication that some portion of the value is not shown in the agreement or the deed but passes by way of s unaccounted money. But it is not possible to say that it must be alleged in the show cause notice or a finding must be rendered in the order that there is evasion of taxes as a sine qua non for its validity. Nor is it possible to hold that the onus c of establishing undervaluation with a view to evade tax is on the revenue. The true position seems to be that a significant undervaluation, greater than 15% below the fair market value raises a rebuttable presumption that there is an attempt to evade taxes. In C.B. Gautam's case6 this Court observed that D an allegation of such undervaluation of more than 15% raises a rebuttable presumption of evasion of taxes which renders an opportunity to show cause necessary. Therefore, such an opportunity must be read into the pro.visions of Chapter XXC. This Court observed in C.B. Gautam's case (supra), as follows: "As we have already pointed out the provisions of Chapter XX-C can be resorted to only where there is a ~ignificant undervaluation of property to the extent of 15 per cent or more in the agreement of sale, as evidenced by the apparent consideration being the lower than the fair market value by 15 per cent o'r more. We have further pointed out that although a presumption of an attempt to evade tax may be raised by the appropriate authority concerned in case of the aforesaid circumstances being established, but such a presumption is rebuttable and • (1993) 1 sec 78 c this would necessarily imply that the parties concerned must have an opportunity to show cause as to why such a presumption should not be drawn. Moreover, in a given transaction of an agreement to sell there might be several bona fide considerations which might induce a seller to sell his immovable property at less than what might be considered to be the fair market value. For example: he might be in immediate need of money and unable to wait till a buyer is found who is willing to pay the fair market value for the property. There might be some dispute as to the title of the immovable property as a result of which it might have to be sold at a price lower than the fair market value or a subsisting lease in favour of the intending purchaser. There might similarly be other genuine reasons which might have led the seller to agree to sell the property to a particular purchaser at less than the market value even in cases where the purchaser might not be his relative: Unless an intending purchaser or intending seller is given an opportunity to show cause against the proposed order for compulsory purchase, he would not be in a position to rebut the presumption of tax evasion and to give an interpretation to the provisions which would lead to such a result would be utterly unwarranted. The very fact that an imputation of tax evasion arises where an order for compulsory purchase is made and such an imputation casts a slur on the parties to the agreement to sell lead to the conclusion that before such an imputation can be made against the parties concerned, they must be given an opportunity to show cause that the undervaluation in the agreement for sale was not with a view to evade tax. Although Chapter XX- UNITECH LTD. &ANR. v. UNION OF INDIA&ANR. [S. A. BOBDE, J.] C does not contain any express provision for the affected parties being given an opportunity to be heard before an order for purchase is made under Section 269-U D, not to read the requirement of such an opportunity would be to give too literal and strict an interpretation to the provisions of Chapter XX-C and in the words of Judge Learned Hand of the United States of America "to make a fortress out of the dictionary". Again, there is no express provision in Chapter XX-C barring the giving of a show- c cause notice or reasonable opportunity to show cause nor is there anything in the language of Chapter XX-C which could lead to such an implication. The observance of principles of natural justice is the pragmatic requirement affair play in action. In our view, therefore, the requirement Of an opportunity to show cause being given before an order for purchase by the Central Government is made by an appropriate authority under Section 269-UD must be read into the provisions of E Chapter XX-C".

13. The High Court has failed to render a finding on the relevance of comparable sale instances, particularly, why a sale instance in an adjoining locality has been'considered to be valid instead of a sale instance in the same locality. The other aspects of the impugned order of the appropriate authority in the earlier part of judgment seems to have been missed.

14. In the result, we find that the appeal deserves to be allowed and is hereby allowed. The impugned order dated 20.02.2004 passed by the High Court of Bombay at Nagpur is set aside. Consequently, order dated 29.07.1994 passed A by the appropriate authority under Section 269UD (1) of the Act is also set aside. There will be no order as to costs. Nidhi Jain Appeal allowed.