Yashwantlal A. Patel vs Inspecting Assistant Commissioner of Income Tax

A.P. Ravani, J.—Though labelled as first appeal in fact and in substance that is a second appeal under the provisions of section 269H of the Income Tax Act, 1961, inasmuch as the first appeal before the Appellate Tribunal is provided u/s 269G of the Act. Second appeal before the High Court can be filed only on a question of law. The appellant-vendor having failed before the lower authority has preferred this appeal.

The appellant-vendor agreed to sell certain rights and interest in the property in question by an agreement dated April 22, 1933. The sale deed was effected on September 20, 1983, in which consideration of Rs. 8 lakhs was shown. The Inspecting Assistant Commissioner received Form No. 37G from from the Sub-registrar concerned. He referred the matter to the District Valuation Officer, who, we are told, is the statutory authority to deal with the valuatio of the properties and is attached to the Income Tax Department. The Inspecting Assistant Commissioner also called for a reprt from the Inspector who submitted the valuation report on May 4, 1984. According to the report submitted by the Inspector, the market value of the property on the relevant date was Rs. 14,86,045. The District Valuation Officer''s report dated May 16, 1984, discloses the valution at Rs. 27,08,330. Since there was variation of more than 15 per cent in the amount of condideration mentioned in the document and the market value as disclosed in the report, the Inspecting Assistant Commissioner initiated proceeding under Chapter XX-A of the Income Tax and notice was published in the Gazette dated June 2, 1984.

Pursuant to the notice, further proceedings were taken and ultimately acquisition order dated April 30, 1986, was passed by the Competent Authority. The vendor (appellant herein), viz., Shri Yashwantal A. Patel, and other vendors preferred appeal before the Appellate Tribunal being Appeal No.I.T. (Acq) A No. 6/Ahd/1986. Similarly, the vendee, Purvi Construction, also preferred appeal being Appeal No.I.T. (Acq) A No. 5/Ahd/1986 before the Appellate Tribunal. The appeal filed by Purvi Construction has been decided by the Appellate Tribunal as per its judgment and order dated December 2, 1986. The appeal filed by the appellant herein has also been decided on the same day. We are told at the Bar that the vendee, Purvi Construction, has not preferred any appeal before this High Court against the judgment and order passed by he Tribunal.

Before the Tribunal, the question as regards the maintainability of acquisition proceedings was raised. It was sought to be argued that the condition precedent for the initiation of the proceedings was not compiled with. It was also sought to be argued that when the proceedings were initiated,only the Inspector''s was available and the Inspector had relied upon an erroneous basis and, therefore, there was no material before the Inspecting Assistant Commissioner on the basis of which proceedings could be initiated. The Tribunal negatived the aforesaid contention holding that at the stage of initiation of proceedings, there should be some prima facie case. initiation means and remains initiation and nothing more and initiation itself is not acquisition.

It was also contended that the total area taken into consideration for the valuation was not correct. In essence, it was submitted that the sale document has not been correctly interpreted and the Tribunal was not right in holding that 363.03 sq. mts. of the basement built by the appellant (delineated within the red line) has also been sold. As far as the method of valuation adopted by the District Valuation Officer is concerned, the Tribunal has accepted the contention and directed that the matter be restored to the Inspecting Assistant Commissioner to take the valuation as indicated in para 12 of its judgment.

In this appeal, the appellant submits that the following three questions of law arise :

"(1) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in holding that initiation of the proceedings was valid ?

(2) Whether, on the facts and circumstances of the case, the Hon''ble Tribunal was right in law holding that at the initiation stage all that is necessary is that there should be some prima facie case when the basis on the which the initiation is done itself was wrong ?

(3) Whether, on the facts and circumstances of the case and in terms of the documents of sale agreement and sale deed executed by the appellant, the Income Tax Appellate Tribunal was right in holding that 363.03 sq. mts. of the basement built up by the appellant (delineated within red line) have been sold ?"

Questions Nos.(1) and (2) are inextricably connected with each other and, therefore, they may be disposed of together. Admittedly, the Inspecting Assistant Commissioner had at least the following materials before him when the acquisition proceedings were initiated.

Sale document.

Inspector''s report.

Even assuming for a moment that the District Valuation Officer''s report was not available at the time when the acquisition proceedings were initiated by the Inspecting Assistant commissioner, then also it cannot be said that there was no material before the Inspecting Assistant Commissioner on the basis of which he could not have formed a''reason to believe'' that the acquisition proceedings should be initiated. It is trite knowledge that in cases where the authority is empowered to exercise powers on the basis of his subjective satisfaction, the scope of judicial review is limited. All that is required to be seen is whether there was some material on the basis of which the authority could have formed the opinion. The sufficiency or otherwise of the material or correctness or incorrectness of the opinion formed by the authority cannot be gone by the court.

Such questions have arisen in matters u/s 147 of the Act. In connection with the proceedings u/s 147 of the Act, the phrase "reason to believe" has been interpreted by the Supreme court and by this High Court also. As per the settled legal position, sufficiency or adequacy of the material before the authority exercising power cannot be gone into by the court. If there is some material on the basis of which the authority concerned could have reasonably come to the conclusion, ordinarily the court would not interfere with the action taken by the authority. All that the court has to see is that the belief entertained by the officer concerned should be founded on reason and not on fancy or speculation and that there should be some material on the basis of which such could have been entertained. The correctness or otherwise of the opinion formed cannot be gone into by the court. This is so because the court is not sitting in appeal over the decision of the authority concerned.

Be it noted that the principle embodied in this provision of the statue is even otherwise implicit. Assuming for a moment that the phrase "reason to believe" is not used in section 269G (269D ?) under which the initial notice is to be issued, then also, if the provision is to be saved, the phrase "reason to believe" will have to be read by necessary implication. No power can be exercised otherwise than in accordance with reason. Exercise of power otherwise than in accordance with such reason would amount to arbitrary exercise of power and, therefore, it would be bad. In a system governed by rule of law, the conferment of power carries with itself an implied obligation to exercise the same reasonably and not in accordance with one''s own fancy or speculation.

On the facts of the case, the Tribunal has come to the conclusion that there was sufficient material before the Inspecting Assistant Commissioner who is the Competent Authority to initiate the proceedings. Whether the material which was in the shape of an Inspector''s report was correct or incorrect or whether it was based on some incorrect facts or otherwise could not have been gone into by the Tribunal. Similarly, it cannot be gone into by the court. At that stage, the Inspecting Assistant Commissioner would be justified in proceeding on the footing that the report submitted by the Inspector was correct and that it was based on correct material. This is so because pursuant to the notice that notice that may be issued, the party affected is required to be given adequate opportunity of being heard. It is always open to the party concerned to show that the belief entertained by the authority is not based on correct facts which are otherwise. If this can be shown satisfactorily, the Competent Authority concerned may change its view. On the other hand, after initiation of proceedings, further material also may be gathered and can be placed before the Competent Authority. At that stage, the Competent Authority can utilise the entire material. At this stage, even if it is shown that the material which was before the Competent Authority at the initial stage was not based on correct facts, it cannot be said that the Competent Authority had no jurisdiction to initiate proceedings.

Learned counsel for the appellant has relied upon the following authorities which were also cited before the Tribunal.

Unique Associates Co-operative Housing Society Ltd. Vs. Union of India and others, .

Commissioner of Income Tax Vs. Arun Mehra, .

In none of the aforesaid decisions, cited by learned counsel for the appellant, it is held that the correctness or otherwise of the material placed before the Competent Authority can be appreciated and can be gone into by the court. This is so because the court is not sitting in appeal over the decision of the Competent Authority. Therefore, it cannot be said that since the Inspector''s report was based on incorrect facts, the Competent Authority had no jurisdiction to initiate proceedings. In view of the aforesaid finding, we do not think that questions Nos. (1) and (2) raised in this appeal and which have been reproduced hereinabove in para 6 arise in this appeal or that any error had been committed by the Tribunal in deciding the same.

Learned counsel for the appellant has submitted that the Tribunal has erred in arriving at conclusion that the part of the basement is also included in the property sold. We have been taken through the conveyance deed and the relevant part of the judgment and order of the Tribunal. We agree with the reasons given and conclusions arrived at by the Tribunal in this behalf. Hence, question No. (3) also does not arise.

Since there was some error in the method adopted by the District Valuation Officer in arriving at the market value of the property, the Tribunal passed the following order : "The matter is restored to the Inspecting Assistant Commissioner to make valuation as indicated above and pass an order according to law. The appeal is allowed for statistical purposes." On this point also, we do not think that the Tribunal has committed any error.

We do not find any error of law in the judgment and order passed by the Tribunal. No question of law arises. Hence, summarily dismissed. Notice discharged.