By TIOL News Service

NEW DELHI, JUNE 09, 2016: THE issue is - Whether Court can issue a direction to the ITD to accept the offer of the Petitioners to pay the present value of the balance sum adjusted for cost inflation index where there was no confirmation of the sale in favour of the Petitioners and the correct current market price can be determined only through re-auction. NO is the verdict.

Facts of the case

Mr. R Singh decided to acquire a residential property in Delhi on ownership basis. He approached Smt. V who owned the property in question. An Agreement to Sell was entered. However with Smt. V again defaulting in performing her obligation to sell the rear portion, Mr. R Singh filed a Suit praying for a perpetual and mandatory injunction. A settlement was entered into between the parties in the pending suit in terms of which Smt. V agreed to sell the entire property to Mr. R Singh for Rs. 56.50 lakh subject to adjustment of Rs. 9.25 lakh already paid by Mr. R Singh. Mr. R Singh filed an application before Respondent No.4 under Chapter XX-C of the Income Tax Act, 1961 in Form No. 37-I seeking clearance for the purchase of the property in question along with the Agreement to Sell. In the statement filed by Smt. V and her children before Respondent No.4, the apparent consideration for the property in question was shown as Rs. 56.50 lakh.

Respondent No.4 issued a show cause notice (SCN) under Section 269 UD (1A) to Mr. R Singh as well as Smt. V and her children stating that the apparent consideration of the property in question was understated. The SCN referred to a sale of a property at Hanuman Road, New Delhi measuring 493.40 sq.m, for Rs. 1.60 crore in terms of an Agreement dated 14th March, 1993. After making adjustment to the sale price, accounting for a time gap of 14 months and for FAR, the fair market value of the property in question was arrived at Rs. 73,72,000 which was 30.47% above the apparent consideration of Rs. 56.50 lakh. The SCN, therefore, gave an opportunity to the parties of being heard and to show cause why a pre-emptive purchase order under Section 269 UD (1) of the Act should not be passed.

Respondent No.4 passed an order under Section 269 UD (1) holding that the sale consideration of Rs. 56.50 lakh did not represent the fair market value of the property and the same was too low. The fair market value of the property in question was determined at Rs. 73,72,495/- and since it exceeded the declared consideration by 30.48%, the conditions of Section 269 UD were held to be satisfied. Accordingly Respondent No.4 passed an order for purchase of the property in question for an amount equal to the sale consideration stated in the document.

Mr. R Singh filed an application before Respondent No. 4 for recall of the above order. Another application was filed for correcting certain errors in the determination of the value of the property. Respondent No.4 rejected the applications. The property in question thus vested in the Central Government and was put to public auction by a notice dated 9th February, 1995.

Mr. R Singh filed writ petition challenging the auction notice. Division Bench passed order directing inter alia that "the sale shall not be confirmed and possession shall not be handed over without further orders from this Court."

The Petitioners participated in the auction and offered the highest bid of Rs. 1.4 crores which was well above the reserve price of Rs. 65 lakhs. In compliance with the terms of the auction, the Petitioners deposited Rs. 16.50 lakh being 25% of the reserved price as earnest money. CCIT informed the Standing Counsel that the Petitioners were the highest bidders and had deposited the earnest money. He was requested to bring the above facts to the notice of the High Court and make a request for orders that the "bid may be confirmed." It was added that it was only after the bid was confirmed that the ITD would seek the balance amount of Rs. 1,23,50,000 from the Petitioners.

Meanwhile, the Petitioners filed application seeking intervention. According to the Petitioners despite requesting Respondent No.4 to communicate to them the convenient date on which they could complete all the formalities of sale of the property in question, no action was taken by the Respondents.

Division Bench upheld the order passed by Respondent No.4 under Section 269 UD (1) and dismissed the writ petition.

Petitioners wrote to Respondent No.4 seeking a convenient date on which the execution of sale deed in favour of the Petitioners upon payment of the balance consideration could be completed. However, there was no response received to the said letters.

Meanwhile a Special Leave Petition (SLP) was filed by Mr. R Singh. Respondent No.4 was informed by the Petitioners of the dismissal of the above SLP and that with the said order all disputes relating to the property in question had ended. Respondent No.4 was, therefore, requested to accept the balance consideration and to complete all formalities of confirming the sale of the property in favour of the Petitioners and in terms of the auction notice. Yet no action was taken. Hence, present writ petition has been filed.

During the course of hearing of the present writ petition an order was passed rejecting the bid of the Petitioners.

Having heard the parties, the Court held that,

++ the reasons given by Respondent No. 3 for rejecting the bid of the Petitioners by the order dated 4th October, 2013 by the CCIT are several. One was that the sale was never confirmed on account of the interim order of this Court. The second was that by the letter dated 11th October 2004, the bidders, in fact, requested for refund of the earnest money along with interest @ 12% per annum. Thirdly, although the ITD had requested the Court to confirm the sale, the Court did not. In its order dated 27th September 2012, the Court enquired whether the ITD was agreeable to re-auction the property. The CCIT contends that the Petitioners were aware of the interim order dated 14th February 1995 and despite that participated in the auction. Fourthly, it is pointed out that while adjusting the value using the cost inflation index the price of the property in 2013 would be Rs. 5.07 crores. Further using the cost inflation index the original sale consideration worked out to Rs. 2.04 crore in 2013. It is mentioned that the present value on balance consideration using the cost inflation index worked out to Rs.4,48,65,348. It is further pointed out that a re-auction is required to discover the current market price. Lastly a reference is made to the terms and conditions in terms of which the CCIT has a right to reject any bid. Reference is also made to Clause 15 of the terms and conditions of the auction under which a bidder is required to pay 25% of the bid amount, i.e. Rs. 35 lakh, within thirty days, i.e. by 16th March, 1995. The CCIT concludes that the earnest money ought to be refunded to the Petitioners in terms of Clause 11 of the terms and conditions of the auction;

++ only one part of the first stage in terms of Clause 13 above was crossed. The next stages of making payment in terms of Clauses 14 and 15 was never reached. The fact remains that there was no confirmation of the sale in favour of the Petitioners. Petitioners cannot insist on the confirmation of the sale in their favour;

++ the Court is also unable to issue a direction to the ITD to accept the offer of the Petitioners to pay the present value of the balance sum adjusted for cost inflation index. In the considered view of the Court, the reasons given by the CCIT for rejecting the Petitioners' bid appear to be valid. Considering the location of the property, it is only through a re-auction that the correct current market price can be determined. It would not be justified to deprive the ITD of realising the best possible price for the property in question;

++ considering that the Petitioners' bid was rejected only in 2013, nearly 18 years after the bid it was first made, it appears to be reasonable to direct the ITD to refund to the Petitioners the earnest money of Rs 16.25 lakhs deposited by them together with interest @ 12 per cent per annum from 15th February 1995, till the date of the refund.

(See 2016-TIOL-1103-HC-DEL-IT)