B.C Patel, J.:— In this petition, the petitioners have challenged the order passed on October 31, 1995, by the appropriate authority exercising the powers vested in it under section 269UD(1) of the Income-tax Act, 1961.

2. Petitioner No. 1 (hereinafter referred to as “the vendor”) and petitioners Nos. 2A to 2D (hereinafter referred to as “the confirming parties”) entered into an agreement on July 4, 1995, with petitioner No. 3 (hereinafter referred to as “the developer”) for development of the plot in question, for a consideration of Rs. 74 lakhs. Form No. 37-1 with details in respect of the property in question was filed. On September 22, 1995, the members of the appropriate authority inspected the property under consideration (hereinafter referred to as “the PUC”). The property is located about 250 metres away from Dhyaneshwar Paduka Chowk (Pune).

March 22, 1996:

3. The PUC is an open plot of land abutting 25 ft. wide Dattatrai Dhondiba path connecting DP Road and Ghole Road. These two roads merge into Fergusson College Road. According to the competent authority, the PUC is located in a prime residential area, having frontage of 16.65 mtrs. and is a retainable vacant land under the Urban Land (Ceiling and Regulation) Act, 1976, the vendor's title in respect of the PUC is clear and free from encumbrances. As per Income-tax Rules and law, the discounted value of the PUC comes to Rs. 71,79,430, which gives a net land rate of Rs. 10,335 per sq. mtr. The competent authority issued a detailed show-cause notice as required under section 269UD(1A) of the Act, placing reliance on certain comparable sale instances (hereinafter referred to as “the SIP”). Extracts of important points in the comparable sale instances are as under:

(1) The members of the appropriate authority considered a plot of land located at CTS No. 12190, Shivajinagar. The land area of the SIP-1 is 887 sq. mtrs. on which there is a small built-up bungalow admeasuring 199.66 sq. mtrs. and a garage admeasuring 33.4 sq. mtrs. The scrap value of the structures which were constructed in the year 1971 was estimated at Rs. 3,87,525. The stated consideration of the plot was Rs. 66,50,000. In addition to this the transferee was required to offer to the transferor free of cost a flat having 1,800 sq. ft., the value of which was estimated at Rs. 10,15,000. As such, the total consideration of the SIP-1 was calculated at Rs. 76,65,000. The discounted value of this consideration was worked out at Rs. 74,42,710. This SIP was full of a number of constraints and conditions adverse to the purchaser. Possession of the existing bungalow was to be retained by the vendor and no construction was allowed over the bungalow during the lifetime of the vendor or till such time as they intended to occupy the bungalow provided and then shift to the flat to be provided free of cost by the purchaser. The vendors were supposed to pay Rs. 2,500 per month as the rent of the bungalow to the developer or the proposed society during the period they intended to occupy it. The developer Was supposed to develop the balance area of the plot in which PSI of 522.12 sq. mtrs. was only available. On inspection of the site, the members of the appropriate authority found that the bungalow was constructed in such a manner that the plot could not be developed properly. In spite of all these constraints, the land rate per sq. mtr. was calculated at Rs. 13,565 per sq. mtr. While issuing the show-cause notice, the competent authority was of the opinion that the PUC is superior as the vendor will not occupy any part of the plot or keep any interest in future constructions and the vendor will not come in the way of the development of the plot. In the opinion of the competent authority, the location of SIP-1 was also comparable with the PUC as it is hardly 200 mtrs. off Fergusson College Road and 100 mtrs. off Apte Road. It is indicated in the show-cause notice that though there were several constraints and limitations, the per sq. mtr. rate of consideration of the PUC is lower by Rs. 3,213 as compared to SIP-1, that is to say, that the PUC is lower by about 20 per cent.

4. The second instance indicated in the show-cause notice is an immovable property at Shivaji Nagar, Pune, for which also an agreement for development was entered into on June 3, 1995. This SIP-2 was a land admeasuring 761.81 sq. mtrs. On this plot of land, there was an existing building having built-up area of 659.89 sq. mtrs. Since the developers were going to demolish the existing building, the scrap value of the structure was estimated at Rs. 2,87,600. After deduction of the same from the discounted consideration of Rs. 1,79,46,795 (the stated consideration is Rs. 1,85,00,000), the land rate of this SIP-2 was calculated at Rs. 23,181 per sq. mtr. As per another computation mentioned in the notice, after deducting the depreciated value of the building, the net land rate was calculated at Rs. 20,726 per sq. mtr. This SIP-2 is located 1.5 kms. away from Deccan Gymkhana Chowk and abuts 30 ft. wide Kelkar Road which connects Fergusson College Road and Apte Road. It is about 250 mtrs. off Fergusson College Road and 150 mtrs. off Apte Road. The competent authority has mentioned in the notice that this SIP-2 is similar and comparable with the PUC as well as SIP-1. The land rate of the PUC as compared to SIP-2 is understated by Rs. 12,846 per sq. mtr., i.e, by 125 per cent., as mentioned in the notice. However, it is also stated in the notice that the difference between the PUC and the SIP-2 is that the purchaser is a commercial organisation and as the name suggests, they may construct a hotel on the plot, which is permissible as per the rules of the Municipal Corporation. Considering this, the appropriate authority reduced the land rate by further 30 per cent, for the purpose of comparison with the PUC. Even thereafter, according to the competent authority, the stated price of the PUC is much lower.

5. The appropriate authority has given a third instance of the sale of a property located at 8th road of Prabhat Road, Erandwane, Pune, which is about one km. away from Deccan Gymkhana, 100 mtrs. off Karve Road, 250 mtrs. off Prabhat Road and adjacent to Khinoor Mangal Karyalay. This plot of land admeasures 377.50 sq. mtrs. on which there is a small outhouse having a built-up area of 44.49 sq. mtrs., which, therefore, is virtually an open plot of land, according to the appropriate authority. The stated consideration of the plot was Rs. 53,25,000 which, after discounting as per the rules, was calculated at Rs. 51,52,627. After deducting the scrap value of the out-house, the land rate was worked out at Rs. 13,260 per sq. mtr. Comparing this instance with the PUC, it has been observed that the PUC is understated by Rs. 2,925 per sq. mtr. Compared to this SIP-3, the PUC is understated by 22 per cent. It is further observed that this SIP is comparable with the PUC in terms of development and location. It is further observed that in this SIP, there was limitation of a condition that the developer would not construct a hotel/restaurant commercial complex, or a marriage hall on this plot, but in spite of this, the PUC is understated as compared to this SIP-3.

6. In view of these three instances, the appropriate authority believed that the PUC is understated by more than 15 per cent, of its fair market value and, therefore, called upon the petitioners to state and explain their case so as, to prove that the stated consideration of the PUC is not understated as compared to its fair market value.

7. The petitioners filed a detailed reply, a copy of which along with its annexures is placed on record at annexure “E”. It is pointed out that the PUC has a frontage of hardly 16 mtrs., but an average depth of 41 mtrs. It is further pointed out that leaving a side margin of 10, ft. as per the rules of the Municipal Corporation, property can be constructed on the PUC, but due to less frontage (which is of 32 ft.) there are lots of restrictions on the design and layout of flats to be constructed, and there is hardly any scope for construction of luxurious flats with modern layout. It is also pointed out that the approach road is from the west side, which is the wind direction and, therefore, the flats on the rear side (east) will have light and ventilation problem. From the north and south sides, the PUC is surrounded by multi-storeyed buildings, and, therefore, open terraces attached to the flats shall have less commercial value as the terraces will have no privacy. It is also pointed out that on the eastern boundary, there is a large police colony (Shivajinagar police, lines) and due to the large number of persons staying there, there is environmental, cultural and social constraints as a result of which the properties in this area are not commanding a good price and the area is not preferred by aristocrat people. It has, therefore, been pointed out that the properties coming on this lane, do not command a good price whereas the rates of the properties even on the adjoining lane command a good price. Hence, it is pointed out that the instances cannot be blindly followed. The transferee, therefore, objected to the observation in the notice that the PUC is located in a prime residential area near Fergusson College Road.

8. The petitioners have pointed out in their reply that the PUC cannot be compared with the SIP-1 because the SIP-1 is situated nearer to Fergusson Road and Apte Road, which is the really prime locality of Shivajinagar. Fergusson College Road, and Vaishali Hotel are closely located to SIP-1 and the prestigious Deccan Gymkhana is only five minutes walking distance. SIP-1 has commercial potential whereas the PUC does not have any commercial potential. The PUC and SIP-1 are situated on cross directions from Fergusson College Road and the price cannot be compared. Narrating the family circumstances of SIP-1 that vendor No. 1 is a widow aged about 57 years and vendors Nos. 2 and 3 are non-resident Indians residing at U.K and even vendor No. 1 resides abroad for most of the times, it has been pointed out that the condition of retaining possession of the old bungalow is only systematic drafting but in fact the possession of the bungalow is to be handed over immediately on receipt of the possession of the flat. It is further pointed out that the plot adjoining SIP-1 is also owned by a close relative of the vendors from whom the same developer has acquired development rights of the adjoining plot and, therefore, they are in a position to consume more FSI even without disturbing the existing structure of SIP-1. It has been categorically stated that the developers have got sanctioned the plans by utilising the FSI of the SIP-1 on the adjoining property and they have accordingly advertised the scheme and a brochure of the scheme was also enclosed with the reply. Objections were also raised with regard to the land rate arrived at by the appropriate authority with regard to SIP-1 and detailed calculations based on two different modes were also enumerated. Thus, the comparison of the PUC with SIP-1 was strongly objected to.

9. With regard to SIP-2, it has been pointed out that this property is situated on N.C Kelkar Road, connecting Apte Road and Fergusson College Road and in the next lane towards Deccan Gymkhana. Therefore, it is contended that it has better location and commercial potential even as compared to SIP-1, but the PUC is very much inferior. Apart from this, SIP-2 is a transaction for outright sale of the land with a well-maintained building constructed in the year 1985, which is used as a hospital and can be converted into a hotel with certain renovations. In the absence of any evidence that the building is to be demolished, even the land rate arrived at on such assumption is erroneous, as pointed out in the reply. It has further been pointed out that SIP-2 is purchased by a group running chains of hotels in different aristocrat localities in Pune and they have paid a premium price to purchase this property and the land rate of that property cannot be compared with that of the PUC.

10. As regards SIP-3 it has been pointed out that the same is situated on Karve Road, about 2 kms. away from the PUC. The locality is totally different from that not only of the PUC but also of SIP-1 and SIP-2 and the price equations are entirely different. Referring to the restrictions in the agreements, it is pointed out that professional offices and consulting rooms, which are in great demand in the city, can be constructed. It has further been stated in the reply that the purchaser is a Bombay-based builder who wants an entry in Pune and in such circumstances, this instance is not a normal business transaction.

11. As against the instances cited by the appropriate authority, the petitioner has also cited certain instances, which are hereinafter referred to as “TSI”. The petitioner has referred to TSI-1, a bungalow situated off Apte Road, near Shree Clinic for which the transaction was entered into six months prior to that of the PUC. TSI-I is very closely located to the PUC and is in a better location as compared to the PUC, but is comparable location-wise. The effective land rate of TSI-I as per apparent consideration works out to be less than Rs. 1,000 per sq. ft., as pointed out in the reply.

12. The petitioner has also referred to another instance, TSI-2, which is for sale of an immovable property situated at Bhandarkar Road, Shivajinagar. The agreement is executed in January, 1995. The area of the property is 829.6 sq. mtrs. and there was an old bungalow on the property, which has since been demolished by the developer. The apparent consideration of the transaction was Rs. 81 lakhs, payable partly in instalments and partly in allotment of flats in the scheme of the purchaser-developer. The entire price of the flats was to be adjusted at once and the possession of the flats is to be handed over after two years. It is pointed out that in spite of all these advantages, the land rate per sq. mt. works out to less than Rs. 900 per sq. ft.

13. It was thus urged in the reply that the consideration of the impugned transaction is more than the market rates and in no way understated, and, therefore, the petitioner requested to issue a no objection certificate under section 269UL(3) of the Act. The appropriate authority, however, passed the impugned order at annexure “A” to the petition, compulsorily purchasing the impugned property.

14. Mr. Soparkar, the learned advocate, submitted that the order is arbitrary and therefore requires to be quashed and set aside. He submitted that the contentions raised by the petitioner with regard to SIP-1 have been rejected on the ground that it is nothing but in the nature of wild assumption and there is no evidence that the conditions in the agreement regarding SIP-1 were fraudulent or were not intended to be acted upon by the parties. The appropriate authority further observed that the contract is legally binding on the parties and there is nothing to show that the agreement was drafted with ulterior motive to misguide the appropriate authority. The appropriate authority rejected all the contentions raised by the petitioner and held that SIP-1 is fully comparable with the PUC and is more advantageous because the PUC is free from any drawback and encumbrances whereas SIP-1 had drawbacks and encumbrances.

15. The learned advocate, Mr. Soparkar, also contended that the contentions raised by the petitioner with regard to SIP-2 were also rejected holding that the only advantage of SIP-2 is that it has a potential for use as a hotel and for this factor a discount of 30 per cent, has already been considered. The appropriate authority further rejected the claim that the rate of SIP-2 is only for built-up area and held that in the show-cause notice it was made clear that even if the depreciated value of Rs. 21,57,500 of the building is deducted, the land rate would come to Rs. 20,726 per sq. mtr. Mr. Soparkar, the learned advocate, for the petitioner, submitted that the amount of consideration of SIP-2 as mentioned in the agreement is Rs. 1,85,00,000. Even on the date of consideration, the value of the building was Rs. 21,57,000 and the net value of the land would be Rs. 1,63,43,000 and if the same is divided by the area of the land, i.e, 762 sq. mtrs. the land rate would be Rs. 20,726, If that be so, how at the time of considering the question of market value of SIP-2, could the authorities have dealt with the land rate? According to him, it appears that there are different yardsticks and in different cases, the appropriate authority is applying different yardsticks.

16. He further submitted that for SIP-1 and SIP-2, the agreements have been executed in the first week of June, 1995. According to the appropriate authority, if both the properties are situated in good locality or similar locality, and the price of each property, i.e, SIPs-1 and 2, can be compared with each other (at the time there was no question of the PUC), then how did the authorities compare the rates of both the properties when there is sizeable difference even between the two sale instances cited by the authority? It is pointed out that SIP-2 is far away from the PUC. Mr. Soparkar has placed on record a map. From that, it is clear that SIP-2 and SIP-1 are in the close vicinity while the PUC appears to be away from SIP-1 and far away from SIP-2. SIP-3 is situated in an altogether different area. While so, TSI-1 is between the PUC and SIP-1. SIP-2 and SIP-3 and TSI-2, cannot be taken into consideration for comparison with the PUC because they are situated afar. Mr. Soparkar, the learned advocate submitted that on what basis the appropriate authority has deducted 30 per cent, from the price of SIP-2 so as to arrive at the rate of Rs. 14,508 is not disclosed. No material is placed even before this court as to on what basis for a potential use of a hotel 30 per cent, discount has been taken into consideration. There must be some method to arrive at a conclusion and to calculate 30 per cent, discount. In the absence of that, it becomes very difficult to rely on such a decision, more particularly when the appropriate authority itself, while considering the case of SIP-1 and SIP-2 accepted both the instances as having fair market value. One fails to understand that for the same property, i.e, SIP-2, the appropriate authority on the one hand says that even if the depreciated value of the building is deducted, the land rate would come to Rs. 20,726 per sq. mtr. and, on the other hand, it says that after deducting 30 per cent, from the above land rate, the resultant rate would be Rs. 14,508. Moreover, though the appropriate authority says that the three instances referred to by it are fully comparable, there is vast difference between the rates of these three instances. Land rate of SIP-1 is calculated at Rs. 13,565, of SIP-2 at Rs. 23,181 and of SIP-3 at Rs. 13,260. So far as SIP-2 is concerned, considering the fact that a commercial organisation is purchasing for construction of a hotel on the plot, the land rate is reduced by 30 per cent, so as to fix the land rate at Rs. 14,508. Mr. Soparkar contended that this itself is an arbitrary action and this method is adopted to hold that the transaction of SIP-2 is fair which is in the vicinity of SIP-1. It appears that while examining the case of SIP-1 and SIP-2, a different yardstick is used and while comparing the PUC with SIPs, a different method is adopted. The SIP-2 rate is reduced by 30 per cent, without giving any details of statistics. Mr. Soparkar stated that is it to justify the fair market value of the SIP-1? Looking to the situation of the PUC, why the same cannot be reduced, considering that it is adjacent to police lines and that the plot is not suitable for luxurious flats? In view of the difference, no reliance can be placed on instances, more particularly when the authorities have not at all considered any of the grounds put forth by the petitioner and have not given any reason for rejecting the same for the PUC. So far as the sale instances referred to by the petitioner are concerned, no doubt the transactions are six months earlier to that of the PUC, but on what basis the appropriate authority stated that during the intervening period of six months prices have gone up substantially, and no material whatsoever has been placed to indicate the growth. In the order, the appropriate authority has nowhere held that the sale instances of the properties relied on by the petitioner cannot be compared because the properties are situated at a far distance or at some distance. The appropriate authority held that the areas of these two TSIs are not only inferiorly located as compared to the PUC, but also the transactions are six months old. On what basis, it is stated that the TSIs are situated in inferior locality? The learned advocate pointed out from the map that on Fergusson Road, on the end of Mr. Shirole Road, there is a hotel, next to it, a hospital, leaving by-lane and open plot, Union Bank of India, Apte Road comes. Immediately thereafter there is a hotel, and a lodge and a by lane. TSI-1 is situated on this by-lane. TSI-1 is thus in the vicinity of a hotel, a lodge and a guest house and is thus an ideal place for a hotel. Even then, the appropriate authority, without applying its mind, has observed that it is in an inferior locality. The case of the petitioner is not rejected so far as the sale instances referred to by the petitioner are concerned on the ground of distance but it appears to have been rejected on the ground that the transactions are of 1995. If an index is indicated, then one would know as to what is the rate of growth and what is the upward trend. In the order, it is observed by the appropriate authority that the areas within the two instances referred to by the petitioner are not only inferiorly located as compared to the PUC but also these two transactions are six months earlier to the PUC and, therefore, the fair market value of the PUC should be estimated on the basis of the three sale instances given in the show-cause notice by the Department. On what basis the appropriate authority has come to the conclusion that the two instances referred to by the petitioner are inferiorly located is not stated but it appears that with a view to discard the submissions made by the petitioner, a reason is given that the properties are situated in an inferior locality. It appears that the contentions raised by the petitioner are nowhere reflected in the order and no justifiable reasons are given for rejecting the same. It is essential that reasons must be indicated. If reasons were given, the court may, after considering such reasons, conclude that the reasons are just and proper and may not interfere but in the absence of reasons for rejecting the contentions raised by the petitioner, we are of the view that the authority has acted arbitrarily. Even for giving 30 per cent, deduction on the land rate of SIP-2, no reasons are assigned and the authorities have acted arbitrarily, and there is no proper application of mind. We are, therefore, of the view that the order is arbitrary and is required to be quashed and set aside.

17. In the result, this petition is allowed. The impugned order at annexure “A” is quashed and set aside. The respondents are directed to issue no objection certificate within eight weeks from the date of receipt of the writ.

18. Rule made absolute accordingly, with no order as to costs.