Income Tax Appellate Tribunal - Allahabad
Deep Chand Jain vs Deputy Commissioner Of Wealth-Tax on 12 February, 1990
Equivalent citations: [1991]36ITD227(ALL)
ORDER
O.P. Jain, Judicial Member
1. Similar points are involved in these appeals and, as such, they were heard together and are being disposed of by a consolidated order.
W.T.A. No. 346 (All.) of 1989:
2. This appeal pertains to the assessment year 1983-84 and is directed against the order of the Commissioner (Appeals) dated 22nd August, 1989. The following grounds have been raised in the appeal:-
1. Because the CIT(A) has erred on facts and in law in confirming and holding the action under Section 17 of the Wealth-tax Act, 1957.
2. Because on a proper consideration of facts and circumstances of the case, there being no 'omission' or 'information' as relevant as essential for reopening of assessment under Section 17, the reassessment proceedings initiated and the assessee framed thereafter is without jurisdiction and bad in law.
3. Because the Commissioner of Income-tax (Appeals) has erred on facts and in law in setting aside the assessment back to the file of the Deputy Commissioner to be refrained as per his suggestions is contrary to facts and bad in law.
4. Because the authorities below have erred on facts and in law in ignoring and the provisions of Section 4(1)(b) and the Rules prescribed therein which are the proper and correct provisions and should have been strictly followed.
5. Because in any case and in all circumstances of the case, the valuation arrived at by the Deputy Commissioner is arbitrary and is highly excessive, without being based on proper materials and facts.
3. The assessee was a partner in the firm M/s Bhagwandas Shobha Lal Jain, Sagar, having 1/9th share in the profits of the firm. In his return of wealth, the assessee had declared the value of his interest in the said firm at Rs. 18,42,924, which was the assessee's capital balance in the firm. Net wealth was shown at Rs. 20,91,900 and the assessment was completed on 8th February, 1984 on the figure as disclosed by the assessee. Thereafter, the IAC (Asst.), Jabalpur, vide his letter dated 10th July 1985, had made a reference to the District Valuation Officer, Jaipur, for valuation of certain godowns and factory shed of the said firm. This reference was made for the assessment years 1982-83 to 1984-85. Thereafter, a valuation report was submitted by the District Valuation Officer, who had valued the said properties for the assessment year 1983-84 at Rs. 1,69,29,000. On getting this information, the WTO had opined that the assessee did not disclose the correct value of his share in the assets of the said firm. He observed that instead of showing the correct valuation in accordance with Section 7 of the Wealth-tax Act, the assessee showed his capital balance in the firm and thus, he had under-stated the value of his share, resulting in escapement of wealth from taxation. He, therefore, initiated proceedings for reopening the assessment under Section 17(1)(a) of the Wealth-tax Act on the ground that the assessee has failed to disclose fully and truly all material facts necessary for assessment of his wealth. He further observed that the letter of the IAC (Assessment), Jabalpur, dated 4th August, 1987 gives the value of the immovable properties of the firm as per the valuation report of the District Valuation Officer, Jaipur, dated 19th May, 1986 and since he has come into possession of the same, the same amounts to information, which was not available at the time of assessment. On the basis of that letter, he believed that the net wealth chargeable to tax has escaped assessment. He, therefore, opined that without prejudice to the reasons mentioned for taking action under Section 17(1)(a), it is a fit case for reopening the assessment under Section 17(1)(b) also and such action is well within the time of four years envisaged under the law. He, therefore, directed the issue of notice to the assessee both under Section 17(1)(a) and Section 17(1)(b) of the Wealth-tax Act.
4. The assessee has objected to the action of the assessing officer mainly on the following grounds:
(i) That action under Section 17 amounts to reviewing the matter by giving it a second thought.
(ii) That for the wealth-tax assessment of the assessee no property of M/s Bhagwan-das Shobha Lal Jain can be referred to a Valuation Officer for valuation.
(iii) That interest of the assessee in the said partnership firm should be taken as his capital balance.
(iv) That assessee's interest in the partnership firm has to be worked out and not any particular asset should be picked up from the balance sheet of the assessee firm.
(v) That the valuation report may be given to the assessee and he should be allowed to cross examine the District Valuation Officer.
5. The assessing officer rejected the contentions raised by the assessee and completed the assessment on 18th March, 1988.
6. The assessee appealed before the Commissioner (Appeals). It was contended on behalf of the assessee that during the original assessment proceedings, the assessee had disclosed fully and truly all material facts necessary for assessment of net wealth and hence Section 17(1)(a)of the Wealth-tax Act could not be invoked, it was also contended that the proceedings initiated under Section 17(1)(a)ofthe Act cannot be converted into the proceedings under Section 17(1)(b).It was also the case of the assessee that the assessing officer did not have any material to believe that the wealth had escaped assessment. It was also contended that no valid reference could be made to a Valuation Officer after completion of the assessment. Violation of the principles of natural justice was also alleged inasmuch as it was pointed out that the assessing officer did not supply a copy of the valuation report to the assessee. The Commissioner (Appeals) agreed with the contention of the assessee that action under Section 17(1)(a)of the Act is not maintainable inasmuch as all primary facts relating to the partnership had been disclosed at the time of the original assessment and it was in the knowledge of the assessing officer that the assessee is a partner of the firm as the assessee had been continuing as partner for the last many years. He, however, rejected the contention that there was no material with the assessing officer for initiating action under Section 17(1)(b). He held that the report of the District Valuation Officer, Jaipur was the 'information' and the same was sufficient for the assessing officer to come to a preliminary and reasonable belief that the wealth chargeable to wealth-tax had escaped assessment. The contention of the assessee that action under Section 17(1)(a) of the Act cannot be converted into one under Section 17(1)(b) of the Act failed to impress the Commissioner (Appeals) inasmuch as the assessing officer had initiated action under Section 17(1)(b) as well. The contention that no reference could have been made to the Valuation Officer after completion of the assessment, the Commissioner (Appeals) held, is not available to the assessee because no such reference was made by the assessing officer. He, however, held that principle of natural justice have not been followed by the assessing officer in arriving at the interest of the assessee in the partnership concern inasmuch as copy of the report of the District Valuation Officer, Jaipur, had not been issued to the assessee although such request was made. He, accordingly, set aside the assessment order and restored the matter back to the assessing officer as regards valuation of godowns and other property belonging to the firm. He also directed the assessing officer to keep the provisions of Sub-sections (1) and (2) of Section 7 of the Wealth-tax Act in full view while making assessment de novo.
7. Assailing the order of the Commissioner (Appeals), Shri Rakesh Garg, Advocate, for the assessee, has argued that simultaneous action under Clauses (a) and (b) of Section 17(1) of the Wealth-tax Act is not permissible. According to him, the assessing officer cannot say that wealth had escaped assessment by reason of nondisclosure of material facts and at the same time hold the belief that even if there was no omission or failure to disclose, wealth has escaped assessment. Belief under Clause (a), according to him, excludes the belief under Clause (b). Shri Garg has argued that the Wealth-tax Officer can proceed only on one belief at a time and two beliefs cannot operate at one point of time inasmuch as the Clauses (a) and (b) of Section 17 contemplate two separate and mutually exclusive jurisdictions.
8. Opposing the above submissions of the assessee, the learned Departmental Representative, supporting the order of the Commissioner (Appeals), has argued that it is open to the assessing officer to have alternative beliefs on the same set of facts. He has pointed out that in the instant case, the assessing officer had initiated action under both the clauses and the law does not prohibit such an action. He has further pointed out that the Commissioner (Appeals) had approved of the action only under Section 17(1)(b) of the Act and in the present appeal only it is to be adjudicated upon whether the action under Clause (b) is sustainable. He has further pointed out that in the notice issued under Section 17 of the Act, a copy of which has been brought on record, the assessing officer did not mention any of the said clauses and the said notice only speaks of the action taken under Section 17. According to him, the issue of notice under Section 17 without specifying the Clause under which the action is being initiated is valid.
9. After giving due consideration to the rival submissions, we are unable to accept the contention advanced on behalf of the assessee. It is true that Clauses (a) and (b) of Section 17(1) contemplate two separate and mutually exclusive jurisdictions. But that does not mean that the same set of facts cannot constitute inference under Clause (a) and information under Clause (b) when they come to the knowledge of the Wealth-tax Officer, which lead into the belief that wealth had escaped assessment. The Wealth-tax Officer may believe that the escapement was due to omission or failure of the assessee to disclose fully or truly all material facts. He may also believe that even if there was no failure or omission on the part of the assessee, the new facts compose information in his possession which call for re-assessment of the escaped wealth. Smt. Nirmala Birla v. WTO [1976] 105 ITR 483 (Cal.) (FB), is an authority for this proposition. This view was followed in Avtar Singh Sandhu v. WTO [1981] 129 ITR 531 (Delhi) and CWT v. Chhatrshal Sinhji D. Zala [1982] 135 ITR 826 (Guj.). Besides, it is apparent from the notice dated 12th January, 1988, which was issued by the assessing officer to the assessee, that it was issued under Section 17 of the Wealth-tax Act and it did not set out the clauses under which the same was issued. In Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638, the Hon'ble Supreme Court had held that it is not necessary or imperative that the notice must specify under which of the two clauses, Clause (a) or Clause (b), the notice is issued. For this reason also, we find no infirmity in the impugned order of the Commissioner (Appeals) whereby he had upheld the reopening of assessment.
10. It was next submitted that original assessment was completed on 8th February, 1984 whereas reference to the Valuation Officer was made on 10th July, 1985. It was argued that no valid reference under Section 16-A of the Wealth-tax Act can be made by an assessing officer after the assessment has been completed. Certain decisions were cited in support of this submission. The argument is undoubtedly sound but the same does not improve the assessee's case, because in the instant case, no such reference was made by the assessing officer after completion of the assessment. It was the IAC (Assessment), Jabalpur, who had made the reference and that reference was made in a case other than that of the assessee. In view of these facts, this argument also is not available to the assessee.
11. It was then argued that valuation report obtained in the case of the firm is the basis for action under Section 17(1)(b) of the Act and no reference was made in the assessee's case. According to the learned Advocate for the assessee, no reason or inter-linking of the material was available to the assessing officer to proceed under the said section. According to him, the action has been initiated only on the basis of suspicion and surmises. As per his submissions, it is not open to an assessing officer to make fishing and roving enquiry and review his previous order. It was also argued that for initiating action under Section 17 there must be a direct nexus or live link between the material coming to the notice of the assessing officer and the formation of his belief that there had been escapement of wealth from assessment. In this connection, reliance has been placed on the undermentioned decisions:-
(1) Madhya Pradesh Industries Ltd. v. ITO [1965] 57 ITR 637 (SC), (2) ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), (3) Acchut Kumar S. Inamdar v. PM. Hajarnavis [1981] 132 ITR 331 (Bom.), and (4) Tulsi Das Kilachand v. D.R. Chawla [1980] 122 ITR 458 (Bom.).
12. In reply, the learned Departmental representative has contended that after completion of the assessment, the assessing officer had come into possession of the report of the District Valuation Officer, Jaipur, which constitutes 'information' within the meaning of Section 17(1)(b)of the Wealth-tax Act and that report was sufficient material for initiation of proceedings under the said Section.
13. On consideration of the rival submissions, we find force in what has been contended on behalf of the Revenue. As already stated earlier, the report of the District Valuation Officer, Jaipur, had been received by the assessing officer after completion of the assessment. On the basis of that report, one can prima facie infer that the value of the assessee's interest in the partnership was much more than what had been disclosed by him in the return. That being so, there was sufficient material in possession of the assessing officer for holding a reasonable belief that the net wealth of the assessee chargeable to wealth-tax has escaped assessment. In the circumstances, we are unable to agree with the contention of the assessee that the action was initiated without any plausible reason or merely on conjectures and surmises.
14. It was also argued that the order of the assessment passed after issue of notice under Section 17 of the Act is bad in law because no conclusive finding has been recorded by the assessing officer on the point as to under which of the clauses of Section 17(1) the assessment is being made. It is true that while completing the assessment under Section 17, the assessing officer did not mention that under which of the clauses of Section 17(1) the assessment was reopened. He has, however, stated that the assessment was reopened under Section 17 because of the assessee's failure to disclose fully and truly all material facts necessary for assessment. As already stated earlier, the ITO had the alternative belief and he had initiated action under both the clauses of Section 17(1). However, in appeal, the Commissioner (Appeals) had approved of the action only under Clause (b). In the given situation, we are unable to agree with the contention of the assessee that non-mention of specific clause, Clause (a) or Clause (b) of Section 17(1) of the Act in the assessment order makes the assessment invalid.
15. In the end, it was argued that interest of an assessee in the partnership firm has to be evaluated in accordance with the provisions contained in Section 4(1)(b) of the Wealth-tax Act and the rules framed thereunder. It has been pointed out that such an exercise was not done in the assessee's case and the value of the partnership business as a whole was not worked out. It was therefore, urged that the Commissioner (Appeals) had no power or jurisdiction to issue the directions as contained in paragraphs 15 & 16 of his order. After going through the order of the Commissioner (Appeals) we find no force in this argument as well. In the said paragraphs, the Commissioner (Appeals) has only referred to the provisions contained in Sub-sections (1) and (2) of Section 7 of the Act and has directed the assessing officer to keep these provisions in full view while making the assessment de novo. We find nothing wrong in such direction.
16. In view of the foregoing discussions, we find no merit in the appeal and the same is accordingly dismissed.
17. [This para is not reproduced here as it involve minor issue.]