TMI Blog1993 (3) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... 83. Revenue is in appeal on the following common grounds, viz. : " (1) The order of the CWT (Appeals) is opposed to law and facts of the case. (2) The CWT (Appeals) erred in cancelling the assessment on the ground that the Assessing Officer had no fresh material enabling him to re-open the assessment. (3) That CWT (Appeals) has failed to consider the fact that even audit objection is an information enabling the Assessing Officer to re-open the assessment. (4) The CWT (Appeals) has failed to consider the fact that no evidence has been produced by the assessee to show that the guest house was used actually as staff quarters for the employees drawing less than Rs. 18,000 salary per year and also to show that the assessee's main activity is of converting lands into plots and selling them as stock-in-trade. " In view of the aforesaid grounds taken, it was prayed that the orders of the CWT (Appeals) should be cancelled and those of the Assessing Officer be restored. 3. The relevant facts are that the assessee, a private limited company, was assessed to wealth-tax for the assessment year 1984-85 on 14-7-1987 under section 16(3) on a net wealth returned Rs. 43,600 which was acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 16(3) and not re-assessment under section 16(3) read with section 17 of the Wealth-tax Act. 6. On appeal the learned counsel for the assessee contended that in view of the decision of the Supreme Court in the case of Indian Eastern Newspaper Society v. CIT [1979] 119 ITR 996, an opinion of the Internal Audit Party of the Income-tax Department on a point of law cannot be regarded as 'information' for the purpose of re-opening an assessment. Reliance was also placed on the decisions in the case of Mohini Bai M. Sarda v. ITO [1991] 190 ITR 541 (Kar.) wherein it was held that formation belief by the ITO must have a nexus to the failure of the assessee to disclose true and full particulars and in the case of Trustees of Seth Hemant Bhagubhai Trust v. CWT [1991] 190 ITR 494 (Bom.) wherein it was held that the AAC's order cannot be construed as "information". Relying on these rulings, it was urged that "information" enabling the Assessing Officer to re-open the assessment under section 17(1)(b) was not present. 7. As regards action under section 17(1)(a), the contention of the learned counsel for the assessee was that there was full and true disclosure in the original returns. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars and therefore, they should have been included in the net wealth for those years. Further the assessee had not disclosed the value of guest house and supervisory quarters and the Assessing Officer ought to have included the value of those assets for these years under consideration. The hearing was fixed on 15-2-1990 before him. The assessee sent reply by letter dated 12-2-1990 which is contained at page 69 of the paper compilation book No. 2. The assessee pointed out that as the assessments have already been re-opened under section 17 of the Wealth-tax Act and returns were already filed, there were no orders which could be revised under section 25 of the Wealth-tax Act. For this proposition, certain case laws were relied on by the assessee. The proposal to revise the orders was also resisted on merits of the case stating that the assessments originally passed were neither erroneous nor prejudicial. Reliance was placed on the observation of Shri C.A. Gulanikar in the Book Law and Practice of Gift Tax and Wealth Tax contained at page 1.482 (1984 edition) wherein it has been observed that "It (wealth tax) should not fall on specified asset held as stock-in-trade". It was also conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "information" regarding law and cannot form basis for re-assessment proceedings. In view of the aforesaid submissions, the learned counsel for the assessee urged that the CWT(A) was quite justified in cancelling the re-assessments for the assessment years 1984-85 to 1986-87 and allowing the appeal for the assessment year 1987-88. 11. The learned departmental representative also filed copies of certain papers and relied on the judgment of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, especially the minority view of the then Justice M. Hidayatullah for the proposition contained at page 196 of the Report that the mere production of evidence before the ITO is not enough and there may be an omission or failure to make a full and true disclosure, if some material for the assessment lies embedded in that evidence which the assessee can uncover but does not. If there is such a fact, it is the duty of the assessee to disclose it. The Supreme Court observed that question of status, agency, the benami nature of transactions, the nature of trading and like matters may not appear from the evidence produced, unless disclosed. The Supreme Court further ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosure of all material facts in the original assessments as well as before the Commissioner of Wealth-tax in connection with revisional proceedings was not relevant. According to him, the touch stone for consideration is the original assessment and the materials furnished at that time. 12. As regards the decision of the Supreme Court in the case of Indian Eastern Newspaper Society relied upon by the learned counsel for the assessee, he submitted that mere mention of the audit party that the non-agricultural land escaped assessment constituted "information" though interpretation of law by the audit party was not information. In the instant case, the assessments were re-opened for non-disclosure of material facts. He made reference to clause (v) of sub-section (3) of section 40 of the Finance Act, 1983 which re-imposed wealth-tax liability on closely held companies, and which deals with a specified asset, namely, land other than agricultural land. In the case of the assessee, non-agricultural land was admittedly held to be stock-in-trade. It is for this reason the Assessing Officer has re-opened the assessment for the earlier three years under consideration and also in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r annum and this information was available before the Assessing Officer before he finalised the reassessments because a copy of order of the CWT was endorsed to the WTO also. 14. We have duly apprised the rival submissions, perused the paper compilations filed by both the parties and carefully considered the impugned orders of the authorities. It is undisputed that at the time of original assessments, the assessee had filed the relevant balance sheet as on 31-3-1984, 31-3-1985, 31-3-1986 and 31-3-1987 based on the report of Shri U.G. Lad of M/s U.G. Lad Co., Chartered Accountants and which were also signed by the Chairman and Director of the company. These documents are contained at pages 9 to 12, 13 to 16, 17 to 20 and 21 to 24 of the paper compilations relating to assessment years 1984-85, 1985-86, 1986-87 and 1987-88 respectively wherein the specified assets are duly disclosed which are necessary for assessment. There is also separate computation chart attached to wealth-tax returns filed for each of these years. The text of section 40 of the Finance Act, 1983 is annexed to the Wealth-tax Act, 1957 which is a self-contained code by itself so far as it relates to levy of weal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the stand taken by the assessee, we have to refer to the contemporaneous proceedings taken in the income-tax. Paper compilation book No. 2 filed by the assessee contains relevant correspondences exchanged between the Assessing Officer and the assessed which would serve as a backdrop of the case. In connection with the assessment for the assessment years 1983-84 and 1984-85, in letter dated 9-3-1988 contained at page 12 of the paper book No. 2 the Income-tax Officer has called for the details of development expenses and also office expenses of Rs. 30,000 each incurred because the revised return was flied for the assessment year 1982-83 by adjusting the interest payment of Rs. 59,446 which was wrongly debited to development expenses account instead of profit and loss account for that year. It is for this reason the ITO has called for a copy of the development expenses account and also clarification of the position. Similarly for the assessment years 1985-86 to 1987-88, the ITO by letter dated 9-3-1989 required the assessee to furnish details of actual expenses incurred on the industrial plots. In particular for the assessment year 1987-88 the assessee has enhanced the value of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceedings were dropped by him on 21-2-1990 and a copy of the said order has been endorsed to the concerned WTO and therefore, nature of the transactions is within his knowledge even before he has finalised re-assessment. The assessee has also left a note for excluding the land held as stock-in-trade by referring to the commentary of the author Shri C.A. Gulanikar which at best represented one view of the law regarding exemption of stock-in-trade from levy of wealth-tax. 19. The record shows that on the very next date, viz., 9-3-1989, when the Assessing Officer called for details of development expenses for the assessment years 1985-86 to 1987-88 and the nature of business activity carried on by the assessee, he has also recorded reasons for re-opening the assessments under section 17(1)(a) for these years for the reason that on account of assessee's failure to disclose fully and truly all materials necessary for assessment, wealth has escaped assessment. 20. The conditions precedent for re-opening the assessment under section 17(1)(a) are that the Assessing Officer should have reasons to believe that wealth has escaped assessment by reason of omission or failure on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unless disclosed. If it be merely a question of interpretation of evidence by an Income-tax Officer from whom nothing has been hidden and to whom everything has been fully disclosed, then the assessee cannot be subjected to section 34, merely because the ITO miscarried in his interpretation of evidence. But it is otherwise if a contention which is contrary to fact is raised and the ITO is set to discover the hidden truth for himself. In the latter case, there is suppression of material facts, or in other words, that lack of full and true disclosure which would entitle action under section 34 of the Act". 21. Applying the aforesaid judicial dictum in the case of the assessee, it cannot be said that the assessee has not disclosed fully and truly the specified asset, namely, guest house. The assessee has not either claimed exclusion or exemption thereof in the statement of wealth accompanying the returns. Therefore, at once the first impulse of the Assessing Officer is to include the aforesaid specified asset in the net wealth of the company, there being no claim of exemption or exclusion coming-forth from the assessee in this regard. In this context, therefore, the questions cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to disclose truly and fully all material facts necessary for assessment. The Supreme Court held that if some material for the assessment lay embedded in the evidence which the revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts ----- the assessing authority might not. If there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted. The relevant portion at page 627 of the Report is required to be noticed: " It is the admitted position that the assessee had not disclosed either by a valuation report or by a statement before the ITO as to what portion consisted of earth work and what portion or proportion consisted of masonry work. For the purpose of calculating depreciation, that indubitably was a material fact. If excess depreciation has been allowed on that basis, i.e., that the entirety of the work consisted of masonry work, income might have been under-assessed. The ITO can reasonably be said to have material to form that belief. That position is also well-settled by the scheme of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. " From the aforesaid extract, it is imperative that the Assessing Officer should record his reasons for initiating proceedings as required under section 148(2). The Assessing Officer has recorded the reasons as under : " By reason of assessee's failure to disclose fully and truly all materials necessary for assessment, the wealth chargeable to tax has escaped assessment within the meaning of section 17(1)(a) of the WT Act. Issue notice under section 17. " From the aforesaid extract, it is seen that the Assessing Officer has not pointed out any primary fact relevant for assessment which the assessee has failed to disclose fully or truly. Therefore, the conclusion drawn by the Assessing Officer that wealth chargeable to tax has escaped assessment under section 17(1)(a) has no rational connection or relevant bearing on the formation of such belief. The Supreme Court at page 437 of the Repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the burden of song of the CWT, as seen from his revisional proceedings. It was also the burden of song of the Assessing Officer in his re-assessment which in fact echoes the view of the CWT reflected in the show-cause notice for the proposed revision of the original assessments made by the Assessing Officer for these years under appeal. Having taken an inference that the non-agricultural land was not liable to tax, the reopening of assessment to include such non-agricultural land as a taxable asset is nothing but mere change of opinion and in the absence of any other material fact coming to the possession of the Assessing Officer, there was no justification for reopening the assessments. As regards the specified asset, guest house, as we have already indicated earlier, this asset was included in the balance sheet filed for these years. The assessee has not claimed any exemption or exclusion thereof. Therefore, the only reasonable conclusion that could be drawn is that the Assessing Officer had applied his mind on this specified asset and yet did not include it in the net wealth. There is no other material or fact in possession of the Assessing Officer as reflected in the reasons re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso to sub-section (3) of section 40 of the Finance Act, 1983 inserted by the Finance Act, 1988 is retrospective in nature and is applicable for the assessment year 1984-85 onwards and applies to all the years under consideration in appeal. As a consequence, it has to be held that the non-agricultural land held as stock-in-trade is exempt from wealth-tax from the assessment year 1984-85 onwards in view of the proviso inserted by the Finance Act, 1988. 27. When this decision was pointed out to the learned departmental representative, he merely stated that the fact that the amendment made by the Finance Act, 1988 was operative from 1-4-1989 only as clarified in the Circular No. 528 dated 16-12-1988 clarifying the amendments was not brought to the notice of the High Court. This submission is only stated to be rejected for the simple reason that the second question referred to their Lordships of the Karnataka High Court for opinion under section 27(1) of the Wealth-tax Act reads as under: " 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amendment to section 40(3)(vi), Finance Act, 1983, by Finance Act, 1988 was declaratory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondence from the concerned Assessing Officer dated 4-2-1993, it is stated that the assessments were re-opened on the basis of audit objection. Therefore, it is clear that the assessments were re-opened under section 17(1)(b) of the Wealth-tax Act and not under section 17(1)(a). Copies of the correspondence filed by the learned departmental representative indicated that the Special Audit Party has pointed out that the amendments made by the Finance Act, 1988 in section (3) of Finance Act, 1983 by inserting proviso are operative from the assessment year 1989-90 as a result of which non-agricultural lands held as stock-in-trade would be exempt from the assessment year 1989-90 onwards. Therefore, we can presume that the Special Audit Party has only pointed out the prospectivity of the said amendment and not retrospectivity as claimed by the assessee. Be that as it may. Inasmuch as the Assessing Officer has completed the original assessments under section 16(3) after considering the very same material and completed the assessments excluding the guest house and non-agricultural land from the net wealth of the assessee, reopening of the assessments to include those specified assets is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after 31-3-1989 and the re-assessment made for the assessment year 1985-86 after 31-3-1990 are clearly barred by limitation of time. Presumably the re-assessment made for 1986-87 is within time. In view of the aforesaid facts and circumstances of the case, the conclusion of the CWT(A) that there were no fresh materials for the Assessing Officer to reopen the assessments is warranted in law and therefore, his decision that even after reopening the assets would have been exempt under section 40 of the Finance Act, 1983 in retrospect is quite justified and is accordingly upheld as it is unexceptionable in view of the ruling of the Karnataka High Court in the case of Prakashi Talkies (P.) Ltd. and the Supreme Court in the case of Indian Eastern Newspaper Society. Equally, the re-assessments are also not justified under section 17(1)(a) as purported to have been taken as per reasons recorded on the file, but the fact remains as admitted by the Assessing Officer in the latest correspondence of the Assessing Officer that the assessments were reopened only on the basis of audit objection. For all these reasons stated above, we uphold the orders of the CWT(A) and reject the common ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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