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2016 (5) TMI 1056 - ITAT KOLKATA

2016 (5) TMI 1056 - ITAT KOLKATA - TMI - Scope of Assets u/s 2(ea) of Wealth Tax Act, 1957 - inclusion of residential building let out and only for brief period the property was vacant - Letting out period is less than 300 days - Held that:- It could be appreciated that the Ďassetí which was taxed u/s 2(ea)(i) of the Act was legally in existence only for a period of 92 days during FY 2005-06. In the circumstances, it was not possible to let the said property for period of at least 300 days in FY .....

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for residential purposes.

The subject mentioned property which has been let out would not fall within the ambit of taxable asset u/s 2(ea) of the Act - Decided in favor of assessee.

Inclusion of jewellery without giving effect to debts owed in relation to jewellery - Held that:- During the year in which Jewellery was owned, there was no increase in share capital and reserves and surplus during those relevant assessment years - on the contrary, we find that the loan funds h .....

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Shri Mahavir Singh, Judicial Member And Shri M. Balaganesh, Accountant Member For the Appellant : Shri D.S.Damle, FCA Amit Agarwal, ACA, ld. ARs For the Respondent : Shri Sallong Yaden, Addl. CIT, ld. Sr.DR ORDER Shri M. Balaganesh, AM This appeal of the assessee arises out of the order of the Learned CWT(A)- VIII, Kolkata in Appeal No. 449/CIT(A)-VIII/Kol/09-10 dated 12.9.2011 against the order of assessment framed for the Asst Year 2006-07 by the Learned AO u/s 17/ 16(3) of the Wealth Tax Act .....

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sment and in that view of the matter the assessment framed u/s 17/16(3) was bad in law and deserves to be quashed. 3. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) as well as the AO erred in holding that the immovable property at New Delhi qualified as an 'asset' within the meaning of Section 2(ea)(i) of the W.T. Act, 1957. 4. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) and well as the AO failed to ap .....

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Delhi was not a residential property within the meaning of Section 2(ea)(i) and on that basis not having brought to wealth-tax the said property, the AO was unjustified in law in assessing the value of New Delhi property in AY 2006-07 even though there was no material change in the facts of the case. 6. For that on the facts and in the circumstances of the case and in law and without prejudice to the Ground Nos. 4 & 5, since the immovable property was let for the entire period since it was p .....

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e to wealth-tax. 8. For that on the facts and in the circumstances of the case and in law, the CIT-(Appeals) as well as the AO were unjustified in attributing own funds to the extent of 25.70% of the value of jewellery & motor car on pro-rata basis, although the appellant had sufficiently established that the assets were financed out of loan funds. 9. For that on the facts and in the circumstances of the case and in law and without prejudice to the Ground Nos. 7 & 8, the CIT (Appeals) as .....

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nt reserves the right to add to, alter or amplify the above grounds of appeal. 3. During the course of hearing , though the Learned AR started questioning the legal aspect of framing reassessment u/s 17 of the Act without disposing off the objections of the assessee by way of a separate speaking order, later on stated that the legal grounds are not pressed before this tribunal. The same is taken as a statement from the bar. Hence the ground nos. 1 & 2 raised by the assessee are dismissed as .....

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existing was old, the assessee obtained sanction plan from New Delhi Municipal Corporation (NDMC) for construction of a new residential building. After the permission was obtained for construction of new building, the old structure was demolished and a new residential building was constructed. The construction of new building was in progress till F.Y. 2005-06. Since the contruction of the building was not completed till 31.3.2005, the Learned AO did not initiate any wealth tax assessment procee .....

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to conditions specified in the letter of approval. The assessee was directed to comply with the conditions prescribed within 60 days failing which the Provisional Completion Certificate was liable to be revoked. On fulfillment of the conditions specified which included payment of regularization charges of ₹ 2,88,433/- on 29.12.2005 and the payment was tendered on the close of December 2005. Once the conditions prescribed in the Provisional Completion Certificate were complied with by end D .....

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,16,83,790/- with effect from FY 2008- 09. It was therefore submitted by the assessee that as on 31.3.2006, the said property was not in the nature of a building and thereby not a taxable asset u/s 2(ea) of the Act. It was argued that the subject mentioned land under construction was not subjected to wealth tax upto Asst Year 2005-06 by the revenue and hence by adopting the principle of consistency, the value of land together with its construction in progress could not be brought within the ambi .....

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had been let out immediately when the same is ready to be occupied and available to be let out based on provisional completion certificate. Hence it was argued that the assessee has made substantive compliance to the provisions contemplated in exceptions to section 2(ea) of the Act and even on that count, the assessee should not be invited with the levy of wealth tax on immovable property. Without prejudice to the above, it was further claimed that the assessee had made huge borrowings for the .....

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rtible debentures in the assessee company. Moreover, the Learned AO observed that the entire rentals of ₹ 18,00,000/- was not received by the assessee prior to 31.3.2006 and it was remaining as receivable in the balance sheet of the assessee. He further observed that the Rent Agreement was executed by the assessee on a plain paper signed purportedly by one director of the sasessee company and counter signed by one Power of Attorney Holder of alleged tenant Sri Lakshmi Niwas Mittal, which w .....

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ity. 4.3. The Learned AO did not agree with the contentions of the assessee on the aspect of bringing the immovable property within the ambit of taxable asset u/s 2(ea) of the Act. The Learned AO adopted the cost of construction of the said property as its taxable value as per provision of Rule 3 (2nd proviso) of Schedule III to Wealth Tax Act, 1957 by adopting the ratio of own fund in the total assets as worked out below:- Share capital - ₹ 45,24,36,100/- Unsecured loan - ₹ 130,74,5 .....

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e submissions made before the Learned AO also argued that the Learned AO had determined the value of property at ₹ 121,74,54,478/- and thereafter applied ratio of own fund involved thereon. The assessee objected to the adoption of value of ₹ 121,74,54,478/- which admittedly included the value of ₹ 40,81,92,382/- towards value of Electrical Equipments which at best be categorized only as Plant and Machinery and not in Buildings. According to assessee, the items included under El .....

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is not in dispute that the subject mentioned asset as on the valuation date is a residential building which has been let out to Sri Lakshmi Niwas Mittal. But the letting out has been done only from 1.1.2006 by the assessee and hence the same is let out for less than 300 days and thereby the assessee is not eligible for exemption u/s 2(ea)(i)(4) of the Act. He argued that the purposive construction rule need not be applied in a taxing statute which needs to be viewed strictly. 5. We have heard t .....

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wealth tax on the subject mentioned asset in the assessment year under appeal. We find that whether the issue of building under construction would fall under the ambit of wealth tax has been decided in favour of the revenue by the decision of the Hon ble Apex Court in the case of Giridhar G.Yadalam vs CWT reported in (2016) 65 taxmann.com 148 (SC) dated 24.7.2015. Hence by placing reliance on the said apex court judgement, we dismiss the ground nos. 3,4 & 5 raised by the assessee. 5.1. We fi .....

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tificate need not be adjudicated upon herein by us as the same is not in dispute . 5.2. It is not in dispute that the said property was let out to Sri Lakshmi Niwas Mittal from Jan 2006 onwards. It is not in dispute that the assessee had duly offered the rental income from the subject mentioned property from Jan 2006 onwards as its income from house property which is stated to have been accepted by the Learned AO in the Income Tax Proceedings. 5.3. We find that the Finance Act 1992 brought about .....

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With a view to stimulating investment in productive assets, it is proposed to abolish wealth tax on all assets except certain specified assets. The term assets will include guest house and residential houses and farm houses but does not include a house which has been allotted to a company to an employee having a gross annual salary of less than ₹ 2 lacs. It will also not include a house for residential purpose which forms part of the stock in trade. Accordingly, effective from AY 1993-94, .....

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ere being unfairly taxed, on the footing that they are unproductive assets . The legislature appreciated that investment in residential property which is let out for residential purpose is a productive asset and therefore entitled for exemption from the charge of wealth tax. Accordignly in the Finance (No.2) Act, 1998, amendment was made in section 2(ea)(i) of the Act by enacting clause (4) which provided that any residential property which was let out for a period of atleast 300 days in a year .....

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tax would not be levied on such residential property that has been let out. Therefore, while construing the meaning of sub-clause (4) of section 2(ea)(i) of the Act, it has to be kept in mind that the intention of legislature is that wealth tax is not to be levied on productive assets. 5.4. We find from the memorandum explaining the provisions of Finance (No.2) Bill, 1998, it will be apparent that in the legislature s opinion, the Wealth tax was not to be levied on productive assets as also in .....

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nimum 300 days out of 365 days comprised in a calendar year which preceded the valuation date. The memorandum explaining the provision of the Finance Bill thus show that the said exemption was granted on the basis of logical premise that let out properties are productive assets and therefore if the property remains productive for substantial part of the relevant previous year , then the exemption should be granted. As such when the exemption provision was enacted by the Parliament based on a sou .....

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as let out by the assessee for residential purposes and since then the property is being continuously used for residential purposes. Moreover, the taxability of assets u/s 2(ea) of the Act is determined based on the status of the asset remaining as on the valuation date. Hence the crucial test is what is the nature of the asset as on the valuation date i.e whether it is a productive asset or unproductive asset. It is not in dispute that the property continued to be let out to the same tenant (i. .....

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rent of ₹ 5 lacs plus service charges of ₹ 1 lakh per month. As on the valuation date, the asset is in the nature of residential property yielding rental income thereby making the asset a productive asset. Hence viewing the same from the intention of the legislature read with its Explanatory Memorandum, the subject mentioned immovable property deriving rental income is to be construed as a productive asset and hence no wealth tax could be levied on the same. 5.5. We find that the pr .....

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ear. The property has been rented during the entire period from the date from which it was ready to be occupied. The following list of dates and gist would prove the facts better:- 21.11.2005 - Date of issuing provisional completion certificate by New Delhi Municipal Council (enclosed in page 21 of paper book) directing the Assessee to fulfill certain conditions. 29.12.2005 - Letter by assessee to New Delhi Municipal Council intimating them Of complying with the conditions stipulated vide letter .....

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) 26.4.2006 - Date of issuing Completion Certificate by New Delhi Municipal Council (enclosed in page 28 of paper book) For the sake of convenience, the letter dated 26.4.2006 issued by New Delhi Municipal Council is reproduced herein below:- NEW DELHI MUNICIPAL COUNCIL DEPARTMENT OP ARCHITECTURE & ENVIRONS PALIKA KENDRA : NEW DELHI No.CA/BP22 Aurangazeb Rd/D-1469-72 dated 26/04/06 COMPLETION CERTIFICATE Whereas Sh, S.K. Sharda, Director. Gentex Merchants Pvt. Ltd. 22, Aurangzeb Road, New De .....

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ARCHITECT Sd/- (RAJEEV SOOD) (Architect) Copy of the above is forwarded to Sh. S.K. Sharda, Director. Gentex Merchants Pvt , Ltd. 22, Aurangzeb Road, New Delhi. COMPLETION CERTIF1CATE APPROVED VIDE CHAIRPERSON S ORDER DTD. 21.11.2005 . From the above, it could be noticed that the provisional completion certificate issued vide chairperson s order dated 21.11.2005 have been converted into final completion certificate by New Delhi Municipal Council on fulfillment of necessary conditions by the asse .....

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necessary for the assessee to satisfy the prescribed conditions in the literal sense , as according to them, the express language used by the legislature while enacting clause (4) was capable of being interpreted only in one manner and there was no scope for any intendment while interpreting the exemption provision of the Act. We hold that having regard to the peculiar facts and circumstances of the case involved in the year under appeal (i.e AY 2006-07) , it is necessary to adopt a purposive i .....

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od of 92 days, the property was let out for residential purposes for a period of 90 days ( i.e 1.1.2006 to 31.3.2006). Hence it could be safely concluded that the assessee had substantively complied with the provisions contemplated in sub-clause (4) of section 2(ea)(i) of the Act. We also find that expecting the assessee to let out the property for a minimum period of 300 days in a year in these facts and circumstances, would only result in impossibility of performance on the part of the assesse .....

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rform it, without there being any default on his part, and there is no remedy for him, the law will in general, excuse him. When the obligation is one implied by law, the impossibility of performance is a good excuse, say, ImpotentialExcusantLegem . It was further argued that even under the Contract Act dealing with private rights and obligation of a party to the agreement, the contract is deemed to be void on account of impossibility of performance (section 56). The law regards the order and co .....

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the property was completed and made available for letting out on 30.12.2005 and immediately with effect from 1.1.2006 it was let out, it has to be construed that effectively the assessee had let out for 99% of the period available and hence eligible for exemption u/s 2(ea)(i)(4) of the Act. Hence if the purpose test is applied to the facts of the case, it could be appreciated that residential building qualified for exemption u/s 2(ea)(i)(4) of the Act. 5.6. It is a settled legal proposition tha .....

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certain limits to have resort to the aid of all extraneous considerations and certainly to the context of the statute itself, in order to discover which meaning is most palpably intended. The legislature have the power to decide what the policy of the law shall be, and if has intimated, that will should be recognized and obeyed. It is accepted proposition that general words cannot be read in isolation, their colour and content must be derived from the context in which used and for such purpose, .....

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ng a statute is to gather the mens or sentential legis of the legislature. The primary task of the court in interpreting a statute is to ascertain the intention of the legislature, actual or imputed. The intent must of course be gathered from the words used. Hwover, that does not mean the decision should rest on the literal interpretation of the words used, in disregard of all other materials. To arrive at the real meaning , it is always necessary to get an exact conception of the aim, scope and .....

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ch of the alternatives respectively for the purposes of upholding the true intention of the legislature. Such examination has to be done if - (i) the statute leads to absurdity, hardship or injustice presumably not intended or where the language of the statute in its ordinary and grammatical construction leads to manifest contradiction of the apparent purpose of the enactment or (ii) gives rise to inconsistency. 5.6.1. The construction which promotes the objectives for which the enactment is int .....

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strict observance of the particular provision and above all the general scheme of other provisions of which it forms part. In Pepper (Inspector of Taxes) vs Hart reported in (1994) 210 ITR 156 , the House of Lords speaking through Lord Griffiths observed that the days have long passed when the courts adopted a strict constructionist view of interpretation which required them to adopt the literal meaning of the language. The courts now adopt a purposive approach which seeks to give effect to the .....

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rit pervading through the statute. The purposive interpretation has now been judicially recognized by the Hon ble Supreme Court. In Deepal G Soni vs United India Insurance Co (3 SCALE 546 (2004)) , the Hon ble Apex Court emphasized that the object underlying the statute is required to be given effect by applying the principles of purposive construction. It has been held that the law consists of the word that the Parliament has enacted. It is however for the courts to construe that the words and .....

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which are capable of conveying that meaning, it is not surprising if the words are accepted having that meaning. Parliament never intends to enact an ambiguity. Absurdity or anomalous results could not have been intended by the legislature (L.N.Pandey vs Puran Singh- AIR 2004 SC 2303). An intention to produce an unreasonable result is not to be imputed to a statute if there is some other construction available. Where to apply words literally would defeat the obvious intention of the legislation .....

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while doing so, three conditions must be fulfilled in order to justify the recourse:- First, it is possible to determine from a consideration of the provisions of the Act read as a whole precisely what the mischief is, that it is the purpose of the Act to remedy ; - Secondly, it is apparent that the draftsman and Parliament had by inadvertence overlooked, and so omitted to deal with, an eventuality that required to be dealt with, if the purpose of the Act is to be achieved ; - Thirdly, it is po .....

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bsurd or undesired or unintended result not foreseen by the legislature at the time of framing the law. In this regard, we would like to make to the useful reference made to the observations made by Justice P.N.Bhagwati in the case of K.P.Varghese vs ITO reported in 131 ITR 597 (SC) :- A statutory provision must be so considered, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result .....

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or the Home Department (2006) 3 ALL ER 428 at page 438 , in paragraph 42, observed: A purposive construction of an enactment is one which gives effect to the legislative purpose by (a) following the literal meaning of the enactment where that meaning is in accordance with the legislative purpose (in this code a purposive and literal construction) , or (b) applying a strained meaning where the literal meaning is not in accordance with the legislative purpose (in the code called a purposive and st .....

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estments (Torquay) Ltd, 1971 AC 850] provides an instance of this; but in that case the three conditions that must be fulfilled in order to justify this course were satisfied. First, it was possible to determine from a consideration of the provisions of the Act read as a whole precisely what the mischief was that it was the purpose of the Act to remedy, secondly, it was apparent that the draftsman and Parliament had by inadvertence overlooked, and so omitted to deal with, an eventuality that req .....

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ing of a written law which Parliament has passed. 5.6.5. We find that the primary object of section 2(ea)(i)(4) of the Act was to exempt a residential building which for pre-dominant part of the previous year was let and only for brief period , the property remained vacant. In the instant case the property itself came into existence during the relevant year and its existence was for period less than 300 days , then application of section 2(ea)(i)(4) of the Act in its existing form becomes unwork .....

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purposive interpretation of the legal provisions of the Act in consonance with the Explanatory Memorandum to Finance (No.2) Bill, 1998 , residential property let out being a productive asset, we deem it fit to grant benefit of exemption envisaged by clause (4) since for the entire duration of the previous year during which the property was in legal existence, was let for residential purposes. 5.7. Without prejudice to the above, it was argued that for the purpose of computing the value of proper .....

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ed AO cannot challenge the genuineness of the said contract. It was further argued that the Learned AO had accepted the rental income offered by the assessee as such as income from house property in income tax proceedings completed u/s 143(3) of the Act. It was therefore submitted that the assertion of the Learned AO that the rental agreement is not valid is bad in law. These facts and arguments were not controverted by the Learned DR before us. 5.8. In view of the aforesaid facts and findings g .....

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this appeal is as to whether the valuation of jewellery made by the Learned AO and without giving effect to debts owed in relation to jewellery could be brought to wealth tax in the facts and circumstances of the case 6.1. The brief facts of this issue are that the assessee disclosed the value of jewellery at ₹ 4,93,73,084/- and claimed the corresponding liability attributed to it in the return of wealth. During the course of assessment proceedings, the assessee submitted that the jewelle .....

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fund to total funds available which was worked out by him at 25.7% and applied the same on the cost disclosed by assessee at ₹ 4,93,73,084/- and thereafter added a sum of ₹ 98,74,617/- ( 20% of 4,93,73,084/-) and arrived at the taxable jewellery of ₹ 2,25,63,500/-. 6.2. Before the Learned CIT(A), it was argued by the assessee that the Learned AO erred in not recording any reasons for not accepting the valuation and the valuation report given by the assessee from a registered v .....

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which provides that the value of jewellery shall be the estimated price which it would fetch if sold in the open market on the valuation date. It has been further provided that where the valuation exceeds ₹ 5 lakhs during a relevant assessment year, the assessee is required to provide a report of a registered valuer . It was further argued that in case if the Learned AO believes that the value of jewellery declared in the return is less than its fair market value, then the Learned AO is e .....

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e registered valuer as on 31.3.2005 to be used for four subsequent assessment years which includes the assessment year under appeal (i.e Asst year 2006-07). It was further stated that from the list of jewelleries, predominant portion pertains only to diamonds. The assessee also submitted the valuation report from the same registered valuer as on 31.3.2006 before the Learned CIT(A) who valued the same at ₹ 4,18,14,417/- which was also much below the cost of acquisition of the assessee. The .....

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Learned AO. 6.3. Both the Learned AR and Learned DR reiterated the submissions made before the lower authorities. 6.4. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. We find that there is no dispute with regard to the quantity of jewellery offered by the assessee in its return vis a vis assessment made thereon. The dispute is only on valuation. We find that the assessee has submitted the valuation report for jewe .....

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he argument of the Learned AO in this regard is rejected. 6.4.1. It was further stated that from the list of jewelleries, predominant portion pertains only to diamonds. We find that the assessee also submitted the valuation report from the same registered valuer as on 31.3.2006 before the Learned CITA who valued the same at ₹ 4,18,14,417/- which was also much below the cost of acquisition of the assessee. The assessee explained before the Learned CITA that though the price of gold has incr .....

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his action of the Learned CIT(A), in our opinion, is not in accordance with law as he had originally called for a remand report on the same from the Learned AO, and the Learned AO had objected to the admission of the valuation report by adducing certain reasons, and the assessee had also filed its objections to the remand report and had made legal submissions before the Learned CIT(A) for admission of additional evidences. We hold that in case the Learned AO had any doubt in the valuation report .....

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04 to the tune of ₹ 1,30,46,000/- and Asst Year 2004-05 to the tune of ₹ 3,63,27,084/-. Correspondingly we find that there was no increase in share capital and reserves and surplus during those relevant assessment years. On the contrary, we find that the loan funds have increased by ₹ 3,72,25,114/- and ₹ 40,73,83,100/- for the Asst Years 2003-04 and 2004-05 respectively. During the Asst Year 2006-07, there was no introduction of share capital and reserves and surplus had .....

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jewelleries. Hence in any case, there cannot be any addition towards jewellery as a taxable asset u/s 2(ea) of the Act. Accordingly, the ground raised by the assesseee with regard to the issue of jewellery is allowed. 7. The next issue to be decided in this appeal is as to whether the valuation of motor vehicle made by the Learned AO and without giving effect to debts owed in relation to motor vehicle could be brought to wealth tax in the facts and circumstances of the case. 7.1. The brief facts .....

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he motor car as the value for the purposes of determining the net wealth. It was argued that Rule 20 of Schedule III of Wealth Tax Act provides for the method for determining the value of assets which is not specifically prescribed. As per the said Rule, the value should be determined at the price which the asset would fetch if sold in open market. Therefore, it was contended that the book value adopted by the Learned AO is not in accordance with the market value of the car. It was argued that 8 .....

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Act would come into force in the facts of the case which states that fair market value is to be adopted. We find that the Learned AR had made a submission to adopt the value of 80% of insurance value of motor car as the market value of the asset for the purpose of wealth tax subject to grant of deduction of debts owed in relation to the asset. We find that this argument of the Learned AR is squarely covered by the decision of the coordinate bench of Pune Tribunal in the case of Thermax Ltd vs D .....

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t the assessee has adopted lesser rate of depreciation in the books of accounts and due to that reason, the WDV of the vehicles was towards higher side than the WDV as calculated under I.T. Act in the income tax assessment records. Under such a situation, an important observation of Ld CWT(A) is very relevant because he has categorically mentioned that quote "in the absence of insurance value of cars, in my opinion the A.O was justified in adopting the book written down values of cars as th .....

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ested to give the necessary direction, so that the correct value of the vehicles can be determined. From the side of the revenue, Ld. D.R. also had no reservation against this proposition. We have considered their submissions, however, for the sake of ready reference, hereby reproduce the relevant portion from the head-notes of the decision of Samarth Knitters Pvt. Ltd., 60 ITD 657 as follows: Rule 14 of Schedule III applies only in the case when a global valuation of the assets of the business .....

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s subject to Clause (b). This clause provides that if the value of any such asset is determined in accordance with the provisions of this Schedule as applicable to that particular asset or if there are no such provisions, as determined in accordance with rule 20, exceeds the value as determined under Clause (a) by more than 20 per cent, then the higher value is to be taken as the value of the asset. The assessee's contention that rule 14(2)(a) itself is a rule for estimating value of the mot .....

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to 8 for valuing the immovable property, rules 9 to 30 providing for valuation of shares and debentures, rule 17 providing for valuation of life interest and rules 18 and 19 providing for valuation of jewellery. In absence of any specific rule for valuation of motor car, the Assessing Officer has to resort to rule 20 only. The rule 20 provides for valuation of an asset to be the price which in the opinion of Assessing Officer it would fetch if sold in the open market on the valuation date, that .....

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e, the words 'determined in accordance with the provision of this Schedule as applicable to that particular asset has to be given a meaning as provisions other than as provided under clause(a) to rule 14(2). The difference between the written down value and the insurance value being more than 20 per cent of the higher value was to be adopted as the value of the asset. The value of motor cars for the purposes of insurance is adopted after taking into consideration market value of the motor ca .....

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ng at a particular value for the purposes of insurance, market value of motor cars could be reasonably estimated at 80 per cent of their insurance value. So, in the interest of justice, we refer this issue back to the stage of A.O to redetermine the value of the vehicles as laid down in the above cited case. Resultantly, this ground of the assessee may be treated as partly allowed for both the years that too only for statistical purposes. 10. In the result, these appeals are partly allowed. 7.3. .....

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