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TMI Blog1979 (10) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s. 17 of the Act stating that the WTO had reason to believe that the net wealth of the assessee for the assessment year in question had escaped assessment, and calling upon the assessee to file return within five days of the receipt of the notice. The petitioner sent reply to this notice objecting to the reopening of the assessment and requesting that the material on the basis of which the proceedings under s. 17 of the Act were being started be supplied. It is alleged that no reply was received to this letter, and, subsequently, the present petition was filed challenging the notice under s. 17, and a prayer has been made for the issue of a writ of prohibition, restraining the WTO from taking further proceedings consequent to the notice. The assessment file of the petitioner was produced in court, as there was a dispute as to whether action has been taken under s. 17(1)(a) or s. 17(1)(b) and also in regard to the reasons for initiating the proceedings. We have looked into the file, and it is clear that on November 22, 1974, the WTO, Central Circle III, Meerut, passed two orders stating the reasons for initiating proceedings under s. 17. The first order purports to have been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 1970-71, Rs. 42,647 for A.Y. 1971-72 and Rs. 99,771 for A.Y. 1972-73. Further, the assessee did not file a copy of the firm's balance-sheet, either along with the returns or in the course of the aforesaid assessment proceedings, nor did he disclose the aforesaid facts which have now come to light which were material and necessary for the purpose of correct assessment of the value of the assessee's interest in the firm, M/s. Synfibre Sales Corporation. Thus, in consequence of information which has come into my possession, I have reason to believe that the assessee's wealth, chargeable to tax, had been under-assessed and also that the under-assessment was due to the assessee's omission to disclose fully and truly the aforesaid material facts necessary for assessment of wealth for the above mentioned years. In view of these facts, action is necessary under section 17 for the A.Ys. 1970-71, 1971-72 and 1972-73. (For information see valuation file of shares with the WTO). Sd. G. N. Srivastava, Wealth-tax Officer, Central Circle, III, Meerut. Dated 22-11-1974." A perusal of this order indicates that the assessment was being reopened on the ground that the value of the shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scaped assessment. He also contended that the balance-sheet of the firm was a primary document which should have been filed by the assessee along with his returns, in order that the WTO may be in a position to decide the correct evaluation of the assessee's interest in the firm, and, in the absence of the balance-sheet, the assessee could be said to have failed to disclose all material facts necessary for assessment. The case, according to him, was clearly covered by s. 17(1)(a). In any event, it was argued that it will fall under s. 17(1)(b), for, the WTO came to know of the fact that M/s. Synfibre Sales Corporation owned 17,000 shares in M/s. Indofil Chemicals Ltd., and that these shares were valued at their cost price, and not in accordance with r. ID, only on an enquiry made from M/s. Synfibre Sales Corporation, and a perusal of the balance-sheet of these two concerns. Section 17(1)(a) and (b) are in pari materia with s. 34 of the Indian I.T. Act, 1922. Section 17(1)(a) and (b) of the WT Act are in the following terms: "17. (1) If the Wealth-tax Officer (a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be patently erroneous, for all that is necessary is that the ITO should entertain the belief that the net wealth chargeable to tax has escaped assessment. In view of the recent decision of the Supreme Court in the case of CIT v. Simon Carves Ltd. [1976] 105 ITR 212, these observations must be read with a rider. In Simon's case, their Lordships of the Supreme Court observed as under (p. 219): " The order made by the Income-tax Officer at the time of the original assessment was a legally correct order and was not vitiated by any error. The absence of an error in that order would justify the inference that the present is not a case of income escaping assessment. There is necessarily an element of error in cases of income escaping assessment mentioned in section 147(b) of the Act of 1961. Such error resulting in income escaping assessment becomes manifest in the light of information coming subsequently into the possession of the Income-tax Officer." Thus, if the earlier order is legally correct, the WTO could not initiate proceedings under s. 17 of the Act, for, if lie does so, it can be said that the belief formed by him is not a reasonable one. As has been noticed earlier, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 418 (All) and CWT v. Laxmipat Singhania [1974] 97 ITR 188 (All). In Padampat Singhania's case, the assessee, as karta of a Hindu undivided family, had 1/3rd share in a partnership firm and his interest in the firm had to be calculated for purposes of computing his net wealth. In computing the net wealth of the firm, the ITO ignored the arrears of income-tax due against the firm, in view of s. 2(m) of the W T. Act. It was held that as the net wealth of the firm was being determined and not of the assessee, the provisions of s. 2(m) of the Act could not be relied upon for excluding the income-tax liabilities. It was also laid down that the net wealth of a firm had to be calculated under r. 2 in accordance with commercial principles, and the special provision in the Act for the computation of net wealth cannot be applied for purposes of computing the net wealth of a firm under r. 2. Same is the position in the other case. In Advanced Accountancy by Batliboi, it has been stated on page 574, that fixed assets are to be valued at cost. There is nothing on the record in the case, that the firm, while preparing its balance-sheet, did not value the shares held by it in M/s. Indofil Chem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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