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TMI Blog1979 (9) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of arrears of past depreciation on the ground that depreciation was not claimed by the assessee-company in the earlier years, prior to March 31, 1956, as there were no profits against which such depreciation could be set off. Thus, the depreciation was allowed to accumulate from the time of commencement of the business of the assessee up to March 31, 1956, and such arrears of depreciation Rs. 22,06,919, out of which the above mentioned sum of amounted to Rs. 2,10,000 was adjusted against profits in the balance-sheet for the year 1957-58, In this manner, total depreciation to the extent of Rs. 5,09,139 was shown in the balance-sheet for the year 1957-58 and the net depreciated book value of the fixed assets of the assessee-company, as on 31st March, 1958, after deducting the aforesaid depreciation was shown therein as Rs. 38,38,134.32. Similarly, in the balance-sheet for the year 1958-59, a sum of Rs. 1,57,362 was written off as depreciation for the year ending 31 March, 1959, while a sum of Rs. 3,26,969 was provided in the balance-sheet pertaining to the year 1958-59, as contribution towards arrears of depreciation, which was set off against the profits of that year. Thus, besi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance-sheet should be considered as the base, subject to permissible adjustments. After rejecting the contention of the assessee, the WTO made some adjustments in the figures of Rs. 5,09,139 and Rs. 9,87,114, shown as depreciation in the balance-sheets of the assessee, as on March 31, 1958, and March 31, 1959 respectively, and deductions to the extent of Rs. 6,83,28-1 and Rs. 10,35,877 were allowed by the WTO, as deductions in respect of the fixed assets of the assessee, during the respective years. The assessee filed appeals against the assessment orders and the same argument was repeated on its behalf before the AAC at the time of hearing of the appeals. But under an erroneous impression that the portion of the arrears of depreciation actually written off in the profit and loss account was not allowed by the WTO, the AAC directed that the amount of Rs. 2,10,000 be allowed as depreciation in the assessment year 1957-58 and the amount of Rs. 3,26,969 be allowed as depreciation in the assessment year 1958-59. However, when the mistake was realised by the AAC he proceeded to issue rectification orders, restoring the orders passed by the WTO. Then the assessee filed second appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d making such adjustments therein as may be prescribed ; ........" Under sub-s. (1) of s. 7, the value of any asset, for the purpose of the Act, shall be estimated at the price which the same would fetch if sold in the open market on the valuation date. However, in case the assessee is carrying on a business, in respect of which accounts are maintained by him regularly, then instead of proceeding to determine separately the value of each asset held by the assessee in such business, in accordance with the provisions of sub-s. (1) of s. 7, the WTO may proceed under cl. (a) of sub-s. (2) of s. 7 and determine the net value of the assets of the business of the assessee, as the value specified in the balance-sheet of such business, as on the valuation date, after making such adjustments therein, as the circumstances of the case may require. Thus, although under sub-s. (1) of s. 7, the value of any asset will be deemed to be the value which the same would fetch, if sold in the open market on the valuation date, in the opinion of the WTO; yet in order to avoid the complexities involved in determining separately the value of each of the assets of an assessee whose business is running, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, made the following observations : " It is no doubt true that it cannot be an invariable rule that simply because depreciation has been allowed under the Indian Income-tax Act, the same has got to be allowed in determining the net value of the assets on the date of valuation. It must depend upon the facts and circumstances of each case as to whether it should properly be allowed or not in arriving at the net value of the assets. Normally, of course if an asset is used in business for a length of time, it is bound to suffer from wear and tear and consequently depreciates in value. It may, however be that by reason of the increasing price of the asset, the increase in price in the subsequent years of the said asset may more than offset the depreciation caused by the wear and tear of the asset and it may as well be that the market value of the asset in spite of its wear and tear at a given date may be more than the price for which it was bought initially. There must, however, be circumstances to show that. No such material appears to have been either brought before the authorities or considered by them. It cannot, therefore, be said that the Appellate Assistant Commissioner, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the loss in value ". An appeal against the aforesaid decision was preferred before the Supreme Court and while accepting the appeal their Lordships of the Supreme Court in CWT v. Tungabhadra Insustries Ltd. [1970] 75 ITR 196, 199, 200, observed as under : " Under sub-section (1) of section 7 of the Act the Wealth-tax Officer is authorised to estimate for the purpose of determining the value of any assets, the price which it would fetch, if sold in the open market on the valuation date. But this rule in the case of a running business may often be inconvenient and may not yield a true estimate of the net value of the total assets of the business The legislature has, therefore, provided in sub-section (2)(a) that where the is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may determine the net value of the assets of the businsss as a whole, having regard to the balance-sheet of such business as on the valuation date and make such adjustments therein as the circumstances of the case may require. The power conferred upon the tax officer to make adjustments as regard the circumstances of the can may require is also for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the balance-sheet and after making such adjustments as the circumstances of the case may require. It does not contemplate determination of the net wealth, because net wealth can only be determined from the net value of the assets by making appropriate deductions for debts owed by the assessee. " We may here refer to a few more decisions on this question. In CWT v. Raipur Manufacturing Company Ltd. [1964] 52 ITR 482, a Bench of the Gujarat High Court, while dealing with the question of valuation of assets, considered the question as to whether the WTO while proceeding to determine the value of the assets of the assessee under s. 7(2) must accept the written down value, as ascertained by the income-tax authorities, as the final value of the assets, observed as under : " In numerous balance-sheets it is found that several assets are shown at cost. The price at which the same are shown could not possibly be in such circumstances the price which such asset would fetch if sold in the open market on the valuation date. No doubt there is a power given to the Income-tax Officer to make such adjustments as the circumstances of the case may require. It is urged that this power has to be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et. It is, therefore, clear that, on the facts and in the circumstances of the case, the value of the depreciable assets as shown in the balance-sheet of the assessee was not liable to be adjusted with reference to the written down value of such assets as per the income-tax records." In CWT v. Andhra Sugars Ltd. [1966] 62 ITR 841, a Bench of Andhra Pradesh High Court, after a review of the cam decided by the Bombay, Calcutta and Gujarat High Courts expressed its view as follows : " A review of these cases leaves no doubt that wherethe Wealth-tax Officer adopts the global valuation, he has to take the balance-sheet as the basis and make such adjustments as may be necessary. This does not, however, mean that apart from the values given in the balance-sheet the power given to him to make the necessary adjustments must, as a matter of course compel him to adopt the written down value or the depreciation allowed under the Income-tax Act. The written down value of an asset on the valuation date is one thing and the total depreciation allowed in a number of years for the purpose of arriving at the written down value under the Income-tax Act is another. In this case, the itself would sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be adjusted with reference to the written-down value of such assets according to the provisions of the Income-tax Act. This is the view taken by the Gujarat High Court in Commissioner of Wealth-tax v. Raipur Manufacturing Company Ltd. [1964] 52 ITR 482. This case has been referred and followed by the same High Court in Commissioner of Wealth-tax v. New Rajpur Mills Ltd. [1965] 56 ITR 544. These cases lay down the correct law, but this does not mean that in the circumstances of a particular case, if the Tribunal is satisfied, it should not allow depreciation according to the provisions of the Income-tax Act." The case of Andhra Sugars Ltd. [1966] 62 ITR 841 was distinguished on the ground that in that case the assessee had already made adjustments in its books of account to the tune of Rs. 15,42,000 for depreciation and had already claimed deduction of Rs. 18,14,564 towards the difference between the depreciation allowed under the I.T. Act and the depreciation deducted by the assessee from the value of the assets according to the method of accounting followed by it. This court in Ganganagar Sugar Mills' case [1969] 73 ITR 450, agreed with the conclusion arrived at by the Andhra P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities under the Wealth-tax Act that the valuation shown in the balance-sheet is not correct. But in the absence of such a proof the Wealth-tax Officer will be justified in proceeding on the basis that the value shown in the balance-sheet is correct because no one can know the value of the assets of a business more than those who are in charge of the business. In other words, the value of the assets shown in the balance-sheet can justifiably be made the primary basis of valuation for the purpose of the Wealth-tax Act. In other words, it can be taken as prima facie evidence of the value of the assets. Here again the High Court ignoring the ratio of, the decision of this court in Kesoram Industries' case [1966] 59 ITR 767 (SC), as well as, the other decisions of this court, held that the evidence afforded by the balance-sheet cannot be considered as primary evidence or prima facie evidence of the value of the assets of business. " Again in CWT v. Hindusthan Motors Ltd. [1976] 104 ITR 430 (SC), the question of application of s. 7(2)(a) of the Act came up for consideration before their Lordships of the Supreme Court. In that case, in the statement of the case, it was not disputed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Further, in case the assessee wants the written down value to be accepted, it is open to him to establish, as mentioned in that can, by acceptable reason, that the written down value represents the proper value of the assets at the relevant date." The decision of the Calcutta High Court in Mohan Lal Nopany's's case [1970] 78 ITR 435, was also referred to before their Lordships of the Supreme Court in Hindusthan Motor's case [1976] 104 ITR 430, and their Lordships held that the observations made in Mohan Lal Nopany's case must be taken to be restricted to its own facts and they were unable to agree with the other observations made in that decision which were contrary to the observations made by their Lordships in Aluminium Corporation's case (1972] 85 ITR 167. In CWT v. Raghuvanshi Mills Ltd. [1976] 104 ITR 544, a Bench of the Bombay High Court distinguished the two decisions of their Lordships of the Supreme Court in Aluminium Corporation's case [1970] 78 ITR 483 and [1972] 85 ITR 167, on the assets had been revalued by the assessee after making certain adjustments and that in the absence of any evidence to show that the revaluation was incorrect, the value as shown in the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omatically be inferred that the written down value arrived at, according to the I.T. Act should be considered the real value of the assets. The written down value arrived at according to the provisions of the I.T. Act, merely represents notional allowance permissible under the Act but neither as a matter of law nor of right, the assessee could claim without anything more that the any represents the real value of the assets and unless the assessee produces reliable material before the WTO to show that the written down value of the assets was the true value thereof, the value mentioned in the balance-sheet should be normally accepted as the real value of such assets. It has to be borne in mind that the onus is on the assessee to prove by acceptable evidence that the value mentioned in the balance-sheet does not correctly represent the real value of the assets and further to what extent the value mentioned in the balance-sheet should be reduced for arriving at the real value of such assets. As observed by their Lordships of the Supreme Court in the cases referred to above, the assessee is the best person to know about the real value of his assets and it is for him to adduce evidence b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to discharge the onus which rested upon the assessee to establish that the value of the assets shown in the balance-sheet is not the real value of the assets on the valuation date. The observations made ill that case apply with full force to the facts of the present case as well. Merely because a note has been added to the balance-sheets of the two years that there were further arrears of depreciation which could not be provided for in the balance-sheet on account of paucity of profits although a part thereof has been set off against profits of the two years under consideration, it is not sufficient to discharge the burden placed on the assessee to show that the real value of the assets was not the same as the depreciated value as shown in the balance-sheet and to substitute in its place the written down value of the assets arrived at under the I.T. Act. However, it was open to the assessee to produce any material before the WTO to show that the real value of the assets was less than the depreciated value shown in the balance-sheet and further, to show to what extent the value of the assets specified in the balance-sheet was in excess of the real value. Mere submission that the val ..... X X X X Extracts X X X X X X X X Extracts X X X X
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