TMI Blog1978 (5) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied, he shall serve a notice on the assessee either to attend in person at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the assessee may rely in support of his return ", the WTO, ' G ' Ward, being respondent No. 2, required her to furnish further information and produce documents, accounts and other evidence in respect of her return. The petitioner has stated that in response thereto, her authorised representaive appeared before the said respondent No. 2 produced the necessary bank account, market quotations and balance-sheets of the various companies in which she held the shares and filed before the WTO concerned, the valuation return from the approved valuer in respect of shares in companies, which were unquoted and explained the said return, apart from the basis of the valuation of her assets and as held by her. There has been a categorical statement that the petitioner has fully and truly disclosed before the said respondent No. 2, the material and relevant particulars for the assessment and there was no omission or failure on her part to disclose any material or relevant facts necessary for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business as a whole wherever carried on determined as aforesaid as the income arising from the business in India during the year ending with the valuation date bears to the aggregate income from the business wherever arising during that year. (3) Notwithstanding anything contained in sub-section (1), where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date." Section 17 of the said Act, which is to the following effect : " Section 17. Wealth escaping assessment.--(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 14 of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose fully and truly all material facts necessary for assessment of his net wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in respect of the assessment year 1968-69, all the material and relevant facts were fully and truly disclosed by her before the said respondent No. 2, apart from disclosing all necessary and relevant evidence for necessary formation of opinion, truly and fully, before the said respondent No. 2 and in fact there was no omission or failure whatsoever on her part to disclose fully and truly any material or relevant fact necessary for the assessment in question. She has categorically averred that no wealth chargeable to tax in the relevant assessment orders had escaped assessment as has been alleged. She has also raised the doubt about the due formation of belief by the respondent No. 2 and in fact she has contended that the said respondent No. 2 had no reason at all to believe, which could be the basis for the issue of the impugned notice. However, she by her letter of April 9, 1973, denied categorically the basis and the charges of the notice in question and stated duly that all material facts necessary for the purpose of the wealth-tax assessment for the assessment years were fully, truly and faithfully disclosed by her at the time of the assessment and that the said respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has contended that the notice in question was wholly without jurisdiction or authority of law and the same was issued in excess of jurisdiction, apart from being arbitrary and illegal. These apart, she has contended that the conditions precedent for assumption of jurisdiction under s. 17 of the said Act do not and cannot exist in the facts of the present case. In fact, such conditions have not been fulfilled or complied with. It has further been alleged by the petitioner that the respondent No. 2 is, in fact, by the impugned action seeking to reconsider or review or sit in matters which had been finally decided or concluded at the time of the original assessment order in question, and as such the said respondent was not entitled to or cannot assume any jurisdiction under s. 17 as aforesaid for reconsidering the assessment in question. It has been alleged that the said respondent No. 2 was purporting to assume jurisdiction under s. 17 as aforesaid on a mere change of opinion or with a view to change the method of valuation. The return to the rule of the respondents was filed by the Deputy Director (Inspection) on his behalf and on behalf of the other respondents. It has been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned company on the relevant valuation date and that, as a result of that, net wealth chargeable to tax for the year 1968-69 had escaped assessment. The said deponent has further stated that, in any event, in consequence of information in his possession, which are relevant to the calculation and the value of the net wealth escaping assessment, he had reason to believe that the net wealth chargeable to tax for the year 1968-69 had escaped assessment. He has further stated that the balance-sheet of the said company, as on 31st March, 1968, showed, inter alia, that the company had a wholly-owned (100%) subsidiary by the name of Messrs. Ujjain General Trading Society Ltd., which had huge reserves which were not at all taken into account in the valuation submitted by the petitioner at the time of the assessment. The deponent has stated that if such reserves, which were in fact the reserves of the holding company, i.e., Messrs. Central India General Agency Ltd., had not disclosed all the value of the shares, even if quoted, would have been at least approximately Rs. 277 per share. These apart, the said deponent has further stated that on such bona fide belief, he had issued the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dictates of the superiors and that too for collateral purposes. Mr. Bajoria, after placing s. 17 of the said Act, submitted that since steps thereunder can be taken in the case of, (1) non-filing of return due to omission, and (2) subsequent information coming to the possession or notice of the officer concerned, action in the instant case must be deemed to have been taken under the second limb and as such four years was the period of limitation. The assessment in the instant case for the assessment year 1968-69 was completed on 19th December, 1969, and the purported steps to reopen by the notice in annex. " B " to the petition was taken on 27th March, 1973. It should also be remembered that the relevant valuation date was 31st March, 1968. The reply to the said notice in annex. " C " was filed by the petitioner on 9th April, 1973, stating therein that at the time of the original assessment there was full and true disclosure of all material facts necessary for the assessment of the net wealth of the petitioner for the assessment year in question and there was no omission or escapement of any kind or any default on her part. It was also pointed out by her that the assessment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares would have fetched, if sold in the open market. The original assessment was, however, completed by taking the value of the shares at Rs. 12.63 per share. Mr. Bajoria of course contended that the basis as aforesaid was wrong as admittedly there was true and faithful disclosure by the assessee and the norms for valuing the unquoted shares as admittedly adopted was also wrong. He submitted that the unquoted shares should be valued taking into consideration (1) the yield, (2) break-up value, and (3) capitalised value or average of the two. The real reason for the action under s. 17, it was submitted by Mr. Bajoria, and that also on a reference to the affidavit-in-opposition was the report of the Directorate of Inspection (Inv.) on purported perusal of the balance-sheet of Central India General Agents Ltd. for the year ending 31st March, 1968, and taking into account the further data collected for the purpose of calculating the net wealth. Such special cell of the Directorate concerned appears to have been set up in or about August, 1972, under the Ministry of Finance, for collecting and supplying information and to have a research into the techniques of evasion/avoidance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine the net value of the assets of the business as a whole having regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as may be prescribed ; (b) where the assessee carrying on the business is a company not resident in India and a computation in accordance with clause (a) cannot be made by reason of the absence of any separate balance-sheet drawn up for the affairs of such business in India, the Wealth-tax Officer may take the net value of the assets of the business in India to be that proportion of the net value of the assets of the business as a whole wherever carried on determined as aforesaid as the income arising from the business in India during the year ending with the valuation date bears to the aggregate income from the business wherever arising during that year. (3) Notwithstanding anything contained in sub-section (1) where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date." He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted by Mr. Bajoria, to be not applicable in the case of the petitioner and more particularly when the notice was dated 27th March, 1973, i.e., during the pendency of the earlier circular and the assessment order was made on 19th December, 1969. Thus, it was also contended by Mr. Bajoria that there was no irregularity or laches or failure on the part of the petitioner to have admittedly valued the connected unquoted shares on the average of the two methods and that too on the basis of the first circular, as was in force on the relevant date and time and as such the reasons as mentioned for, the initiation under s. 17 were incorrect and inappropriate. It was in fact submitted that there was no non-disclosure by the assessee, giving jurisdiction to the officer concerned to reopen or initiate proceedings under s. 17 and more so when the basis of the valuation was admittedly furnished. The valuation of Rs. 12.63 per share as made was said to be incorrect and baseless. The basis as disclosed in this proceeding was really the basis as in the 2nd circular, which was not admittedly in force when the assessment in the instant case was completed on the basis of accepting of the valuation st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular, has not done anything wrong and in fact she has acted properly and she duly complied with or fulfilled her obligations and that too when the shares were unquoted. It is also clear from the order in question that the only information which is the basis for reopening was the letter or report dated 20th March, 1973, and as such also the conditions precedent for initiating the proceedings under s. 17 of the said Act were said to be not complied with or fulfilled. It was very candidly stated by Mr. Bajoria that the proceedings in the instant case could have been on the basis of the recordings as referred to hereinbefore, initiated if the shares were quoted and such not being the case and the shares having been specifically mentioned to be unquoted, the entire basis and the initiation was bad, void, irregular and without jurisdiction. To substantiate the statements that the shares were stated and claimed to be unquoted, he also referred to the copy of the statement as produced and which has admittedly, been received by the authorities concerned. In view of the above, it was also contended that the information as received and, relied upon would not enable the authorities concerned t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns in the 2nd circular could not be made effective in this case and that too in view of the facts as mentioned above. These apart, on his submissions on the binding nature of the circulars, Mr. Bajoria further referred to the. determination of the Bombay High Court in the case of Navnitlal Ambalal v. CIT [1976] 105 ITR 735. On the facts as stated hereinbefore that the relief to the assessee was once and initially granted, Mr. Bajoria contended that such relief once granted on consideration of relevant facts, cannot be changed, the more so when the order as made was legal and correct and for that purpose reliance was placed on the determination of the Supreme Court in the case of CIT v. Simon Carves Ltd. [1976] 105 ITR 212. In that case, in the original assessment of the respondent, a non-resident company carrying on business as construction engineers, for the assessment year 1959-60, the ITO invoked r. 33 of the Indian I.T. Rules, 1922, and applying one of the three methods permitted therein, computed its income through or from certain contracts (business connection) in India, at Rs. 16,16,005. Subsequently, the ITO reopened the assessment under s. 147(b) of the I.T. Act, 1961, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 1971, there were four reports regarding under-assessed wealth of the three companies and about the genuineness of the stock exchange quotations of the C.I.I. shares. It was observed in one of the reports that there was vast difference between the Stock Exchange Report value and the break-up value and market value of the shares of C.I.I. Ltd., and that the market quotations were manipulated and based on collusive transactions. The Central Board of Direct Taxes gave directions to Income-tax Officers to take into consideration in all pending assessments the new facts which had been brought out. In spite of these directions, in making the assessment on the trust on January 7, 1972, the Wealth-tax Officer accepted the quotations of the stock exchange. More than a year later, the Director of Inspection (Investigation), of a Special Cell of the Ministry of Finance addressed a letter to the Commissioner of Income-tax, giving details of the investigation and findings of the Directorate about the share transactions of C.I.I. Ltd. and other companies. This letter was forwarded to all Wealth-tax Officers with the Inspecting Assistant Commissioner's endorsement dated March 20, 1973, for favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o confirm them further evidence was necessary. It was in this context that the officer completed the petitioner's assessment for 1968-69, on the basis of the Stock Exchange quotations in January, 1972. Enquiries were carried on to discover evidence and as soon as evidence was available as a result of the new facts discovered by the Special Cell of the Directorate of Inspection (Investigation), the assessment for 1968-69 was reopened. It is true that on a mere change of opinion an assessment cannot be reopened. But there is a distinction between change of opinion unsupported by new information and a change of opinion supported by new information. The instant case was a case of change of opinion supported by new facts or materials or information hitherto unknown to the officer. If it be ultimately found that the notice could not be supported under section 17(1)(a), there could be no doubt that it would be a valid notice under section 17(1)(b). " On the basis of the observations as aforesaid, Mr. Bajoria contended that the difference or dispute in the instant case was whether the shares were quoted or unquoted and since there was no new information, the action in initiating the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares was not proper and due, and not in conformity with the rules for such valuation. For the method of valuation, reliance was placed by Mr. Pal on the determinations in the case of CWT v. Mahadeo Jalan [1972] 86 ITR 621 (SC), wherein it has been observed that the following principles : " (1) Where the shares are of a public company and are quoted on the stock exchange and there are dealings in them, the price prevailing on the valuation date is the value of the shares. (2) Where the shares are of a public company which are not quoted on a stock exchange or of a private company, their value is determined by reference to the dividends, if any, reflecting the profit-earning capacity on a reasonable commercial basis. But if the profits are not reflected in the dividends which are declared and a low earning yield is shown by the company, which is unrealistic on a consideration of the financial affairs disclosed for the relevant year, the Wealth-tax Officer can, on an examination of the balance-sheet, ascertain the profit-earning capacity of the concern and, on, the basis of the potential yield, fix the valuation. In other words, the profits which the company has been making and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able commercial basis ; (ii) its capacity to maintain these profits or a reasonable return for the capital invested ; and in special cases such as investment companies, the asset backing ; (iii) the prospects of capitalisation of its earning in the shape of declaration of bonus shares or where the company is financially and commercially sound, the prospects of issue of further capital where the existing shareholders have a right to apply for and obtain them at a certain price which is generally less than the market value, offering an increased yield on their investment, on the assumption that the company will be able to maintain the same rate or at least increase the aggregate payment of dividends on the increased capital. " In addition to the above, it was further submitted by Mr. Pal that for due valuation of the assets as in the instant case, the shares of the holding company and that of the subsidiary company will have to be clubbed together in the hands of the holding company and in support of his contentions and also for the necessary rules for valuation, he referred to the following portions : " Holding companies For the purpose of differentiation from investment c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then the result of valuation would have been different and that certainly would have justified the initiation of proceedings under s. 17 of the said Act and bona fides of the same. In support of his contentions that the officer concerned had acted duly in the instant case, as he was authorised to act on informations, Mr. Pal relied on the determinations in the case of Anandji Haridas Co. (P.) Ltd. v. S. P. Kushare, STO [1968] 21 STC 326 (SC). In that case, the appellant, a registered dealer, whose " year " for the purposes of the C.P. and Berar Sales Tax Act, 1947, was the year ending October 31, did not submit returns of its turnover for any period after April 30, 1952. On September 13, 1955, the assessing authority issued a notice, inter alia, under section 11(4)(a) for failure to furnish the return for the period January 1, to December 31, 1953, requiring attendance and production of books and documents on September 22, 1955. Similar notices were issued on October 27, 1955, and July 7, 1956, the periods January 1, to December 31, 1954, and January 1, to December 31, 1955, respectively. The appellant took time repeatedly for submitting an explanation. In 1958, fresh notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court as above, according to Mr. Pal, would thus take us to the determination of the Supreme Court in the case of Kalyanji Mavji Co. v. CIT [1976] 102 ITR 287, wherein it has been observed that : " The word 'information' in section 34(1)(b) is of the widest amplitude and comprehends a variety of factors. Nevertheless, the power under section 34(1)(b), however wide it may be, is not plenary because the discretion of the Income-tax Officer is controlled by the words 'reason to believe'. Information may come from external sources or even from the materials already on record or may be derived from the discovery of new and important matter or fresh facts ", and it has also been observed that section 34(1)(b) would apply to the following cases (head note) : " (1) where the information is as to the true and correct state of the law derived from relevant judicial decisions ; (2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer ; (3) where the information is derived from an external source of any kind : such external source would include discovery of new and importa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplied to the petitioner in spite of demand. But they have subsequently been gathered from the disclosure in these proceedings, amongst others. Such initiation appears to have been made on the basis of the records as disclosed and mainly to the effect that the assessee did not furnish any basis for the value of the concerned unquoted shares as shown, and that apart, she did not furnish any material particulars relevant for establishing that the value, as shown, reflected the value which the shares would have fetched, if sold in open market. In their affidavit-in-opposition, the answering respondents have of course shifted the reasons as disclosed earlier and contended that on perusal of the balance-sheet of the Central India General Agents Limited, whose unquoted shares or their value were in dispute and was the basis of the initiation, read along with the report of the Directorate of Inspection (Inv.) and also taking into consideration the further data collected for the purpose of calculating net wealth, it was found and held that there was no true and faithful disclosure by the petitioner of her net wealth chargeable to tax and there was omission or failure on her part to disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be unreasonable. I am of the view that when reasons are recorded, even though they are not required to be recorded, the courts will have to and they can consider such reasons as that would disclose the mind of the officer and the basis for the action under s. 17. On the admitted facts that the officer concerned acted on the basis of the report as mentioned hereinbefore, Mr. Bajoria was justified in his arguments that there was no independent exercise of mind or formation of opinion and the officer concerned, for initiating the proceedings under s. 17, blindly or mechanically followed the said recommendations or report. So it can be safely observed that there was no due formation of opinion and the proceeding was initiated, as mentioned hereinbefore, on a mere change of opinion and the materials as disclosed for holding the necessary opinion were variable as also it should be deemed that there was no application of mind. When the officer concerned, at the time of making the assessment, has given his reasons, on accepting the method adopted by the assessee, the same or the method should be binding on him and in view of the admitted disclosure made in this case, it cannot be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use he happens to change his opinion or to hold an opinion different from his predecessor, on the same set of facts. The determination in the case of ITO v. Bachu Lal Kapoor [1966] 60 ITR 74 (SC) on the facts of this case, in my view, are distinguishable as there, the officer concerned proceeded on the basis of information which came to his possession subsequently, whereas in this case, the assessment was duly completed on necessary disclosure and on evidence and the more so when there is no justification in the submissions of the respondents that the petitioner did not give the due particulars of the unquoted shares. There is further no substance in the submissions of the respondents that the valuation of the unquoted shares as given by the assessee, was not proper and due and was not in conformity with the rules for such valuation. The rules as laid down in the case of CWT v. Mahadeo Jalan [1972] 86 ITR 621 (SC) not being hard and fast rules, they, in my view, will not have any application in the admitted facts and special circumstances of this case. I further find that because of the special facts of this case as mentioned hereinbefore, the theory or rule of asset backing or c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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