TMI Blog1996 (4) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,34,491 Less . . Capital and 5,82,100 . Reserves 2,39,229 . . 8,31,329 Value of loan and liabilities . 35,23,162 "Value of loan and liabilities employed in car value Rs. 62,338 35,23,162 4,34,491 x 62,338 = 50,553" Similar deduction was claimed in asst. yr. 1986-87. The AO accepted returned wealth in both the years under s. 16(1) of the Act, vide orders dt. 28th Feb., 1989. 3. Subsequently, the AO found that the assessee was not entitled to deduction of proportionate liabilities, as none of the debts owed by the company were secured on or were incurred in relation to the assets in the hands of the company. The AO initiated proceedings under s. 17 of the Act, by issuing notices dt. 9th March, 1990. The said notices were served on the assessee on 14th March, 1990. The assessee filed returns for both the years on 16th March, 1990. 4. In reassessment proceedings, the WTO rejected the claim of the assessee regarding proportionate liability. It was conceded before the AO that no loan was raised for the purchase of the car. The AO held that, as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble assets, are permissible deductions. In the present case, it has been conceded by the assessee that no loan or debt was incurred for acquiring the motor car, i.e., taxable asset. In the above situation, debts could not be allowed. The case of the assessee was accepted under s. 16(1) of the Act, without application of mind by the WTO. However, as soon as correct facts were discovered and it was found that the deduction was allowed in total disregard of the statutory provisions, notices under s. 17 were issued. The validity of notices is to be judged under the amended s. 17(1) of the Act, which came into force w.e.f. 1st April, 1989. In the new provisions, there are no cls. (a) or (b), as was the position under the unamended section. The AO is to have only reason to believe that the wealth chargeable to tax has escaped assessment (whether by reason of underassessment or assessment at too low a rate or otherwise). It was a clear case of underassessment and thus reassessment was fully justified in both the years. The learned Departmental Representative relied upon the decision of the Hon'ble Madras High Court in the case of M.A. Chidambaram vs. CIT (1995) 216 ITR 175 (Mad). 7. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the rival submissions of the parties. Sec. 40 of the Finance Act, 1983, reintroduced levy of wealth in the case of closely-held companies. The assets which were charged to tax were specified in sub-s. (3) of said s. 40. The net wealth of a company liable to tax was defined in sub-s. (2), which sub-section has already been reproduced above. From the aggregate value of all assets, referred to in sub-s.(3), aggregate value of all debts owed by the company on the valuation date, which were secured on or which have been incurred in relation to the said assets (taxable asset), was to be deducted. In the present case, there is no dispute that the car, which was subjected to tax, was not acquired through loan or other debts secured on such car. The liability claimed also had no relation or nexus with the acquisition of the car. Even the learned CWT(A) in the impugned order has decided the appeal against the assessee on merits. The contention of Sh. Sehgal that all debts should be presumed to be connected with all assets and, therefore, liability should be allowed on proportionate basis, has no force and cannot be accepted. Therefore, on facts, it has to be held that the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the return were a return required to be furnished under s. 14." Although the expression 'reason to believe' has been retained, the other conditions provided under cls. (a) and (b) have been removed. The AO now has only to have reason to believe that the wealth has escaped assessment. It may be on account of any reason and this fact is more than clear from the words put in the bracket, ending with the word 'otherwise'. Thus, it is no more necessary for the AO to show that he has information in his possession and, on account of that information, he has reason to believe that the chargeable wealth had escaped assessment. The question that the action was not based merely on change of opinion but on definite information is not material. By removing cls. (a) and (b), the above requirement of section has been done away. The AO now has unfettered powers to initiate action under s. 17, in case he has reason to believe that the assessable wealth had escaped assessment. Thus, in the changed situation, the case law under old provision, is no more applicable. In the present case, there is no dispute that the assessee had wrongly claimed deduction of proportionate liability, which was not s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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