1. This appeal filed by the Revenue is against the order of the CWT(A), dt. 4th March, 1994, for the asst. yr. 1986-87, for which the valuation date was 31st March, 1986.
2. The assessee is a private limited company. The return of wealth was originally filed on 25th March, 1988, in response to the notice under s. 17 served on 15th Jan., 1988, declaring net wealth of Rs. 61,85,100.
The return was subsequently revised on 31st July, 1988, showing net wealth at Rs. 6,32,788. Another revised return was filed on 12th Oct., 1988, declaring net wealth of Rs. 6,88,100. The assessment order was passed on 27th March, 1990, under s. 16(3) wherein the net wealth was determined at Rs. 7,01,000. In the said assessment order dt. 27th March, 1990, the following Office Note was left : "Office Note : The valuation of property at No. 1, Community Centre, Zamrudpur, New Delhi, is pending for decision by the DVO II, IT Deptt. Rohit House, New Delhi, vide V. O.'s letter No. DVO/II/IT/Val. /WT/88-89/280 dt. 28th March, 1989, and this office letter No. 422 dt. 21st July, 1987, received in their office on 8th Dec., 1987. The assessment for asst. yr. 1986-87 for wealth-tax to be modified accordingly consequent upon the report of DVO as stated above." 3. The order under s. 16A(5) dt. 5th Feb., 1991, was received by the Assessing Officer (AO) on 6th Feb., 1991, wherein the said property was valued at Rs. 1,66,88,000. Consequent upon the said order under s.
16A(5), the assessment was reopened vide ordersheet entry dt. 12th March, 1991, and notice under s. 17 was duly served. In response to the said notice under s. 17, the assessee filed return of wealth showing the net wealth at Rs. Nil. Vide letter dt. 10th Aug., 1991, the assessee's Chartered Accountant, Anil Kumar Chopra, contended that reopening of the assessment under s. 17 on the basis of the valuation report of the Valuation Officer (VO) received after the assessment was not justified. It was urged that the valuation report of the VO received after assessment or mere change of opinion regarding the valuation did not justify the reassessment under s. 17. Reliance was placed on the judgments in the cases of Tulsidas Kilachand vs. D. R.Chawla & Ors. (1980) 122 ITR 458 (Bom), Brig. B. Lall vs. WTO (1981) 127 ITR 308 (Raj) and Nusli Neville Wadia vs. Nilkanthan (1985) 154 ITR 447 (Bom). The assessee's counsel further pointed out that the valuation of the VO was not properly done.
4. However, the AO rejected the contentions of the assessee. He held that an order under s. 16A(5) is not a mere change of opinion, but statutory and legally binding order by a responsible officer of the Govt. It is unsound logic to think that an order which if received before passing of order under s. 16(3) is binding and if received after the passing of the order is a mere change of opinion and no indication of wealth escaping income (sic). He further held that whether reopening of case under s. 17 is valid or not or belated valuation report forms adequate reason to believe that the wealth has escaped or not is beyond the jurisdiction of an AO to decide after the case has been reopened.
He, therefore, held that the request of the assessee to drop the proceedings under s. 17 cannot be entertained. He also held that he was legally bound to accept the valuation report under s. 16A(6) of the WT Act. In that view of the matter, he computed the wealth of the assessee in his assessment order dt. 5th Feb., 1993, as under : Rs.as per order under s. 16A(3) 34,93,245 ---------------Less : Wealth-tax liability 2,58,720 --------------- Aggrieved by the said assessment, the assessee preferred an appeal before the CWT(A).
5. Before the CWT(A), the assessee's counsel contended that reference under s. 16A to the VO was unlawful as the same was referred to the Valuation Cell on 7th Dec., 1987, i.e., much before the issue of notice under s. 17 on 15th Jan., 1988. Reliance was placed on the judgments in the cases of Tulsidas Kilachand (supra), Satyendra Chunder Ghose vs.
WTO (1980) 126 ITR 102 (Cal) and Smt. Uma Devi Jhawar vs. WTO (1982) 136 ITR 662 (Cal). The assessee's counsel further objected to the reopening of the assessment and the issue of notice under s. 17 dt.
11th March, 1991, stating that the assessment was completed earlier under s. 16(3) /17 on 27th March, 1990, on the basis of the returns filed along with the report of the approved valuer when the said valuation was accepted by the AO. The subsequent reopening of the assessment under s. 17(1) (a) cannot be valid as the assessee's case did not fall under the circumstances mentioned in s. 17(1) (a). It was also contended that reopening under s. 17(1) (b) was not valid as reference to the VO under s. 16A(5) was not valid and that the valuation report was not an information as contemplated under s. 17(1) (b). It was stated that the valuation report of the VO amounts to mere change of opinion and in support of the said contention, reliance was placed on the judgment in the cases of Calcutta Discount Co. Ltd. vs.
ITO (1961) 41 ITR 191 (SC)) and (1) Gulabrai Hanumanbux & Anr., (2) Keshoram Radheshyam & Anr. vs. WTO (1989) 178 ITR 519 (Gau). The AO was asked to give a report on the factual position in respect of the arguments taken by the assessee before the CWT(A). From the AO's report and also the records, the CWT(A) found that reference was made to the Valuation Cell on 7th Dec., 1987, and that the notice under s. 17 was issued on 15th Jan., 1988. The CWT(A) observed that it was clear that on the date when the reference was made to the VO under s. 16A, there was no proceeding pending before the AO and that the proceedings commenced only on 15th Jan., 1988, with the issue of notice under s. 17 of the WT Act. Accordingly, he held that reference under s. 16A was premature and could not be taken as the basis for the assessment proceedings which commenced much later.
6. The CWT(A) held that the reopening of the assessment was not valid by observing as under : "As regards the reopening of the assessment under s. 17(1) is concerned, it is clear from the facts on record that the assessment was completed on the basis of the valuation report furnished by the assessee. This assessment was also completed under s. 16(3). From the facts of the case and also the assessment order it is apparent that there was no default by the assessee under s. 17(1) (a) of the WT Act as there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the year under appeal. It may, therefore, be examined as to whether the reopening of the assessment under s.
17(1) (b) of the WT Act was valid. The conditions for reopening an assessment under s. 17(1) (b) are that the AO should have reason to believe that net wealth chargeable to tax has escaped assessment and that this belief should be in consequence of information received by the WTO. In the present case, the point at issue, therefore, is as to whether the report of the DVO which was subsequently received would constitute an information for reopening of the assessment under s. 17(1) (b). As has been discussed earlier in this order, the reference to the Valuation Cell under s. 16A was not validly made as there was no proceeding before the AO on the date the reference was made i.e. 17th Dec., 1987. Further, the report in question of Valuation Officer valuing the property at a higher figure cannot be a basis for reopening the assessment under s. 17(1) (b) because the mere fact that the two valuers have given conflicting valuation reports about the true value of certain assets would not be a sufficient ground to reopen the assessment under s. 17(1) (b). In coming to this view, support is derived from the decision of the Bombay High Court in the case of Tulsidas Kilachand vs. D. R. Chawla (1980) 122 ITR 458 (Bom). SLP filed was also dismissed by the Supreme Court (1983) 141 ITR (St) 47. In view of the above facts and circumstances and also the case laws cited on the subject, the reopening of the assessment by the AO under s. 17 and the consequent assessment order are not valid. The assessment order is, therefore, annulled." 7. The Departmental Representative filed a paper book of 7 pages containing, inter alia, the valuation report of the VO dt. 5th Feb., 1991, and the photostat copy of the order-sheet entry dt. 12th March, 1991, containing the reasons for issuing notice under s. 17. The arguments of the Departmental Representative were to the following effect : The AO by his letter dt. 7th Dec., 1987, made a reference under s. 16A to the DVO requesting him to estimate the value of the land and building as on 31st March, 1984, 31st March, 1985 and 31st March, 1986. On that date, IT assessments of the assessee for the asst.
yrs. 1985-86 and 1986-87 were also pending. Hence, reference to the DVO under s. 16A was validly made. Once a report is received from the DVO, it constituted information under s. 17(1) (b). The reasons recorded by the WTO on 12th March, 1991 for issuing notice under s. 17 for the asst. yr. 1986-87 are filed before the Tribunal and they may be perused. In the circumstances, the reopening is valid.
8. The assessee's counsel filed a paper book of 85 pages. The arguments of the assessee's counsel were to the following effect : The notice under s. 17 for the asst. yr. 1986-87 issued by the AO can be seen at page 56 of the paper book. It is dt. 11th March, whereas the reasons for the issue of notice under s. 17 were recorded on the subsequent date, i.e., on 12th March, 1991. Hence, the issue of notice under s. 17 and the consequent assessment are invalid. The AO made reference under s. 16A to the DVO on 7th Dec., 1987. As on that date, no IT assessment for the asst. yrs. 1986-87 and 1985-86 were pending before the AO. The return of income for the asst. yr. 1985-86 was filed on 5th Aug., 1986.
The assessment was completed under s. 143(1) as mentioned in the assessment order dt. 25th Jan., 1988, for the asst. yr. 1985-86 passed under s. 143(3). For the asst. yr. 1986-87 also, the assessment was completed under s. 143(1) on 21st Oct., 1987. For the asst. yr.
1986-87, first notice under s. 17 was served on 15th Jan., 1988. The return was filed on 25th March, 1988. The WT assessment for the asst.
yr. 1986-87 was completed under ss. 16(3) /17 on 27th March, 1990. So it cannot be said that reference under s. 16A was made by the AO to the DVO during the pendency of the WT assessment proceedings for the asst.
yr. 1986-87. This is because the reference under s. 16A was made on 7th Dec., 1987 well before the issue of notice under s. 17 on 15th Jan., 1988. As mentioned in "Law and Practice on Wealth-tax and Valuation" 3rd Edition at page 1/500, reference under s. 16A is applicable only in respect of assessments which are pending. Several cases have been cited under this heading "applicable only in respect of assessments which are pending". The cases cited are Onkarji Kasturchand (HUF) vs. WTO (1982) 135 ITR 188 (MP), Smt. Uma Devi Jhawar vs. WTO (supra), CWT vs. Smt.
Gulnar Marfatia (1986) 159 ITR 311 (Raj), Smt. Bella Cajeton Travesso vs. WTO (1987) 166 ITR 49 (Bom), CWT vs. Ravi Cheloor (1989) 178 ITR 640 (Ker), Subhakaran Rajgharia vs. CWT (1990) 185 ITR 233 (Cal), V. K.Jain vs. WTO (1992) 193 ITR 89 (All), Laxmi Devi Jain vs. WTO (1992) 193 ITR 154 (All), CWT vs. Shriniwas Sharma (1993) 204 ITR 587 (Raj).
For the asst. yrs. 1984-85 and 1985-86, the WT returns were filed on 11th Nov., 1987. That too, for the asst. yr. 1984-85, the return was filed in response to notice under s. 14(2) of the WT Act. It can be said that reference under s. 16A was valid only with reference to the asst. yrs. 1984-85 and 1985-86. Further, in the reasons recorded for reopening the assessment for the asst. yr. 1986-87, it was not mentioned by the AO whether the reopening was being done under s. 17(1) (a) or s. 17(1) (b). Hence, the reopening is not valid. The CWT(A) has fully discussed about the non-applicability of s. 17(1) (a) and 17(1) (b) in the present assessee's case and came to the conclusion that the reopening of the assessment under s. 17 and the consequent assessment order dt. 5th Feb., 1993, are not valid. His order is to be upheld.9. We have considered the rival submissions, case law cited and perused the papers filed before us. The notice under s. 17 given at page 56 of the assessee's paper book is dt. 11th March, 1991. This notice is issued even before the recording of the reasons by the AO on 12th March, 1991. Hence this notice is invalid. Further, the reasons recorded by the WTO on 12th March, 1991, did not indicate, whether the escapement of net wealth chargeable to tax has arisen due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment or in consequence of any information in his possession. He did not indicate, whether the reopening was done under s. 17(1) (a) or s. 17(1) (b). The CWT(A) has given a specific finding that it was apparent that there was no default by the assessee under s. 17(1) (a) as there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the asst. yr. 1986-87. This finding of fact is not challenged by the Revenue before us. The ground of appeal reads as under : "On the facts and in the circumstances of the case, the CIT(A) has erred in annulling the order under s. 16(3) /17 passed by the WTO on the basis of the Departmental valuation report." As pointed out by the CWT(A) in case of Tulsi Das Kilachand (supra), reopening of assessment on the basis of the valuation report by the Departmental Valuer was held invalid. The Court held that the mere fact that the valuation by the Departmental Valuer was different from the valuation of the authorised valuer which was accepted originally was not sufficient to invoke the provision under s. 17(1) (b), Special leave Petition filed by the Revenue was dismissed by the Supreme Court in the case of D. R. Chawla vs. Ram Das Kila Chand (1983) 141 ITR (St) 47. So the reopening of the assessment even under s. 17(1) (b) (assuming so) cannot be sustained. Accordingly, we uphold the order of the CWT(A) in annulling the assessment order dt. 5th Feb., 1993.