Judgment:
1. The assessee individual has filed this appeal under the Wealth-tax Act, 1957 (hereinafter referred to as the Act) aggrieved by the order of Commissioner of Wealth-tax (Appeals) [hereinafter referred to as CWT(A)]. The grievance raised by the assessee in the appeal is that the CWT(A) had dismissed her appeal on a flimsy and technical flaw of non-filing of the certificate of the Chartered Accountant concerning the valuation of quoted shares that it had exercised the option as allowed in Rule 9A of Schedule III to the Act.
2. The facts are briefly stated hereunder. The assessee had filed her return that comprised quoted shares of companies. The statement of shares was attached to the return of wealth containing a remark 'average value as per Rule 9A'. The Assessing Officer (referred to as AO) however refused to accept the value indicated in the said statement because it was not accompanied by the certificate of an accountant which was a mandatory requirement and accordingly concluded that he was within his powers to adopt the value of the last available market quotation that is close to the valuation date.
3. In appeal before CWT(A), the assessee had raised the issue that the Assessing Officer should have allowed an opportunity for not filing the certificate of the accountant because, the certificate was obtained on 1-8-1990, before filing of the return on 16-8-1990. It was also claimed that the assessee was under a bona fide belief that the certificate was only to be obtained and could be produced when called upon to do so. It was also claimed that the statement of shares clearly gave the basis of value adopted and the certificate was a mere confirmation of the valuation at average value allowed by the rule. The CWT(A) however inclined in favour of the revenue by agreeing with the opinion of the Assessing Officer. The assessee accordingly had come up in appeal before us.
4. We have very carefully considered the rival submissions and the provisions of the Act. We may observe that section 7 of the Act provided the manner of determining the value of assets and sub-section (i) states, "Subject to the provisions of sub-section (2), the value of any asset, other than cash, for the purposes of this Act shall be its value as on the valuation date determined in the manner laid down in Schedule III". Schedule III to the Act denote the method of valuation of assets other than cash including quoted shares in Rule 9A of the said Schedule.
Because, the present dispute is concerning the adoption of the value of quoted shares according to the Rule 9A of Schedule III to the Act, it is absolute that the said rule is appreciated of its true purpose towards the ultimate goal of levy of wealth-tax on such assets. With this background, the said rule is reproduced below.
Notwithstanding anything contained in rule 9, the value of an equity share in any company which is a quoted share may, at the option of the assessee or a company, be taken on the basis of the average of the value quoted on the 31st day of March immediately preceding the assessment year and the values quoted in respect of such share on the said dates in relation to each of the preceding nine assessment years, or where their is no such quotation on any of the aforesaid dates, the quotation of the date closest to the said date and immediately preceding date : Provided that where for any reason the value of such share is quoted in relation to lesser number of assessment years than the said nine assessment years, then the value or values quoted shall be taken into account for the purpose of the aforesaid average.
Provided further that where the assessee opts for the average of the values so quoted he shall get such values certified by an accountant and attach the certificate in the return of wealth in respect of the relevant assessment year.
Explanation : For the purposes of this rule 'accountant' shall have the same meaning as in Explanation below sub-section (2) of section 288 of the Income-tax Act.
5. The rule 9A states that the value of an equity share in any company which is a quoted share may, at the option of the assessee or a company, be taken on the basis of the average of the value quoted. The proviso to the rule states that where the assessee opts for the average of the values so quoted he shall get such values certified by an accountant and attach the certificate in the return of wealth in respect of the relevant assessment year.
The assessee had indicated that she has adopted the average value as per rule 9A for valuing the quoted shares and had obtained the certificate of the accountant in support of such valuation before the filing of the return of wealth but, had not attached the said certificate to the return of wealth. The departmental representative had insisted that if proviso was ambiguous then, such ambiguity should be settled in favour of the revenue by placing reliance on the decision of the Supreme Court in Novapan India Ltd. v. Collector of Excise & Customs [1994] ELR (Excise Law Times) 769.
The appellant in the above stated case was carrying on the manufacture of goods. It referred to a notification issued by the Government that stated that any one who manufactures the article/s indicated in the said notification, shall be entitled to exemption from the levy of excise duty. The plea advanced was that the goods or article manufactured by it was covered by the said notification and claimed exemption from duty. Its claim was rejected by the authorities because, the article or goods manufactured was not specifically exempted by the notification. It was in that connection that the Supreme Court had held that a specific exemption is specific to the article indicated in the notification and cannot be stretched to allow an exemption and while deciding so the apex court had observed that ambiguity in interpretation should not be given benefit of to the person making the claim.
In our considered opinion this ruling cannot be imported into the present case because, unlike in the case before the apex court where the assessee was required to specifically state the goods manufactured by it was covered by the notification, in the present case the issue revolves around the content of the proviso to the rule 9A combined with the intent behind such a rule for implementation purposes. The said rule allows the assessee an option to value the quoted shares at the average value of ten or less valuation dates, evidence its exercising of the option by getting the values certified by an accountant and attach the certificate to the return of wealth. In the present case, both parties agree that the valuation of quoted shares was opted by the appellant according to rule 9A but, because the evidence in support of the exercising of the option, namely the certificate of the accountant was not attached to the return of wealth, the department had refused to recognize that the assessee had exercised the option. What we are concerned with is whether, the proviso to the rule 9A that talks of the certificate of the accountant of the average value of the quoted shares requiring it to be attached to the return of wealth should be interpreted as an absolute condition requiring compliance in the said manner or could be interpreted as sufficient compliance, if the same is placed or filed during the assessment proceeding. The related issue with which we are equally concerned is whether, the first appellate authority could and should direct the Assessing Officer to accept the certificate in appeal proceedings.
The learned counsel had submitted that section 12A of the Income-tax Act, 1961 had a similar condition of filing of the auditors report and the audited accounts along with an application for registration as a charitable organization. The question was whether the said condition was mandatory or directory and it would be sufficient compliance of the section if the report and the accounts are filed during the proceedings. He contended that the Calcutta High Court decisions in CIT v. Rai Bahadur Bissesswarlal Motilal Malwasie Trust [1992] 195 ITR 825/65 Taxman 273 and in CIT v. Hardeodas Agarwalla Trust [1992] 198 ITR 511, had held that the condition is merely directory in nature and filing of the report and the accounts during the hearing was sufficient compliance.
In Rai Bahadur Bissesswarlal Motilal Malwasie Trust's case (supra), the Calcutta had observed as under : "There is no doubt that section 12A specifically states that the provisions of sections 11 and 12 shall not apply in relation to income of any trust if conditions stated therein are not fulfilled and, in the conditions, it is provided that the accounts of the trust should be furnished "along with the return". If section 12A is read in isolation and the rule of strict and literal construction is applied, the approach of the Revenue in this case has to be held as correct. But we see no justification for applying the rule of strict construction or for considering the provisions of section 12A in isolation. Under certain circumstances, the expression "shall", in its ordinary significance, is mandatory and the court shall, - ordinarily, give that interpretation to that term unless an inconvenient consequence follows or such interpretation is found to be at variance with the intent of the Legislature, to be collected from other parts of the Act. The construction of the said expression depends on the provisions of a particular Act, the setting in which the directions is given, the consequences that would flow from the infringement of the direction and such other considerations.
Having regard to the other provisions of the Act regarding filing of the return or revised return or rectifying the defects in the return, we are of the opinion that the provisions of section 12A are directory in the sense that the Assessing Officer is not powerless to allow an assessee to file the audit report, if not filed along with the return, any time before the completion of the assessment.
One has to look at the purpose of the provisions. One has to construe the provision to ensure coherence and consistency to avoid undesirable consequences." In Hardeodas Agarwalla Trust's case (supra), the Calcutta High Court which was considering the identical question as in Rai Bahadur Bissesswarlal Motilal Malwasie Trust's case (supra) had observed that, "It is now well-settled that a procedural provision, ordinarily should not be constructed as mandatory, if the defect in the act done in pursuance of it can be cured by permitting the appropriate rectification to be carried out at a subsequent stage. Procedural law are devised and enacted for the purpose of advancing justice. It does not mean that the procedural laws should be brushed aside by the court. It depends on the facts and circumstances of a particular case as to whether a breach in the observance of any procedural law, if not excused or overlooked, would cause real and substantial injustice to the parties." The learned counsel had referred to CIT v. Bharat Refineries Ltd. [1986] 162 ITR 652/26 Taxman 255 of the Calcutta High Court, where the court was considering a question of non-filing of the profit & loss account along with the return was a procedural error that could be corrected by filing the same during the hearing.
"The return which was filed by the assessee on October 6, 1971, admittedly did not include its profit and loss account and the balance-sheet which were required to be enclosed with the return in accordance with the prescribed form. To that extent, the return may be considered to be incomplete. The question to be decided is whether this return can be held to be so defective that it should be held to be an invalid return and, in fact, non est in law. In our view, the return can not be held to be invalid and non-existent. The return as filed did not contain any defect whatsoever on its face.
The Income-tax Officer treated the same a legally valid return. The assessment in fact has been made on the said return by the Income-tax Officer after he called for and obtained the copies of the balance-sheet and profit and loss account subsequently. These facts have been found by the Tribunal and such findings remain unchallenged. It has not been established by the Revenue that the return as filed was so incomplete and defective that it could not be regarded as a return in law. This is not a case where a blank return was filed or the return was not signed by the assessee at all. Law on the controversy stands settled, so far as this court is concerned, by the decisions in Mohindra Mohan Sirkar's case [1978] 112 ITR 47 (Cal.), Sova Sarkar's case [1983] 139 ITR 386 (Cal.) and Garia Industries Ltd.'s is case [1983] 140 ITR 636 (Cal.)." The above three decisions have clearly laid down that a rule had to be given coherent meaning considering the intent of the Act and the rules are mere procedure and have to be dealt with accordingly. The ruling further states that though, the word 'shall' indicates mandatory nature but, it must not be seen in isolation but together with the intent of the Act. The ruling also lay down the proposition that the requirement of attaching the required information such as audited accounts, auditors report, certificate of the accountant along with the return does not necessarily mean to indicate that such compliance must be made at the time of filing of the return for the first time. This is evidence from the observation from the rulings above where it has been categorically observed that because, the Act permits filing of a revised return that is so made to correct any mistake in the return filed earlier, it would be sufficient compliance if the assessee complies with the requirements during the hearing.
The decision of the Bombay High Court in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443 was also referred to that is on the same lines as the Calcutta High Court in Bharat Refineries Ltd. (supra) on the same set of facts. The Bombay High Court in CIT v. Smt.
Godavaridevi Saraf [1978] 113 ITR 589 was referred to bring home the point that a decision on a point by any High Court shall be the law of the land till any contrary decision of another High Court is available.
The above two rulings of the Calcutta High Court in Raja Bahadur Bissesswarlal & Hardeodas Agrawalla Trust (supra) relate to the conditions to be complied with for the purpose claiming exemption by application of a provision of the Act or a rule, have clearly laid down the proposition that, they are directory in nature by considering the broader intent and perspective of the Act. In our considered opinion, both these rulings squarely are applicable to the facts of the instant case.
Further we may observe that section 15 of the Act concerns itself with amendment to the return and the return after the due date which provisions are identical to the provisions contained in sections 139(5) & (4) of the Income-tax Act. Section 15(1) of the Act allows for amendment to the return because of an omission or a wrong statement in the return filed. The non-filing of the certificate of the accountant is an omission for which the Act has provided a corrective measure. The assessee would have filed the certificate along with a revised return as allowed by section 15(1) of the Act and the Assessing Officer could not refuse the consider the revised return when completing the assessment proceedings, when it is so available on record merely for the reason that it was not filed at the first instance. Because, the Act had clearly provided for correction of any omission such as the one in the instant case, the claim of the appellant that it should be allowed an opportunity to correct the omission of non-filing of the certificate of the accountant, when considered in this light, as held by the two decisions of the Calcutta High Court, in our considered opinion, is fully justified.
We may observe that because, neither of the parties referred to the decision of the Bombay High Court in CIT v. Shivanand Electronics [1994] 209 ITR 63/75 Taxman 93, we called for their arguments in reference to the said decision. The argument of the assessee was that the powers of CIT(A) as defined in section 251 of the Act are very wide permitting him to do all that the Assessing Officer could do and to do all that the Assessing Officer should have done and in support had placed reliance on the decisions of the apex court. The departmental representative however, pleaded that in the light of the jurisdictional High Court decision, the order of CIT(A) should be upheld.The Bombay High Court in Shivanand Electronics (supra) considered the question "Whether, on the facts and in the circumstances of the case, the non-compliance with condition of filing of audit report is fatal to given relief to the assessee under section 80J(6A) ?" The court observed that the sub-section (6A) of section 80J of the Act, had laid down two conditions, (i) the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed by the assessee are audited by an accountant, as defined in the Explanation below sub-section (2) of section 288 of the Act, and (ii) the assessee furnishes along with his return of income the report of such audit in the prescribed form duly signed and verified by such accountant.
The court considered the requirement of furnishing the audit report along with the return of income and meaning of the expression 'along with the return of income.' It ruled that the requirement indicated that the audit report has two parts, part one is mandatory that is obtaining of the auditor's report and part two, the filing of the audit report along with the return was only directory. The court also ruled that non-obtaining of the audit report is fatal to the claim but, non-filing of the audit report along with the return of income would not be fatal to the claim of deduction. The court ruled that filing of the audit report any time before the completion of the assessment would satisfy the directory requirement. The court further ruled that legislative intent must be examined closely because, it should not go to defeat the enactment, in which case, it should be held as mandatory but, wherever it would result in general inconvenience to innocent persons it should be construed directory. It based on this reasoning the Court ruled that the Assessing Officer could not reject the claim of deduction under section 80J for the reason that the audit report was not filed along with the return of income and the assessee could insist that Assessing Officer should accept the said report of the auditor any time before the assessment proceedings are concluded.
In the said case the Assessing Officer had allowed deduction under section 80J of the Income-tax Act, 1961 without the assessee filing of the audit report and the Commissioner of Income-tax had exercised his powers under section 263 of the Income-tax Act for withdrawing the deduction allowed. The Tribunal had held that the Commissioner of Income-tax should have directed the Assessing Officer to call the assessee and to file the audit report. The court considered the argument advanced by the assessee that the Assessing Officer should have called the assessee to file the audit report and examined whether the statute had cast any obligation on the Assessing Officer for calling from the assessee to file the audit report. The court ruled that insisting of such an obligation on the part of Assessing Officer would mean exonerating the assessee from his obligations and because, such an insistence of an obligation on the part of Assessing Officer would defeat the intent of the legislation and accordingly the decision of the Tribunal on this issue was reversed.
The powers of Commissioner of Income-tax (hereinafter referred to as CIT) as provided under section 263 of the Act is limited to revising the order of the assessing authority on the satisfaction of the condition that it is erroneous inasmuch as it is prejudicial to the interest of the revenue. The powers of the CIT(A), as defined in section 251 of the Act, is exhaustive enough and he could do all that the assessing authority could do and direct him to do what he had committed to do. In that sense the role of the first appellate authority is termed as coterminous with that of the assessing authority. However, the assessment proceeding do not extend beyond the assessing authority as it is only he who has been allotted all the power of framing the assessment and raise the demand of tax on the assessee. The CIT(A) has the same powers as the assessing authority and something more in so far as the evaluation of various facts of a tax payer is concerned and has necessarily to ensure that principles of natural justice are not violated. However, these principles of natural justice are not free whenever, the statute places certain fetters on the discretion of the authorities and in all those situations, the natural justice rules takes a back seat.
In the instant case, the assessee had claimed that she had exercised her option of taking the value of the shares at the average value of ten years or less that is permitted by rule 9A of Schedule III to the Act and had insisted that this is categorical in as much as the statement of share holding clearly states 'average value as per Rule 9A'. This she claimed established that she had obtained the certificate by the Accountant and because it is dated prior to the date on which the return of wealth was filed. She further insisted that the assessing authority should have called upon the assessee to file the certificate and this insistence was based upon the plea that the certificate would not state any thing better than what the assessee had already stated 'average value as per Rule 9A'. It was accordingly claimed that the filing of the certificate was a mere formality and the CIT(A) could have considered it in that light and should have accepted the certificate and the valuation as preferred by the assessee.
The plea as advanced by the assessee has the sanction of the Calcutta High Court (supra). But, the decision of the jurisdictional High Court, indicates that it had appreciated that principles of natural justice though, is applicable in circumstances this may call for it but, at the same time, it had brought about the need for appreciation of their being fetters attached to the provisions of the section. It further indicated that the non-obtaining of the report of the auditor did not bring in to action the principle of natural justice and rather in that circumstance, it has no role at all and consequently, the assessee cannot seek any sympathetic consideration. It is also suggestive that the principles of natural justice would come into operation in a limited manner and the outer limit is that the report that is required to be 'attached along with the return' could be stretched to read 'file at any time before the completion of the assessment proceeding'.
In view of the above, the first mandatory condition of obtaining of the certificate of the Accountant though, could be stated as satisfied because, it is dated before the date of filing of the return but, the second and continuing directory condition of filing the certificate 'any time before the completion of the assessment proceeding' though the certificate should be attached along with the return of wealth was not satisfied. As observed earlier, the principles of natural-justice could be allowed to extend till the completion of assessment preceding in so far as the requirement is directory and not beyond it. This makes not only the first appellate authority powerless to allow further extension of the directory condition and puts further fetters in the exercise of powers of the second appellate authority, the Income-tax Appellate Tribunal in as much as all or any discretion is limited to recognizing that the discretion of extending the time for filing of the certificate stops with the completion of the assessment proceeding and does not travel beyond it. We accordingly are of the view that the appeal of the assessee is bereft of any merit and the appeal is dismissed.