H. H. Maharaja Martand Singh Ju Deo Vs. Wealth Tax Officer and anr. - Court Judgment

Excerpt:
head note: income tax wealth tax reassessment--validity--assessee giving all the details and wto also accepting the same. ratio: where the statements in the return clearly showed that the petitioner had given all the details regarding face value and market value of the shares, and the wealth tax officer had accepted those details and made the assessment orders, the assessment orders cannot be ordinarily unsettled under section 17 unless the conditions of the said section were satisfied. notices and consequent proceedings are liable to be quashed in the absence of material on record to show that the exercise of powers by the wealth tax officer under section 17 was in accordance with the provisions of law. held: the assessment order passed under section 16 is not an empty formality. it is a.....orderr. s. garg, j. :by this petition under art. 226 of the constitution of india, the petitioner challenges the validity and legality of the notices of assessment annexure d, d-1, d-2 and d-3 issued by the wto on 29th may, 1985.2. according to the petitioner, he is the karta of his huf and is assessed to wealth tax for number of years. according to him, he follows financial year and for the purposes of wealth tax assessment, the valuation date is 31st march of every year. his assessment cases were with the wto, a-ward, satna which were later on transferred to the wto, special investigation circle-i, jabalpur. according to the petitioner, for the asst. yr. 1975-76 with the valuation date 31st march, 1975, he had filed the return of his wealth on 23rd august, 1975 with the wto, satna.....

Judgment:
ORDER

R. S. GARG, J. :

By this petition under Art. 226 of the Constitution of India, the petitioner challenges the validity and legality of the notices of assessment Annexure D, D-1, D-2 and D-3 issued by the WTO on 29th May, 1985.

2. According to the petitioner, he is the Karta of his HUF and is assessed to wealth tax for number of years. According to him, he follows financial year and for the purposes of wealth tax assessment, the valuation date is 31st March of every year. His assessment cases were with the WTO, A-Ward, Satna which were later on transferred to the WTO, Special Investigation Circle-I, Jabalpur. According to the petitioner, for the asst. yr. 1975-76 with the valuation date 31st March, 1975, he had filed the return of his wealth on 23rd August, 1975 with the WTO, Satna declaring the total value of the wealth which amongst others including foreign shares and stocks, etc. of the value of Pounds 3,96,388 and its value in rupees were shown at Rs. 75,31,372. Along with the return, a statement received from Grindlays Bank Ltd. London was filed showing face value of the shares and stocks, etc. and in the last column market value of the shares was also shown. According to the petitioner, true copy of the statement of foreign shares and stocks and the statements which were filed are Annexure A and B. The WTO, after making due enquiries assessed the total wealth of the petitioner at Rs. 2,04,56,955 accepting the value of foreign shares and stocks at Rs. 75,31,372 vide order dt. 17th March, 1980. The assessment order is on record as Annexure-C.

3. The petitioner submits that for the asst. yrs. 1976-77, 1977-78 and 1978-79, he filed the returns of wealth before the WTO, A-Ward, Satna on 16th August, 1976, 31st August, 1977 and 3rd July, 1978, declaring total wealth at Rs. 1,20,74,198, Rs. 1,63,75,703 and Rs. 1,48,93,856. According to the petitioner, with the returns similar statements of foreign shares and x stocks were enclosed. The copies of the statement of foreign shares and stocks and the statement of wealth are on record as Annexure A-1, A-2, A-3 and B-1, B-2 and B-3. According to the petitioner the WTO, Satna, after due verification and enquiries assessed the wealth of the petitioner for the asst. yr. 1976-77 at Rs. 1,79,51,866 by order dt. 24th March, 1981, for the asst. yrs. 1977-78 and 1978-79. The cases were taken up by the WTO Special Investigation, Circle-I, Jabalpur who after due verification and enquiries assessed the total wealth of the petitioner for the said assessment years at Rs. 1,76,73,151 and Rs. 1,68,13,363 vide order dt. 26th March, 1982 and 19th March, 1983, respectively. The assessment orders are on record as Annexure C-1, C-2 and C-3. The petitioner was served with four notices under s. 17 of the WT Act, 1957 issued by the WTO. Special Investigation, Circle-I, Jabalpur for the abovementioned assessment years, asking the petitioner that his net wealth chargeable to tax for the said assessment years had escaped assessment within the meaning of s. 17 of the WT Act, therefore, he proposes to reassess the said net wealth which had escaped assessment. The petitioner was asked to deliver in the form of a return the details of his net wealth chargeable to tax alongwith such other particulars as were required to complete the form for the said assessment years.

4. According to the petitioner, he filed his returns of the wealth in response to the above notices. The WTO issued four notices Annexure E to E/3, dt. 28th May, 1985 calling upon the petitioner to produce documentary evidence so as to prove correct and exact market value of foreign assets on different valuation dates that is on 31st March, 1975, 31st March, 1976, 31st March, 1977 and 31st March, 1978 in respect of the said four years. The petitioner thereafter made a request to the WTO vide his application dt. 10th June, 1985 to intimate the petitioner the reasons for reopening of the assessment. The application is Annexure-G with the petition. According to the petitioner, the oral requests were made from time to time and on 19th July, 1985 his counsel again requested the authority for supplying the reasons for reopening of the cases but he was told by the WTO that copy of the reasons recorded cannot be communicated and that the appellate authorities could see the reasons from his record if they so wanted. According to the petitioner, he is not in a position to know exactly why the reassessment proceedings have been initiated, but on the basis of the notices under s. 16(4) it appears that the reassessment proceedings have been taken so as to reassess the value of foreign shares and stocks.

5. The petitioner submits that he had filed the returns of the wealth and the material particulars of the wealth were duly disclosed, the original assessments were made after due enquiry and verification. The reassessment proceedings have been initiated with the issue of notice dt. 29th March, 1985, served on the petitioner on 30th March, 1985, are without jurisdiction, barred by limitation, illegal and void in law. According to him, s. 17 of the WT Act authorised taking up of the reassessment to assess or reassess wealth which has escaped assessment or full assessment. According to him the finality of the order cannot be disturbed unless the requirements of law are satisfied, unless the WTO has reason to believe that the wealth chargeable to tax had escaped assessment for the relevant year either because the assessee did not file the return under s. 14 or had failed to disclose fully and truly all material facts for his assessment or in consequence of information in his possession the WTO has reason to believe that the wealth escaped assessment. The petition was admitted for hearing on 29th July, 1985 by division bench of this Court and notices were issued to the respondents. The respondents were served with the notices, but did not choose to file the return, therefore, except the material produced by the petitioner, we have nothing on the record.

6. Sec. 16 of the WT Act, 1957 relates to assessment and reads as under :

'16. (1) If the WTO is satisfied without requiring the presence of the assessee or production by him of any evidence that a return made under ss. 14 or 15 is correct and complete he shall assess the net wealth of the assessee (and determine the mount of wealth tax payable by him or the amount refundable to him on the basis of such return).

(2) If the WTO is not so satisfied, 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.

(3) The WTO, after hearing such evidence as the person may produce and such other evidence as he may require on any specified points, and after taking into account all relevant material which the WTO has gathered shall, by order in writing, assess the net wealth of the assessee and determine the amount of wealth tax payable by him or the amount refundable to him on the basis of such assessment.

(4) For the purpose of making an assessment under this Act, the WTO may serve, on any person who has made a return under sub-s. (1) of s. 14 or upon whom a notice has been served under sub-s. (2) of that section, or who has made a return under s. 15, a notice requiring him to produce or cause to be produced on a date specified in the notice such account, records or other documents as the WTO may require.

(5) If any person fails to make a return in response to any notice under sub-s. (2) of s. 14, or fails to comply with the terms of any notice issued under sub-s. (2) or sub-s. (4), the WTO, after taking into account all relevant material which he has gathered, shall estimate the net wealth to the best of his judgment and determine the amount of wealth-tax payable by the person or the amount refundable to him on the basis of such assessment.'

7. According to s. 16A for the purposes of making an assessment under the Act the WTO may refer the valuation of any asset to a Valuation Officer. Sec. 17 which is relevant for the purpose of this petition provides as under :

'17. (1) If the WTO -

(a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under s. 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 assessment for that year, whether by reason of underassessment or assessment at too low a rate or otherwise; or

(b) has, in consequence of any information in his possession, reason to believe, notwithstanding that there has been no such omission or failure as is referred to in cl. (a), that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of underassessment or assessment at too low a rate or otherwise,

he may, in cases falling under cl. (a) at any time within eight years and in cases falling under cl. (b) at any time within four years of the end of that assessment year, serve on (such person) a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of s. 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under the sub-section.

8. The petitioner submits that in the returns filed by him he had disclosed all material facts as regards his wealth and had given the complete details. He further submits that the WTO has not shown any reason as to why he wants to reassess the wealth and reopen the proceedings. The learned counsel for the petitioner relied upon Smt. Prabha Rajya Lakshmi vs . WTO : [1983]144ITR180(MP) , H. H. Maharaja Shri Lokendra Singhji vs . CIT : [1987]166ITR407(MP) , ITO & Ors. vs . Lakhmani Mewaldas : [1976]103ITR437(SC) Abdul Majid vs. ITO & Ors. (1987) 178 ITR 616 :, Devji Ravji Patel vs . Balasubramaniam, ITO & Ors. : [1994]210ITR925(Bom) In the matter of Abdul Majid vs. ITO & Ors. (supra) it has been held that once the assessee produces the evidence in relation to the cost of his property, the source of the income along with the valuation report, then it is for the assessing authority to take a decision based on the information so submitted and if such information is placed before the assessing authority, it will be deemed to be a disclosure of all the primary facts which an assessee is required to place before the authority truly and fully. If the assessing authority, without getting it verified by the Departmental Valuer at the time of the assessment, accepts the return, then a subsequent opinion of a Departmental Valuer, cannot form the basis for reopening of the assessment. The duty of the assessee while filing the return, is to place all the primary facts before the officer and it is thereafter for the officer to draw inferences from the primary facts. If the officer draws an inference, which subsequently appears to be erroneous then a mere change of opinion with regard to the inference would not justify initiation of action for reopening the assessment. The Court further observed that the assessee could in no way be held guilty of not disclosing the material facts fully and truly to the officer when they filed their respective returns. The officer accepted the valuation report filed along with the returns, therefore, the assessment made by the officer could not be reopened merely because another officer has some suspicion about the concealment of income and the report of the Departmental Valuer was different from that of the approved valuer. In the matter of ITO vs. Lakhmani Mewal Das (supra), considering the questions relating to ss. 147(a) and 148 of the Indian IT Act, 1961, the Supreme Court has observed that the reasons for the formation of the belief contemplated by s. 147(a) of the IT Act for reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts.

The Supreme Court further observed that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion, but the Court has to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The Supreme Court further observed that the reason for the formation of the belief must be held in good faith and should not be a mere pretence. While considering s. 148 of the Act, the Supreme Court observed that two conditions have to be satisfied before an ITO acquires jurisdiction to issue notice under s. 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (i) the ITO must have reason to believe that income chargeable to tax has escaped assessment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under s. 139 for the assessment year to the ITO, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist to confer jurisdiction on the ITO. It is also imperative for the ITO to record his reasons before initiating proceedings as required by s. 148. Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the CIT should be satisfied on the reasons recorded by the ITO that it is a fit case for the issue of such notice. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the ITO of the account books or other evidence from which material evidence could, with due diligence, have been discovered by the ITO will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary Acts. If an ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. In the matter of CWT vs . Malhar Rao Tatya Saheb Holkar : [1996]220ITR466(MP) , the question regarding interpretation of s. 17(1) came up for consideration before this Court. In the said case the AO completed the assessment of the assessee for the asst. yrs. 1971-72 to 1973-74 under s. 16 of the WT Act. After completion of the assessment, the AO referred the valuation of assets to the Valuation Officer to ascertain the value of agricultural land and house as on the valuation date. On the basis of the report, the AO was of the opinion that net wealth chargeable to tax had escaped assessment and, therefore, he issued notice under s. 17 of the Act. The assessee did not file any return, therefore, the officer made a best judgment assessment under s. 16(5) of the Act. The Tribunal held that no reference could be made to the Valuation Officer under s. 16A after completion of the assessment and, therefore, the re-opening of the assessment, on the basis of the report of the Valuation Officer was without jurisdiction. The court held that s. 17 of the Act stipulates that power can be exercised if the AO has reason to believe that net wealth chargeable to wealth-tax had escaped assessment. The material to form such a view must be available with the AO. The Court observed that no such material was available with the AO and in fact he referred the matter to the Valuation Officer to collect the material and then initiate the proceedings. The procedure adopted by the AO is not supported by the provisions under the Act. The proceedings initiated by the WTO were manifestly vitiated on account of procedure and propriety.

9. In the matter of Parashuram Pottery Works Co. Ltd. vs . ITO : [1977]106ITR1(SC) , it has been observed that at the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.

10. Applying the said tests, if we see the documents Annexure D, D-1, D-2 and D-3, it does not appear that what reasons have persuaded the WTO to form the opinion that the net wealth chargeable to tax has escaped assessment within the meaning of s. 17 of the WT Act. It does not appear from the notices that the mandatory requirements of s. 17 have been considered at all. The WTO must form an opinion on the legal foundation that by reason of the omission or failure on the part of the person to make the return under s. 14 his net wealth or for non-disclosure of full and true material facts necessary for assessment of his net wealth, the net wealth chargeable to tax has escaped assessment for that year. In the instant case, there is no material on record to show or suggest that there was any material available with the WTO to form an opinion or any reason to believe that the net wealth chargeable to tax has escaped assessment for that year. For attraction of cl. (b) of s. 17(1) if the WTO has in consequence of any information in his possession reason to believe notwithstanding that there has been no such omission or failure as is referred to in cl. (a) that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of underassessment or assessment at too low a rate or otherwise, he may issue notice within four years of the end of that assessment year containing all or any of the requirements which may be included in a notice under sub-s. (2) of s. 14 and may proceed to assess or reassess such net wealth. According to s. 14 every person whose net wealth is of such an amount which renders him liable to wealth-tax under the Act shall furnish to the WTO a return in prescribed form. Such details are required to be given by such assessee. The assessment order passed under s. 16 is not an empty formality. It is a final order which advises the assessee that for the purposes of the Act, he has been assessed and no further action is required to be taken. Sec. 17 is an exception to the finality of the assessment order passed under s. 16. What is required to become final cannot easily be unsettled or disturbed because of the whims or caprise of an officer. The belief which a WTO must have, must be based on a solid and positive foundation. It cannot be whimsical, arbitrary or capricious. The notices issued under s. 17 nowhere show that what was the reason to believe that the net wealth chargeable to tax has escaped assessment within the meaning of s. 17 of the WT Act. For cl. (b) the WTO was required to place reliance on the information which was in his possession and only after having positive information he could have a reason to believe that the net wealth chargeable to tax has escaped assessment. From the documents on record, it is clear that the petitioner had submitted the complete returns and the statement of foreign shares and stocks. The statements contained in Annexure A/1 to A/3 and B/1 to B/3 with their statements clearly show that the petitioner had given fullest details of the wealth. If the officer had accepted those details and made the assessment order, then any other officer could not ordinarily unsettle the assessment orders unless the three requisite conditions of s. 17 of the Act were satisfied. In the instant case, unfortunately, there is no material from the side of the Revenue to satisfy the judicial conscious of the Court that the exercises of the powers under s. 17 is in accordance with the provisions of law. The notices Annexure D, D-1, D-2 and D-3 are quashed and consequently the proceedings drawn on the basis of these notices are also quashed.

11. In the result, the petition is allowed. There shall be no order as to costs. Security amount, if any, be refunded to the petitioner, after due verification.