Commissioner of Wealth-tax Vs. Smt. Kusum Bader - Court Judgment

Excerpt:
- - shri singhal has urged that, in the present case, the wealth-tax officer had required the assessee to furnish information on certain material points for the purpose of assessing the market value of the stock of the firm of which the assessee is a partner, but the assessee failed to supply the said information and, therefore, an adverse inference should be drawn against the assessee on account of non-production of the said material and, in the circumstances, it cannot be said that the revenue has failed to discharge the burden which lay upon it. the findings on questions of fact may be good and cogent evidence in subsequent years, when the same question falls to be determined in another year, but they are not binding and conclusive. 9. the order of the settlement commission dated july 21, 1978, as well as that of the tribunal dated december 31, 1983, referred to in the said decision have been placed before us. on the basis of the material that was placed by the assessee before the income-tax officer as well as the appellate assistant commissioner, the settlement commission found that the value of the goods exported had to be reduced by as much as 20% to 30% as compared to the export invoice prices, and that, even at the reduced prices, it was not possible to sell the goods on many occasions and they were reimported and again exported in different lots and assortments and at reduced prices.s.c. agrawal, j.1. this application relating to the assessment year 1979-80 has been moved by the revenue under section 27 of the wealth-tax act, 1957 (hereinafter referred to as 'the act'), for referring for consideration of this court the following two questions which are said to arise out of the order dated august 31, 1987, passed by the income-tax appellate tribunal, jaipur range, jaipur (hereinafter referred to as 'the tribunal').'1. whether, on the facts and in the circumstances of the case, the tribunal was justified in holding that rule 2b(2) of the wealth-tax rules was not applicable in the assessee's case and consequently in deleting the addition made by the wealth-tax officer ? 2. whether, on the facts and in the circumstances of the case, the tribunal was justified in holding that the firm, cosmopolitan trading corporation, jaipur, is an industrial undertaking within the meaning of section 5 and consequently, in holding that the value of the assessee's interest in that firm is exempt under section 5 of the wealth-tax act, 1957 ?' smt. kusum bader (hereinafter referred to as 'the assessee') is a partner having 20% share in the firm, cosmopolitan trading corporation, jaipur. the said firm is carrying on business in export sale or precious stones. in respect of the assessment year 1979-80, the assessee disclosed the value of her capital in the partnership firm at rs. 75,916. the wealth-tax officer, in his assessment order dated march 26, 1984, made an addition of rs. 5,78,657 under rule 2b(2) of the wealth-tax rules, 1957. in the said order, the wealth-tax officer has observed that the value of the closing stock of the said firm was taken by the assessee at rs. 44,43,441 as against rs. 81,51,918 shown in the export invoices and the said figure of rs. 44,43,441 was arrived at after deducting disparity rate of 45.49%. in the said order, the wealth-tax officer has further observed that, in the written reply filed on behalf of the assessee, it was stated that the margin of gross profit earned by the assessee was more than 20% on the sales but it did not mean that the fair market value of closing stock was more than 20% of the book value and further the closing stock of the firm also contained old rejected and unsaleable precious stones. the assessment order of the wealth-tax officer shows that the assessee was required to furnish information on the following three points :(a) what should be the fair market value of the stock in the assessee's opinion as the value in the books of the firm was not the real market value ? (b) why the value should not be arrived at after adding 43% to the cost value ? (c) what is the actual amount of profit earned on subsequent sales of these goods after examining the books of account of the partnership firm, the wealth-tax officer found that during the assessment years 1977-78 to 1981-82, the firm had earned profits which were ranging over 40% which showed that the market value of the closing stock held by the assessee was more than 20% of its cost/book value. the wealth-tax officer also observed that although the assessee was afforded an opportunity to furnish the market value of the goods and also quote instances of the consignments in which prices lower than the export invoices were fetched, both types of information were not given by the assessee. in the circumstances, the wealth-tax officer observed that it could be safely said that the assessee was able to sell off the goods at market rates, i.e., export invoice value. in view of the aforesaid finding, the wealth-tax officer arrived at the conclusion that the difference between the cost price and the market price of the goods lying with the firm exceeds 20% and that rule 2b(2) was fully applicable. the wealth-tax officer, however, allowed a margin of 10% keeping in view the discounts, etc., that may be given by the assessee and after giving the said discount, he found that the value of the stock was rs. 73,76,727 and that the assessee's share in substituted stock value would work out to rs. 5,78,657 which was added to the assessee's returned wealth. the wealth-tax officer, however, allowed exemption under section 5 of the act. the assessee went in appeal and the said appeal was partly allowed by the appellate assistant commissioner of wealth-tax by his order dated march 27, 1987. the appellate assistant commissionerdeleted the addition made on account of application of rule 2b(2) on the view that this issue has been decided by the commissioner of income-tax (appeals) by his order dated october 14, 1986, in respect of the assessment years 1976-77, 1977-78 and 1978-79 in favour of the assessee. the tribunal, on appeal by the revenue, affirmed the said view of the appellate assistant commissioner with regard to the applicability of rule 2b(2) of the rules. before the tribunal, it was submitted on behalf of the revenue that the exemption under section 5 of the act had been wrongly allowed, but the tribunal held that the said exemption had been allowed by the wealth-tax officer and that there was no mention about the said exemption in the order passed by the appellate assistant commissioner for the assessment year 1979-80 and that the said question, therefore, did not arise in the appeal. the revenue thereupon moved an application under section 27 of the act whereby it was prayed that the two questions referred to above may be referred to this court for consideration. the said application was rejected by the tribunal by order dated march 25, 1988. as regards question no. 1, the tribunal observed that a similar issue was decided by the tribunal in the case of a same group of the assessee, viz., smt. s. k. bader, wherein the revenue came in reference under section 256 of the income-tax act and the same was rejected and, thereafter, the department approached this court under section 256 of the income-tax act which was rejected by this court in the decision reported in cwt v. smt. s.k. bader , on the ground that the issue did not involve any question of law and was based on a finding of fact. the tribunal, therefore, declined to refer question no. 1 with regard to the application of rule 2b(2) of the wealth-tax rules. as regards question no. 2 relating to exemption under section 5, the tribunal held that the said question does not arise for the relevant assessment year because even the wealth-tax officer had allowed the claim of the assessee for the assessment year 1979-80. in the circumstances, the tribunal rejected the said application. thereupon the revenue has moved this application under section 27 of the act for directing the tribunal to refer the two questions mentioned above to this court for consideration.2. we have heard shri v. k. singhal, learned counsel for the revenue, and shri n.m. ranka, learned counsel for the assessee.3. in so far as question no. 2 is concerned with regard to exemption under section 5 of the act, shri singhal has conceded that the said question does not arise in view of the fact that exemption had been granted by the wealth-tax officer and the said view was not challenged by the revenue by appeal before the appellate assistant commissioner. shri singhal has pressed question no. 1 with regard to the applicability of rule 2b(2) of the wealth-tax rules. he has submitted that the question of applicability of rule 2b(2) of the rules cannot be held to be a pure question of fact. in this connection, shri singhal has pointed out that although in view of the decision of this court in cwt v. moti chand daga , the burden lies on the wealth-tax officer to show that the market value exceeds the valuation given in the balance-sheet by more than 20%, the said burden can be discharged by the revenue from the facts and circumstances appearing from the material produced, by the assessee. shri singhal has urged that, in the present case, the wealth-tax officer had required the assessee to furnish information on certain material points for the purpose of assessing the market value of the stock of the firm of which the assessee is a partner, but the assessee failed to supply the said information and, therefore, an adverse inference should be drawn against the assessee on account of non-production of the said material and, in the circumstances, it cannot be said that the revenue has failed to discharge the burden which lay upon it. shri singhal has also urged that after taking into consideration the profits earned by the firm for the assessment years 1977-78 to 1981-82 which showed that the same were in excess of 40% in each year, the wealth-tax officer had come to the conclusion that the assessee was able to sell off the goods at the market rate, i.e., export invoice value, and that any deduction in the export invoice value was not called for. the submission of shri singhal is that the decisions of the tribunal in relation to earlier assessment years are not applicable to the assessment year in question and that the appellate assistant commissioner and the tribunal have erred in holding that rule 2b(2) is not applicable to the assessment year 1979-80 by relying upon the decisions of the commissioner and the tribunal in relation to the earlier assessment years. the submission of shri singhal is that the principle of res judicata is not applicable to taxation matters and, therefore, the decisions of the commissioner and the tribunal in relation to earlier assessment years are not conclusive.4. shri ranka, on the other hand, has urged that the decision of the tribunal in respect of the earlier assessment years whereby a deduction of 35% has been made from the export invoice value for the purpose of determining the market value of the goods, operates as res judicata and, in view of the said decision, the tribunal was justified in holding that rule 2b(2) is not applicable, shri ranka has urged that, moreover, with regard to question no. 1, there is a decision of this court in cwt v. smt. s.k. bader , wherein the court declined to direct the tribunal to refer to this court the question relating to rule 2b(2) of the wealth-tax rules on the view that the said question did not involve any question of law but raises only a pure question of fact. the submission of shri ranka is that, in view of the said decision, this reference application is liable to be rejected. shri ranka has in this connection placed reliance on the decision of the supreme court in pravara sahakari sakhar karkhana ltd. v. cit : [1974]94itr321(sc) . shri ranka has also urged that the question with regard to the applicability of rule 2b(2) does not involve any question of law and is a pure question of fact inasmuch as the question as to whether the burden which lay on the revenue has been discharged or not, is a question of fact as held by this court.5. with regard to the applicability of the principle of res judicata in tax matters, the supreme court in m.m. ipoh v. cit : [1968]67itr106(sc) has observed as under (headnote) :'the doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year. the assessment and the facts found are conclusive only in the year of assessment; the findings on questions of fact may be good and cogent evidence in subsequent years, when the same question falls to be determined in another year, but they are not binding and conclusive.'in karnani properties ltd. v. cit : [1971]82itr547(sc) it was observed by the supreme court :'generally speaking, the rule of res judicata does not apply to taxation proceedings.'in cit v. brij lal lohia and mahabir prasad khemka : [1972]84itr273(sc) , the question in issue was with regard to the genuineness of two gifts made by the assessee. in respect of the assessment years 1945-46 and 1946-47, the tribunal had found that the said gifts were not genuine gifts and the high court did not interfere with the said finding of the tribunal on the view that it was a finding of fact and the supreme court affirmed the said view. in respect of subsequent assessment years 1947-48, 1948-49, 1949-50, 1950-51 and 1951-52, the assessee produced additional evidence and the tribunal, after taking into consideration the said additional evidence, came to the conclusion that the gifts in question were genuine gifts. the supreme court held that the fact that in the earlier proceedings, the tribunal took a different view of the two gifts was not a conclusive circumstance and the decision of the tribunal reached in those proceedings did hot operate as res judicata.6. in pravara sahakari sakhar karkhana ltd. v. cit : [1974]94itr321(sc) , the assessee was a co-operative society having a sugar factory and it had paid to its members the price of sugarcane supplied at a rate higher than the minimum rate prescribed by the government. the income-tax officer disallowed the deductions made by the assessee of the prices in excess of the minimum price fixed and computed the income of the assessee on that basis. the said order of the income-tax officer was set aside by the appellate assistant commissioner who held that the price actually paid by the assessee must be taken into consideration in computing the income of the assessee and the said order of the appellate assistant commissioner was affirmed in appeal by the income-tax appellate tribunal. application for reference was rejected by the tribunal and the high court gave a direction requiring the tribunal to submit three questions for its decision. the same question arose for consideration in respect of the subsequent assessment years and the tribunal took the same view as taken in the earlier assessment years and also rejected the application for reference submitted by the commissioner. the high court also rejected the application moved by the commissioner for referring the question and the supreme court rejected the petition for special leave to appeal against the said order of the high court. the supreme court, while dealing with the appeal filed by the assessee against the order passed by the high court in respect of the earlier assessment years, held that the questions of law which were sought to be raised were substantially the same as those raised in the previous proceedings and that there was no merit in the contentions advanced by the commissioner and that the high court was not justified in accepting the application for reference submitted by the commissioner under section 66 of the income-tax act. it may be mentioned that the said decision does not strictly apply to the facts of the present case because in that case the supreme court had finally decided the matter against the revenue in respect of the later assessment years and, in the light of the said decision, it held that there was absolutely no merit in the contentions advanced by the revenue. moreover, in that case the question which was under consideration was purely a question of law as to whether the price actually paid by the assessee could be taken into consideration in computing the income of the assessee or only the minimum price fixed by the government for sugarcane could be taken into account and the amount paid in excess of the minimum price be disallowed.7. in the present case, the question under consideration with regard to the applicability of rule 2b(2) of the wealth-tax rules relating to the market value of the closing stock would depend upon the nature of the evidence produced by the department and the assessee during the proceedings for the particular assessment year and, therefore, the decision on that issue in respect of a particular assessment year cannot be held to be conclusive for another assessment year. the present case is more similar to the decision of the supreme court in cit v. brij lal lohia and mahabir prasad khemka : [1972]84itr273(sc) , wherein it was held that the decision in respect of one assessment year did not operate as res judicata in the assessment for a different period. in our opinion, therefore, the principle of res judicata cannot be made applicable to the present case and reference cannot be denied on this ground.8. we may now refer to an earlier decision of this court in cwt v. smt. s.k. bader . in that case this court was dealing with the assessment years 1974-75 and 1975-76 and reference was sought by the revenue of the question relating to the applicability of rule 2b(2) of the wealth-tax rules and the determination of the market value of the closing stock by reducing the export invoice value by 35%. it was submitted before this court that the finding recorded by the tribunal in making the deduction of 35% in the export invoice value of the goods in stock is perverse and based on no evidence. this court pointed out that the question referred did not raise the question that the finding recorded by the tribunal giving a deduction of 35% in the export invoice value was perverse and based on no evidence and that the said issue was not covered by the question sought to be referred. this court observed that, even otherwise, on the basis of the record before the tribunal, it could not be said that the view of the tribunal giving a reduction of 35% in the export invoice value is perverse or based on no evidence and this court pointed out that the tribunal had taken note of the findings recorded by the settlement commission and keeping in view the said findings, the tribunal has held that it would be reasonable if the fair market value of the closing stock of the firm is arrived at by making a deduction of 35% from the export invoice value. this court observed that on a consideration of the facts and circumstances on record, the tribunal had estimated the market value of the closing stock by giving a deduction of 35% in the export invoice value and the said finding of the tribunal is purely a finding of fact and it does not involve a question of law for reference to this court.9. the order of the settlement commission dated july 21, 1978, as well as that of the tribunal dated december 31, 1983, referred to in the said decision have been placed before us. the proceedings in the settlement commission related to k.d. jhaveri and it was with regard to the assessment of the income of the said firm and the question was with regard to additions that were being made or proposed to be made for the assessment years 1969-70 to 1977-78 on the basis of disparity in the valuation of closing stock as per the books of account and the valuation of the closing stock arrived at by the income-tax officer on the basis of the export invoice value of the goods lying abroad and the goods lying in the godown which were ready for export. on the basis of the material that was placed by the assessee before the income-tax officer as well as the appellate assistant commissioner, the settlement commission found that the value of the goods exported had to be reduced by as much as 20% to 30% as compared to the export invoice prices, and that, even at the reduced prices, it was not possible to sell the goods on many occasions and they were reimported and again exported in different lots and assortments and at reduced prices. in these circumstances, it was found that the export invoice prices were not theselling prices of the goods. it was also noticed by the settlement commission that, for the assessment year 1970-71, the income-tax officer had arrived at the intrinsic value of the export goods by reducing 31% from the export invoice value and the said figure was raised to 35% by the appellate assistant commissioner of income-tax and that for the assessment year 1973-74, the intrinsic value was arrived at by allowing the deduction of 40% from the export invoice value.10. in its order dated december 31, 1983, the tribunal, while dealing with the assessments of the partners of the firm k.d. jhaveri, for the assessment years 1974-75 and 1975-76, after referring to the order of the settlement commission, has observed that it would be reasonable if the fair market value of the closing stock of the firm is arrived at by making a deduction of 35% from the export invoice value. it may be mentioned that the said order passed by the tribunal was based on the order of the settlement commission and in the light of the material that had been placed before the income-tax officer and the appellate assistant commissioner in respect of the assessment years in question. the order passed by the wealth-tax officer in the present case, however, shows that the wealth-tax officer has taken into account the profits earned by the firm, cosmopolitan trading corporation, for the assessment years 1977-78 to 1981-82 and has found that the quantum of profit earned in each year was more than 40% and, on that basis, he found that the market value of the closing stock were more than 20%. the wealth-tax officer has also found that the assessee was afforded an opportunity to furnish the market value of the goods and also quote instances of the consignments in which prices lower than the export invoice value were fetched and that both types of information was not given by the assessee. in these circumstances, the wealth-tax officer came to the conclusion that the assessee was able to sell off the goods at the market rate, i.e., export invoice value, and he did not allow 35% deduction from the export invoice value as claimed by the assessee. the wealth-tax officer, however, allowed 10% deduction keeping in mind the discounts, etc., and valued the stock on that basis. the appellate assistant commissioner and the tribunal did not examine the case in the light of the material which was considered by the wealth-tax officer and have held that rule 2b(2) could not be applied in view of the earlier decision of the tribunal. since we are of the opinion that the earlier decision of the tribunal in relation to the earlier assessment years is not conclusive in respect of the subsequent assessment years, question no. 1 sought to be referred does arise for consideration. as the tribunal has not gone into the merits and has not examined the question as to whether the revenue has been able to discharge the burden cast on it, it cannot be said that the said question does not involve a question of law and raises a pure question of fact.11. the reference application is, therefore, allowed and the tribunal is directed to draw up the statement of case and refer the following question for the consideration of this court:'whether, on the facts and in the circumstances of the case, the tribunal was justified in holding chat rule 2b(2) of the wealth-tax rules, was not applicable in the assessee's case and, consequently, in deleting the addition made by the wealth-tax officer ?'12. there will be no order as to costs.