High Court clarifies notice requirements for best judgment assessment under Wealth-tax Act

Commissioner of Wealth-tax Delhi-VI Versus Motor & General Finance Ltd.

Commissioner of Wealth-tax Delhi-VI Versus Motor & General Finance Ltd. - [2011] 332 ITR 1 Issues Involved:
1. Mandatory issuance of notice under section 16(5) of the Wealth-tax Act before passing best judgment assessment.
2. Necessity of issuing notice under section 16(5) in view of the second proviso when notice under sub-section (4) of section 16 had already been issued.

Issue-wise Detailed Analysis:

1. Mandatory Issuance of Notice under Section 16(5):

The Revenue filed appeals against the Tribunal's order dismissing their appeals for the assessment years 1997-98 and 1998-99. The Tribunal had remanded the case to the CWT(A) for fresh consideration, emphasizing the mandatory nature of issuing notice under section 16(5) of the Wealth-tax Act if the circumstances are attracted. The CWT(A) and the Tribunal held that the assessment orders were invalid as the mandatory requirement of issuing notice under the first proviso of section 16(5) was not complied with. The Tribunal interpreted that the issuance of a statutory notice cannot be done away with merely on the ground that the assessee was not cooperative or had knowledge of the proceedings.

2. Necessity of Issuing Notice under Section 16(5) in View of the Second Proviso:

The High Court examined whether it was mandatory to issue a notice under section 16(5) before passing a best judgment assessment if a notice under section 16(4) had already been issued. The court clarified that sub-section (4) of section 16 contemplates two situations: (i) where a return is filed under section 14 or 15, and (ii) where no return is filed within the time allowed under section 14(1). The court noted that clause (i) of sub-section (4) provides for issuing a notice calling upon the assessee to file a return, while clause (ii) deals with requiring the production of records or documents.

The court further explained that sub-section (5) allows the Assessing Officer to make a best judgment assessment if the assessee fails to make the return required under section 14(1) or fails to comply with the terms of a notice issued under sub-section (2) or (4). The first proviso to sub-section (5) mandates giving an opportunity of hearing by serving a notice, which can be dispensed with if a notice under sub-section (4) has been issued. The court disagreed with the Tribunal's interpretation that the statutory notice under the first proviso could be done away with only if a prior notice was issued under clause (ii) of sub-section (4). The court emphasized that the second proviso to sub-section (5) does not qualify the type of notice under sub-section (4), meaning that either notice under clause (i) or (ii) would suffice to dispense with the hearing notice.

Conclusion:

The High Court held that where a return was not filed pursuant to a notice under section 16(4), it was not mandatory to issue a further notice under section 16(5) before passing a best judgment assessment. The court also affirmed that if a notice under sub-section (4) of section 16 had already been issued, no additional notice was required under the second proviso to section 16(5). The appeals were disposed of accordingly, reversing the Tribunal and CWT(A)'s interpretations.