Wealth-tax valuation: gross profit rate alone cannot justify stock revaluation, and the Revenue bears the burden of proving understatement.

Rule 2B(2) of the Wealth-tax Rules could not be invoked merely from a firm's gross profit rate, because gross profit figures alone do not provide positive material for determining market value of closing stock. The Revenue had to establish that the declared balance-sheet value was understated and that market value exceeded it by more than 20% before the rule could operate. On that principle, the burden rested on the Revenue, not the assessee, and the issues were resolved in favour of the assessee. The reference applications were not entertained because the questions were already covered by settled law and no referable question of law arose.

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Issues: (i) Whether rule 2B(2) of the Wealth-tax Rules could be applied merely on the basis of the gross profit rate disclosed by the firm to add to the assessee's wealth. (ii) Whether the burden lay on the assessee or on the Revenue to establish that the market value of the closing stock exceeded the declared value by more than 20%.

Issue (i): Whether rule 2B(2) of the Wealth-tax Rules could be applied merely on the basis of the gross profit rate disclosed by the firm to add to the assessee's wealth.

Analysis: The rule could not be invoked on the sole basis of gross profit figures. The governing principle already settled that where only gross profit rate is available and there is no positive material showing the extent of adjustment needed to arrive at market value, there is no definite basis to adopt the market value merely from that rate.

Conclusion: The application of rule 2B(2) on the sole basis of gross profit rate was not justified and the finding deleting the addition was in favour of the assessee.

Issue (ii): Whether the burden lay on the assessee or on the Revenue to establish that the market value of the closing stock exceeded the declared value by more than 20%.

Analysis: The settled rule was that when the assessee asserts the balance-sheet value as true and the Revenue challenges it, the burden lies on the Revenue to show that the market value is higher. Only after the Revenue shows that the market value exceeds the declared value by more than 20% can rule 2B(2) operate.

Conclusion: The burden was on the Revenue, not on the assessee, and this issue was decided in favour of the assessee.

Final Conclusion: The questions sought to be referred were already covered by the existing legal position, and no referable question of law arose; the reference applications were therefore not entertained.

Ratio Decidendi: Rule 2B(2) cannot be applied on gross profit rate alone, and the Revenue bears the burden to prove that the market value of closing stock exceeds the declared value by more than 20% before the rule can be invoked.

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