2018 (10) TMI 750 - HC - Wealth-tax

High Court affirms Wealth Tax Act notice for 2013-14, dismissing objection on borrowed funds, lack of evidence.

VASUDEV FATANDAS SAWLANI Versus THE WEALTH TAX OFFICER

VASUDEV FATANDAS SAWLANI Versus THE WEALTH TAX OFFICER - TMI Issues:Challenge to notice under section 17 of the Wealth Tax Act, 1957 for escaped assessment of income chargeable to tax for the assessment year 2013-14.Detailed Analysis:Issue 1: Challenge to Notice under Section 17 of the Wealth Tax ActThe petitioner contested a notice issued by the Assessing Officer under section 17 of the Wealth Tax Act, 1957, stating that income chargeable to tax for the assessment year 2013-14 had escaped assessment. The notice required the assessee to file a return within thirty days. The petitioner was provided with reasons for the notice, detailing the assets held by the assessee and the wealth chargeable to tax. The petitioner objected to the notice, arguing a lack of net wealth as per the balance sheet, showing a negative capital balance. The objections were dismissed by the Assessing Officer, who noted a lack of explanation regarding the application of unsecured loans and liabilities in acquiring assets, along with discrepancies in interest expenses claimed in income computation for previous years.Issue 2: Application of Section 17 of the Wealth Tax ActSection 17 empowers the Assessing Officer to assess or reassess the net wealth of an assessee if there is reason to believe that taxable wealth has escaped assessment. In this case, the assessee had not filed a return under the Wealth Tax Act. The Assessing Officer, based on the income tax return and related documents, observed significant investments in fixed assets and cash holdings, totaling around Rs. 2.30 crores after deducting exempt wealth. The Officer believed that taxable wealth of Rs. 2 crores had escaped assessment. The Officer found a lack of correlation between borrowed funds and asset acquisition, especially noting interest expenses claimed against income from other sources in the income tax returns.ConclusionThe High Court upheld the impugned notice, emphasizing the Assessing Officer's prima facie belief that taxable wealth had escaped assessment. The court agreed that the assessee's claims regarding loans for asset acquisition required further assessment due to the lack of evidence establishing a connection between borrowed funds and asset purchases. The dismissal of the petition affirmed the validity of the notice issued under section 17 of the Wealth Tax Act, 1957.