2021 (1) TMI 381 - AT - Wealth-tax

Reassessment ruled invalid due to lack of reasons. Tribunal orders accurate jewellery reconciliation.

The Tribunal partially allowed the appeals by declaring the reassessment proceedings invalid due to non-supply of reasons to the assessee. It directed ... Exigibility of offshore assets of an offshore trust to wealth tax - HELD THAT:- Private discretionary trust was established by a non-resident with the offshore assets, which is irrevocable and the beneficiaries consist of lineal descendants of Late Shri Pratap Malpani and Late Ashokvardhan Birla together with charitable organizations. The trust deed empowers the trustees to control the offshore assets and in case of distribution, it can be on the basis of trustees discretion. Even though the trust was established in Guernsey, the provision of trust is universally accepted and consistently followed worldwide. Even Indian Trust Act, 1882 is followed consistently and it is enacted in pre-independent era. In this case, it was given to assessee’s father and mother. After their lifetime, it devolved on the assessee. Merely because, it is exercised by the assessee, it does not make the trust to lose its identity. The trust still will continue with the new trustees. The properties attached to the trust will continue to be the properties of the trust. It is wrong to presume that the properties governed by the trustee will be considered as the properties of the individual beneficiary who exercises the appointment of trustees. In the given case, no doubt the assessee is vested with the power to appoint or remove the trustees, does not change the status of the trust and its independent functioning. Admittedly these trusts and the companies managed by the trustees were not declared by the assessee in the return of wealth. It is pertinent to note that the trusts were created in 1989 and the assessee was nominated as the beneficiary by the Late Shri Pratap Malpani. It is fact on record that there are no investments, which were made by the assessee or the investments were moved from India. There was no obligation on the part of assessee to declare the wealth /assets in the ‘ROI’ upto AY 2012-13. The declaration of details of foreign bank account and trust were mandated only from AY 2013-14. The offshore assets held by the offshore trust, which is irrevocable discretionary trust in which assessee is one of the beneficiary, who happens to be bestowed with right to appoint /re-appoint the trustees, it does not inherit the right or control over the trust. As per the declaration of the trust, the trust remains an independent entity and taxable entity outside India. The entities controlled by the trust are independent taxable entities outside India. Therefore, assessee can only be a beneficiary and remain a beneficiary. We are in agreement with the submission of the assessee that the narrow remit of 'assets' under section 2(ea) of the Wealth Tax Act, held to be an exhaustive definition, does not permit exigibility of offshore assets of an offshore trust to wealth tax in the hands of the Assessee. We hold that there is no room for intendment in a taxing statute. Addition towards deposits in foreign bank accounts - AO treated the above deposits in banks belongs to the assessee by observing that the assessee is the beneficial owner - HELD THAT:- CWT(A) has clearly indicated that the addition affirmed by Ld CWT(A) belongs to the offshore companies and offshore discretionary trusts. Since the ownership of these bank accounts are with the offshore entities, the tax authorities cannot treat the same to be part of wealth of the assessee and also the definition of the assets does not include the bank balance as part of the taxable assets as per the Wealth Tax Act. Even though, in the KYC compliance, the assessee is mentioned as the beneficiary, it does not alter the fact that assessee is one of the beneficiary, and it is fact on record that assessee is not the only beneficiary. Therefore, we have to consider the actual legal ownership rather than deemed ownership which is without any evidence on record, to show that assessee has the legal ownership on bank account and other assets held by Trust. Addition made by the AO on account of bank balance of the offshore entities as part of wealth of the assessee is farfetched and without any evidence of ownership as well as the definition of assets does not include the offshore bank account as part of assets as per the Wealth Tax Act, 1957. Accordingly, the ground raised by the assessee in this regard is allowed. Validity of reassessment on the ground that reasons recorded were not communicated to assessee - HELD THAT:- In the instant case, admittedly, the reasons recorded for reopening the assessments were never furnished to the assessee by the AO. This is a non-curable defect and vitiates the entire re-assessment proceedings. The entire re-assessment proceedings becomes null and void for non-supply of reasons recorded to the assessee. Assessee challenged the rejection of filing of revised return of wealth which was filed revising the return filed in response to notice issued u/s 17 of the Act - We notice that the assessee filed the return u/s 17 on 13.03.2015 which was itself belated. As per the provision of section 17(1), AO has to serve the notice requiring the assessee to file the return within such period as may be specified in the notice. We notice that the assessee had filed the return only upon serving of show cause notice u/s 35B of the Act. Therefore, it is clear from the fact that the return filed u/s 17 is belated. The assessee can revise the return which was filed u/s 15 of the Act. Since the provision is very clear that the assessee has to file the return u/s 17 within the time prescribed in the notice and if belated, the assessee cannot revise the return treating the same as filed u/s 15. Therefore, we are in agreement with the findings of Ld CWT(A). Accordingly, the ground raised by the assessee in this regard is dismissed. AO treated the additional jewellery declared in revised return as undisclosed jewellery - After considering the fact in this case, we notice that the jewellery found during the search belongs to assessee and other family members. The assessee has disclosed the additional jewellery only after reconciliation of jewelleries of various family members and it is not something which was unearthed by AO. AO has rejected the revised return filed by the assessee and the AO cannot once again take the figures from the revised return and treat the same as undisclosed wealth. When the AO rejects the revised return then the whole return is invalid. In case AO makes addition from the revised return then it means that he recognizes the revised return. Therefore, we reject the contention of the tax authorities to treat the additional wealth declared in revised return as undisclosed wealth. The AO has to reconcile the jewellery found during the search with the return filed u/s 17 and not from the revised return. Therefore, we allow the ground raised by the assessee. Reconciliation of jewellery found during the search and jewellery declared by the assessee in his return filed in response to notice u/s 17 - There is substantial amount of jewellery found and it belongs to the assessee as well his late parents and other family members. It is also fact that for this purpose, the assesssee had to revise the belated return filed in response to notice u/s 17. After considering the facts in the submissions and assessment records, in our considered view, assessee should be given one more opportunity to reconcile the wealth and considering the complexities in this case, we direct the AO to redo the reconciliation of the jewelleries of all the family members and ascertain the correct jewellery belonging to the assessee and complete the assessment after giving proper opportunity to the assessee. Accordingly, we remit this issue back to the file of AO with the aforesaid direction. Accordingly, the ground raised by the assessee is allowed for statistical purpose. Issues Involved:1. Validity of reassessment proceedings under section 17 of the Wealth Tax Act.2. Treatment of additional jewellery declared in the revised return as undisclosed wealth.3. Inclusion of offshore assets and bank accounts in the net wealth of the assessee.4. Reconciliation of jewellery found during the search with the declared wealth.Issue-wise Analysis:1. Validity of Reassessment Proceedings:The assessee challenged the reassessment on the grounds that the reasons for reopening were not communicated. The Tribunal held that the reassessment proceedings were vitiated due to non-supply of reasons recorded to the assessee. The Tribunal relied on the decision of the Hon’ble Bombay High Court in the case of CIT vs Trend Electronics, which declared reassessment proceedings invalid when reasons were not furnished to the assessee. Consequently, the reassessment proceedings were declared null and void.2. Treatment of Additional Jewellery:The AO treated the additional jewellery declared in the revised return as undisclosed wealth. The Tribunal noted that the jewellery found during the search belonged to the assessee and other family members. The assessee disclosed additional jewellery after reconciliation. The Tribunal held that the AO cannot reject the revised return and simultaneously use figures from it to treat the jewellery as undisclosed wealth. The AO should reconcile the jewellery found during the search with the return filed under section 17 and not from the revised return. This ground was allowed in favor of the assessee.3. Inclusion of Offshore Assets and Bank Accounts:The AO included offshore assets and bank accounts in the net wealth of the assessee, treating the deposits in foreign bank accounts as non-productive cash in hand. The Tribunal observed that the offshore irrevocable discretionary trust, settled by a non-resident Indian, included several beneficiaries and was managed by trustees. The Tribunal held that the offshore assets held by the trust are independent taxable entities outside India and cannot be treated as the personal wealth of the assessee. The Tribunal rejected the AO's argument equating offshore bank balances with cash in hand, stating that the definition of assets under section 2(ea) of the Wealth Tax Act does not include bank balances. This ground was allowed in favor of the assessee.4. Reconciliation of Jewellery:The AO's reconciliation of jewellery found during the search was disputed by the assessee. The Tribunal noted the complexities involved and directed the AO to redo the reconciliation of jewellery belonging to the assessee and his family members. The AO was instructed to complete the assessment after giving the assessee a proper opportunity to reconcile the jewellery. This issue was remitted back to the AO for fresh consideration.Conclusion:The Tribunal allowed the appeals partly, declaring the reassessment proceedings invalid, directing proper reconciliation of jewellery, and excluding offshore assets and bank accounts from the net wealth of the assessee. The Tribunal emphasized the need for clear communication of reasons for reopening assessments and proper reconciliation of jewellery with declared wealth.