1984 (8) TMI 138 - AT - Wealth-tax

Tribunal dismisses departmental appeals, requires revenue to prove market value exceeding book value by 20%

The Tribunal dismissed departmental appeals, ruling that Rule 2B(2) cannot be applied based solely on gross profit rates. It held the revenue must prove ... Closing Stock, Market Value, Wealth Tax Issues Involved:1. Application of Rule 2B(2) of the Wealth-tax Rules, 1957 for valuation of closing stock.2. Onus of proving the market value of assets exceeding book value by more than 20%.3. Claim of exemption under section 5(1)(xxxii) of the Wealth-tax Act.4. Deduction of tax liability arising from the Voluntary Disclosure Scheme.5. Legality of reopening assessments under section 17(1)(b) of the Wealth-tax Act.Detailed Analysis:1. Application of Rule 2B(2) of the Wealth-tax Rules, 1957:The primary issue in these appeals pertains to the application of Rule 2B(2) for the valuation of closing stock in firms where the assessees were partners. The WTO applied Rule 2B(2) due to gross profits exceeding 20% in the years under appeal. The appellate authority, however, accepted the contention that Rule 2B(2) could not be applied merely based on the gross profit rate shown in the income-tax assessment, citing the Allahabad High Court's ruling in Seth Satish Kumar Modi v. WTO [1983] 139 ITR 373 and various Tribunal orders.2. Onus of Proving Market Value Exceeding Book Value:The Tribunal considered whether the onus of proving that the market value of an asset exceeds its book value by more than 20% lies with the revenue. The Tribunal relied on the Supreme Court's ruling in Juggilal Kamlapat Bankers v. WTO [1984] 145 ITR 485, which confirmed that Rule 2B(2) could be applied where the WTO believes the market value exceeds the book value by more than 20%. However, the Tribunal held that the onus of proving this fact lies with the revenue, as established in the Rajasthan High Court's ruling in CWT v. Man Industrial Corpn. Ltd. [1980] 123 ITR 298.3. Claim of Exemption under Section 5(1)(xxxii):In WT Appeal No. 212 (Jp.) of 1981, the issue of exemption under section 5(1)(xxxii) for the business of manufacturing emeralds was raised. The Tribunal upheld the AAC's order, following previous Tribunal decisions that manufacturers of emeralds who import, cut, polish, and sell them are entitled to this exemption.4. Deduction of Tax Liability from Voluntary Disclosure Scheme:The Tribunal addressed the issue of tax liability arising from the Voluntary Disclosure Scheme in WT Appeal No. 212 (Jp.) of 1981. Citing the Supreme Court's ruling in CWT v. Vadilal Lallubhai [1984] 145 ITR 7, which allows for the deduction of such tax liabilities, the Tribunal upheld the AAC's order.5. Legality of Reopening Assessments under Section 17(1)(b):In WT Appeal Nos. 206, 208, and 209 (Jp.) of 1981, the legality of reopening assessments under section 17(1)(b) was questioned. Given the Tribunal's decision in favor of the assessee on merits, it did not find it necessary to address the validity of reopening. The appeals were dismissed as the reopening was not justified on merits.Conclusion:The Tribunal dismissed the departmental appeals, holding that Rule 2B(2) could not be applied merely based on gross profit rates, and the onus of proving the market value exceeding book value by more than 20% lies with the revenue. The Tribunal upheld the claims for exemption under section 5(1)(xxxii) and the deduction of tax liabilities from the Voluntary Disclosure Scheme. The reopening of assessments under section 17(1)(b) was deemed unnecessary to address due to the favorable decision on merits.