SMT. SURAJ DEVI PERIWAL v. WEALTH-TAX OFFICER
[Citation -1986-LL-0306-6]

Citation 1986-LL-0306-6
Appellant Name SMT. SURAJ DEVI PERIWAL
Respondent Name WEALTH-TAX OFFICER
Court ITAT
Relevant Act Wealth-tax
Date of Order 06/03/1986
Assessment Year 1969-70, 1970-71
Judgment View Judgment
Keyword Tags private limited company • retrospective amendment • method of computation • method of valuation • investment company • change of opinion • fresh assessment • audit objection • break-up value • share capital • market value • audit party • book value
Bot Summary: According to the AAC, the audit party had not actually communicated t h e legal position to the WTO and had only made him aware that while computing the break-up value of the unquoted shares, no adjustment was permissible as per rule itself. Howsoever wrong the original order of the WTO computing the value of the shares of M/s Bayunandan Rice Oil Mills Ltd. held in other companies by again applying rr. Value of the shares held by the assessee has correctly worked out by the A. R. as per rr. Another reason taken by the AAC was that the audit party had only brought to the notice of the WTO that the company in which the assessee held shares was only an investment company and their value should be calculated with reference to CBDT s Circular No. 2. The earlier interpretation of computing the market value of the shares taken by the WTO was wholly and unmistakable wrong. The value of the shares had to be computed by deducting the value of the liabilities from the value of the assets shown in the balance sheet. As the clear language, the first two lines of 2nd para of r. 1-D will show, there was no occasion for disturbing the values shown in the balance sheet by trying to revise those figures by computing the share of other companies accordance with r. 1-D or taking the market value thereof.


There four appeals though they have been filed by two different assessee involve common question, they are, therefore, disposed of by this single order. dispute in these appeals relates to manner in which value of share held by assessee is Bayundandan Rice & Oil Mills (P) Ltd. should have been computed for purpose of computation of their net wealth. said company further held 32,571, 16,000, 1,600 and 100 shares of face value of Rs. 10, 10, 10 and 100 each in Shree Mahabir Industries (P) Ltd., Periwal Co. (P) Ltd., Taximeters Equipment Ltd. and Periwal Co. (P) Ltd. respectively. total book value of these shares came to Rs. 4,55,460 for both years in question. But break-up value in accordance with rr. 1-D and 1-C came to Rs. 1,86,960 and Rs. 2,55,176 respectively. assessee initially computed value of shares held by them in Bayunandan Rice & Oil Mills (P) Ltd. in accordance with rr. 1-C and 1-D of WT Rules and in computing value of shares held by that company, instead of taking book value, break-up value of those shares which was much less, was taken for purpose of computing assets of Bayunandan Rice & Oil Mills (P) Ltd. ITO accepted same. Later some audit party pointed out that this had been wrongly accepted. Rule 1-D had been wrongly applied in revising total assets of company Bayunandadan Rice & Oil Mills (P) Ltd. In any case that company was investment company and rule was not at all applicable. In this behalf reference was made to Board Circular No. 2/WT of 1967 issued on 31st Oct., 1967, which provides different method of computation of market value of shares in investment companies. ITO therefore, initiated proceedings under s. 19(1)(b) of WT Act and asked assessee to file revised return. T h e assessee claimed value again at old figures. WTO was, however, of opinion that while computing break-up value, difference in value of investment held by said company to tune of Rs. 2,68,600 and Rs. 2,00,284 had been wrongly deducted. No such adjustment was possible under r. 1-D and explanations given thereunder. He, therefore, revised computation and added certain amounts in these values. Apart form that, he added value of gold, silver and precious materials which was liable to be added because of amendment of cl. (viii) of s. 5(1) of WT Act by Finance Act No. 2 of 1971. assessee went up in appeals to AAC who in first instance upheld fresh assessments. Thereafter matter came up before Tribunal which was of opinion that proceedings for re-opening were initiated on basis of audit note. Reference was made to decision of Hon ble Supreme Court in Indian and Eastern Newspapers Society vs. CIT (1979) 12 CTR (Bom) 258: (1979) 119 ITR 996 (SC), according to which it had been held that WTO could not have proceeded on basis of audit note and, therefore, conclusion of AAC that s. 17(1)(b) was rightly applied by WTO was not correct. WTO would have to determine for himself as to what was effect and consequence of law mentioned in audit note and whether in consequence of law which had been brought to his notice by audit party, he could reasonably believe that assessee s wealth had escaped assessment. reason of audit partly could not add to or colour significance of such law. true evaluation of law in its bearing had to be made directly and solely by WTO. Since proper facts were not before Tribunal and even audit note had not been communicated to nor were reasons recorded shown to Bench, Tribunal restored issue to AAC for deciding same afresh in light of Supreme Court decision as to whether WTO was right in reopening proceedings on basis of audit note. In subsequent proceedings AAC has upheld reopening, consequently assessee have again come up in second appeals before us. We have heard representatives of parties at length in all these appeals. According to AAC, audit party had not actually communicated t h e legal position to WTO and had only made him aware that while computing break-up value of unquoted shares, no adjustment was permissible as per rule itself. It had also brought circular of CBDT to knowledge of ITO. This was simply information which led to reasonable belief that wealth of assessee had been under assessed. WTO was not aware of this earlier and therefore, had allowed certain wrong adjustments. To our mind, this conclusion of AAC is not correct. Howsoever wrong original order of WTO computing value of shares of M/s Bayunandan Rice & Oil Mills (P) Ltd. held in other companies by again applying rr. 1-C and 1- D may be, fact remains that assessee had asked WTO to do so and WTO had consciously done it. In this behalf following observations of WTO in original order of assessment need be repeated in extenso: ".......and stated that total wealth declared as per return included value of shares per assessee s own balance sheet (as cost). It was requested by him that value of shares held by assessee may be taken as per r. 1-C & 1-D of WT Act. Balance sheets of relevant companies have been filed. Value of shares held by assessee has correctly worked out by A. R. as per rr. 1-C & 1-D. same is admitted as per statement." reading thereof would show that WTO making assessment earlier had purported to apply his mind and had come to decision about method of valuation of these shares. effect of pointing out by audit party was only that WTO subsequently changed his opinion. Such change of opinion i s not permissible as per decision of Supreme Court in Indian & Eastern Newspapers Society. If any more authorities are needed for this proposition, we may refer to case of Union of India & Anr. vs. Arvind N. Mafatlal & Anr. 1985 Tax LR 1350 (Bom) L. Sharad Patel vs. R. J. Chacko, Third Addl. ITO & Anr. (1985) 49 CTR (Bom) 131 and Yeshwant Talkies vs. CIT (1985) 47 CTR (MP) 57: (1986) 157 ITR 103 (MP). AAC has relied upon decision of Gujarat High Court in case of Anil Starch Products Ltd. vs. ITO (1982) 134 ITR 355 (Guj). Perhaps AAC did not notice that notice of reassessment issued on information received from audit objection was quashed by their Lordships on ground that earlier view of WTO was not correct. Another reason taken by AAC was that audit party had only brought to notice of WTO that company in which assessee held shares was only investment company and, therefore, their value should be calculated with reference to CBDT s Circular No. 2. This information appears to be wrong as WTO has not computed value of shares in accordance with said circular. In these circumstances order of AAC justifying reopening of assessment by WTO according to decision of Hon ble Supreme Court in Indian & Eastern Newspaper Society Ltd., (supra), does not appear to be correct in law. be correct in law. Before parting, we may point out that we are only expressing opinion about correctness of ground of decision taken by AAC who has stated that he had decided appeals in persuance of earlier direction of Tribunal and had not considered any other aspects of matter. It is only because of earlier directions that we are constrained to reverse decision of AAC, otherwise reopening and fresh assessment made by WTO appeared to be fully justified. earlier interpretation of computing market value of shares taken by WTO was wholly and unmistakable wrong. value of shares had to be computed by deducting value of liabilities from value of assets shown in balance sheet. As clear language, first two lines of 2nd para of r. 1-D will show, there was no occasion for disturbing values shown in balance sheet by trying to revise those figures by computing share of other companies accordance with r. 1-D or taking market value thereof. It appears that WTO making assessment earlier was wholly misled by assessee computation and contention put forward by their representative. To support that contention assessee representative referred to decision of Delhi High Court in CWT vs. V. P. Punj (1983) 33 CTR (Del) 293: (1983) 140 ITR 578 (Del) but that case has no bearing on correctness of present computation. In that case there were past losses to tune of Rs. 40,49,140 against share capital of Rs. 30 lacs and, therefore, shares held by private limited company were considered to be valueless. Nothing of this kind was pointed out by assessee in reopened proceedings before WTO or in arguments before us. recomputation of these shares done by WTO now, is, therefore, fully justified on merits and were if not that earlier direction of Tribunal had limited scope of decision by AAC, which was to be taken only in accordance with interpretation of law as propound by Indian & Eastern Newspaper Society s case we would have certainly upheld revised assessments because apart from value of these shares, revision was also based on retrospective amendment of s. 5(1)(viii) by Finance Act No. 2 of 1971 (which had been given retrospective effect from 1st April, 1963, and related to inclusion of value of gold and silver ornaments which had not been considered by WTO making assessment at all, this was by itself sufficient ground for present reopening. Unfortunately for Dept. nobody sought to justify reopening on this ground earlier. As result of above discussion, we accept appeals and reverse orders of AAC passed in this behalf. In result, appeal are allowed. *** SMT. SURAJ DEVI PERIWAL v. WEALTH-TAX OFFICER
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