Per Shri V. P. Elhence, Judicial Member - The department is aggrieved of the order dated 29-5-1981 of the learned Commissioner of Income-tax (Appeals), Kanpur.
2. The question involved relates to the validity of the reopening of the wealth-tax assessment of the assessee. The assessment year in question is 1964-65 for which the relevant valuation date was 15-11-1963. The original assessment was made under section 16(3) of the Wealth-tax Act, 1957 (the Act), on 22-3-1965 on a valuation of Rs. 75,013 as declared by the assessee-HUF Sadi Ram Ganga Prasad, Kanpur as per book value. However, for the assessment year 1968-69, the assessee declared a value of Rs. 4,18,246 on the basis of the report dated 19-2-1969 of the approved valuer Shri B. P. Agarwal, as on 31-12-1967. As per the details filed in the return for the assessment year 1968-69 as also the valuers report, the new construction was of Rs. 62,131 (Rs. 50,295 plus Rs. 11,836). On the basis of the following reasons recorded, the WTO reopened the assessment under section 17(1)(a) of the Act, on the basis that the net wealth chargeable to tax had escaped assessment by reasons of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment :
'The assessments under the Wealth-tax Act have already been completed in this case for the years indicated below. The net wealth assessed includes value of property 365 Harrisganj, Kanpur. The relevant date is as under :
Total net wealth assessed
value of H. No. 365
As per 5 (five) of the return the value as shown in the following works : 365 Harrisganj, Kanpur (as per books) ...... Rs. 57,013.
As per 5 (five) return the value shown in the following works : 365 Harrisganj, Kanpur (as per books) ......Rs. 57,013.
On page 5 of the return following arrear `Factory Building, Harrisganj, Kanpur ......Rs. 51,454'
It would be seen that the assessee has been showing value of the premises 365 Harrisganj, after taking into consideration the fall in value due to depreciation.
The assessee got his properties valued by Shri B. P. Agarwal, an approved valuer. The report is dated 19-2-1969 and shows the value of the properties as on 31-12-1967 as under :
Cost of land
Book value of building as on 31-3-1967.
Appreciation in value as per valuers report
The assessee has shown this value in the return for the assessment year 1968-69 and is claimed exempt for residential house.
The value as per books even as on 31-3-1964, 31-3-1965 and 31-3-1967 would be more than Rs. 82,878 because of the element of depreciation. As per details field in the returns for the assessment year 1968-69 and also the valuers report - the new construction is of (Rs. 50,295 plus Rs. 11,836) Rs. 62,131. the rest represents appreciation in market value. The appreciation in value could not be in one year only. The value had been appreciating year after year. This clearly shows that the value of property number 365 Harrisganj had been understated in the return filed under section 14 of the Wealth-tax Act, 1957 for the assessment years 1964-65 to 1967-68.
I have reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, the net wealth chargeable to tax has escaped assessment for the assessment years 1964-65, 1965-66 and 1967-68.
Issue notice under section 17 of the Wealth-tax Act, 1957 for the assessment years 1964-65, 1965-66 and 1966-67 and 1967-68.
Income-tax Officer, Central Circle IV, Kanpur.'
In pursuance of the notice under section 17, the assessee furnished a wealth-tax return on 13-7-1973 without prejudice and under protest and declared the same wealth as was the assessed wealth according to the original assessment. The reassessment was completed by the WTO in respect of the immovable properties as for the assessment year 1970-71.
3. In appeal, the learned Commissioner (Appeals) took the view that on the original assessment was made, the assessee had disclosed all material facts regarding the existence, status, nature of the property and mode of valuation shown in the return and that simply because the assessee had furnished a valuation report in a subsequent assessment year, the WTO could not have bona fide reason to believe that wealth liable to tax had escaped assessment simply because he felt that there must have been some appreciation in the value of the property as on 15-11-1963 which was the relevant valuation date. He held that the reopening of the assessment was not in accordance with the provisions of section 17(1)(a). The learned Commissioner (Appeals), therefore, quashed the reassessment order. Since the reassessment had been quashed by him, he did not go into the merits of the valuation.
4. The department, being aggrieved, is in appeal before us. Shri K. K. Roy, the learned departmental representative argued that the assessees own valuers report dated 19-9-1969 as on 31-12-1967 made it clear that the cost of the land as well as the book value of the building were given therein, whereas in the original return the assessee had only disclosed the book value but not the cost of the land. He, therefore, submitted that the assessment had been validly reopened under section 17(1)(a). Referring to the impugned order of the learned Commissioner (Appeals) and to the copy of the original return and the assessment order for the assessment year 1970-71, he placed reliance on the decision of the Honble Bombay High Court in the case of Dr. Keki Hormusji Gharda v. B. H. Raisinghani, WTO : 135ITR386(Bom) and submitted that it overrode the decision of the Honble Rajasthan High Court in the case of Brig. B. Lall v. WTO .
5. On the other hand, Shri H. P. Agarwal, the learned counsel for the assessee placed strong reliance on the order of the learned Commissioner (Appeals). He pointed out that the reopening of the assessment had been made under section 17(1)(a) and not under section 17(1)(b) to which the case of Dr. Keki Hormusji Gharda (supra) relied upon on behalf of the revenue related. Next, he pointed out that this was further clear from the fact that the assessment had been reopened after four years but within eight years of the assessment year under reference. He pointed out that in the original return of wealth, the assessee-HUF had shown all the assets including the immovable properties and had given all material facts relating to these assets and there was no omission or failure on its part to disclose fully and truly all material facts. He also submitted that the assessment order had been made by the WTO originally after considering all the assets movable as well as immovable insofar as he made some changes in the valuation as in the case of jewellery. He pointed out that the reopening of the assessment was, therefore, the result of a mere changes of opinion. Reliance was also placed by him on the decision of the Honble Rajasthan High Court in the case of Brig. B. Lall (supra) as also on the decision of the Calcutta High Court in the case of Rasiklal Jivanlal Shah v. ITO : 133ITR476(Cal) . He, therefore, strongly supported the order of the learned Commissioner (Appeals).
6. We have considered the rival submissions as also the decisions referred to above. Though in the reassessment notice, the WTO, merely mentioned section 17 and did not mention whether it was under clause (a) or under clause (b), it is clear from a perusal of the last but one para of the reasons recorded referred to above that the WTO purported to reopen the assessment on the ground of omission or failure to disclose fully and truly all material facts necessary for the assessment. Therefore, it is clear that the assessee was purported to be opened under section 17(1)(a) and not under section 17(1)(b). This is also amply clear from the impugned order of the learned Commissioner (Appeals). We have, therefore, to see whether there was any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of its net wealth in terms of section 17(1)(a) so as to give jurisdiction to the WTO to reopen the assessment for the assessment year in question. A perusal of the original return dated 17-10-1964 of the assessee shows that the description of the property given was 365 Harrisganj, Kanpur (as per books) and the estimated capital value on the valuation date was shown as Rs. 57,013. In this connection, the depreciation chart in Part VIIIA forming part of the assessees return is also relevant. In the assessment year 1957-58, the value of business premises had been accepted as per books at Rs. 82,544. The same was the position in the original assessment order. In the copy of the assessees khata from Dewali 1962 to Dewali 1963 the book value of Ganges Flour Mill building is given as Rs. 57,012.71. The assessee is also right in pointing out that in the original assessment order the WTO had taken the valuation either as shown by the assessee in the return in respect of various assets or after making some changes as in the case of jewellery. It is pertinent to notice here that for the assessment year in question there was no valuation report given by the assessee or by the Departmental Valuation Officer. The only report which was there was of the assessees values for the assessment year 1968-69 giving the value of the property as on 31-12-1967. The figure of Rs. 4,18,246 was arrived at by adding the cost of land (Rs. 36,440 plus book value of the building as on 31-3-1967 Rs. 4,64,338) thereby making a total of Rs. 82,878. According to the approved valuer, there was appreciation in the value of this property up to 31-12-1967 at Rs. 3,35,363 thereby arriving at a total value of Rs. 4,18,246. We agree with the contention raised on behalf of the assessee that by giving in the original return the number of the property and the fact that it was being held as a business asset, the assessee had clearly given the nature of property, its exacts location as also the mode of its valuation (as per books). It was not for the assessee to instruct the WTO. The WTO, after knowing all these facts accepted the valuation of the property in the original assessment at the same figure as shown by the assessee and thereafter simply on the basis that for a subsequent valuation date (i.e., 31-12-1967) a valuation report had been filed showing a higher value, an inference could not be drawn that the assessee had failed to disclose fully and truly all material facts at the time of the original assessment. In the case of Brig B. Lall (supra), the assessee had, in the original proceedings, been assessed on the basis of an approved valuers report and the assessment was completed. Reassessment proceedings were commenced there on the basis of the report of the Valuation Officer called for under section 16A of the Act and certain audit objection. The case was considered both under clause (a) as well as under clause (b) and on those facts it was held that there was no provision to refer the question of the valuation of property, in a completed assessment, after acceptance of the valuation by a registered valuer and that simply for the purpose of finding out whether his own suspicion that the completed assessment was based on a undervaluation was or was not correct, could not make for the WTO a ground or foundation for a reasonable belief or information under section 17(1). The facts of the present case are not the same as the facts in the above case. Similarly, in the case of Dr. Keki Hormusji Gharda (supra), the basis for the issuance of a notice under section 17(1)(b) was the assessees own valuation report and the assessees own sale transaction. In the present case, there is no sale transaction nor the WTO purported to act under section 17(1)(b). Therefore, this decision would also not apply to the facts of the present case. However, in the case of Rasiklal Jivanlal Shah (supra), the assessee had constructed a cold storage and the cost of construction thereof was accepted by the ITO for the assessment year 1960-61. However, in 1968, the cold storage was valued at a much higher figure by the assessees valuer, and on these facts it was held that it could not form the basis for reassessment proceedings. In that case, the assessment was sought to be reopened under section 147(a) of the Income-tax Act, 1961. The Honble High Court clearly held in that case that the process of back calculation resorted to by the ITO in finding out the value of the construction of the cold storage on the basis of the valuations made by the assessees valuer in 1968 could not be said to be material for the formation of the belief of the ITO either that income of the firm had escaped assessment or that such escapement was due to any failure on the part of the firm to disclose fully and truly materials facts relevant for the assessment. It was held that there was no independent exercise of mind or formation of belief by the ITO that the income had escaped assessment. Having regard to the facts of the present case, we are of the view that the decision in the aforesaid case of Rasiklal Jivanlal Shah would clearly apply. it is also relevant to notice that at the time of the hearing of the appeal before the learned Commissioner (Appeals), the ITO present there was asked by the learned Commissioner (Appeals) as to what was the non-disclosure of primary facts at the time of initial assessment proceedings and the reply of the ITO present there was that the assessee-HUF had very much undervalued the property. There was no non-disclosure of primary facts alleged. As already observed above, on facts it could not be said that there was any failure on the part of the assessee to truly and fully disclose the material facts necessary for the assessment of the net wealth of the assessee for the assessment year 1964-65. We are, therefore, in agreement with the conclusion reached by the learned Commissioner (Appeals), namely, that the reopening of the assessment under section 17(1)(a) was without any proper jurisdiction. We, accordingly, uphold his order. There is, therefore, no force in the appeal filed by the department, which must fail and be dismissed.
7. In the result, the appeal is dismissed.