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Smt. Rajeshwari Birla Vs. Wealth-tax Officer, 'H' Ward and Ors. (26.05.1978 - CALHC) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberCivil Rule No. 3312(W) of 1974
Judge
Reported in[1979]119ITR629(Cal)
ActsWealth Tax Act, 1957 - Section 17; ;Income Tax Act, 1922 - Section 34(1)
AppellantSmt. Rajeshwari Birla
RespondentWealth-tax Officer, 'H' Ward and Ors.
Appellant AdvocateR.N. Bajoria, ;Dilip Dhar, ;Santosh Bajoria and ;P.L. Khaitan, Advs.
Respondent AdvocateB.L. Pal, ;Suhas Sen and ;Rupen Mitra, Advs.
Cases ReferredAnandji Haridas and Co. (P.) Ltd. v. S.P. Kushare
Excerpt:
- m.n. roy, j. 1. the petitioner is admittedly an assessee under the provisions of the w.t. act, 1957 (hereinafter referred to as 'the said act'), in respect of her share held in various companies, deposits in banks and jewelleries. for the assessment year 1968-69, the relevant valuation date being march 31, 1968, she filed her return of net wealth before the wto concerned, being respondent no, 3, she has claimed that in her return she fully and truly disclosed all the material particulars of her net wealth chargeable to tax under the said act. she has also claimed that along with such return, she filed a statement of net wealth as on march 31, 1968.2. by a notice under section 16(2) of the said act, which is to the following effect :'section 16(2) if the wealth-tax officer is not so.....
Judgment:

M.N. Roy, J.

1. The petitioner is admittedly an assessee under the provisions of the W.T. Act, 1957 (hereinafter referred to as 'the said Act'), in respect of her share held in various companies, deposits in banks and jewelleries. For the assessment year 1968-69, the relevant valuation date being March 31, 1968, she filed her return of net wealth before the WTO concerned, being respondent No, 3, She has claimed that in her return she fully and truly disclosed all the material particulars of her net wealth chargeable to tax under the said Act. She has also claimed that along with such return, she filed a statement of net wealth as on March 31, 1968.

2. By a notice under Section 16(2) of the said Act, which is to the following effect :

'Section 16(2) If the Wealth-tax Officer is not so satisfied, he shall serve a notice on the assessee either to attend in person at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the assessee may rely in support of his return ', the WTO, ' G ' Ward, being respondent No. 1, required her to furnish further information and produce documents, accounts and other evidence in respect of her return. The petitioner has stated that in response thereto, her authorised representaive appeared before the said respondent No. 2 produced the necessary bank account, market quotations and balance-sheets of the various companies in which she held the shares and filed before the WTO concerned, the valuation return from the approved valuer in respect of shares in companies, which were unquoted and explained the said return, apart from the basis of the valuation of her assets and as held by her. There has been a categorical statement that the petitioner has fully and truly disclosed before the said respondent No. 1, the material and relevant particulars for the assessment and there was no omission or failure on her part to disclose any material or relevant facts necessary for the assessment.

3. It appears that the said respondent No. 2 passed an order of assessment under Section 16(3) ot the said Act, which is to the following effect :

' 16. (3) The Wealth-tax Officer, after hearing such evidence as the person may produce and such other evidence as he may require on any specified points, and after taking into account all relevant material which the Wealth-tax Officer has gathered, shall, by order in writing, assess the net wealth of the assessee and determine the amount of wealth-tax payable by him or the amount refundable to him on the basis of such assessment', for the assessment year 1968-69, determining thereby the net wealth of the petitioner at Rs. 9,20,477. Such determination has been contended by the petitioner to be made by the said respondent No. 2 after fully investigating the matter and examining all relevant facts and materials, which were disclosed by her in her return and in the course of assessment proceeding. Apart from relying on such materials, which the said respondent No. 2 considered necessary and relevant for the purpose of estimating the net wealth of the petitioner under Section 7 of the said Act, which is to the following effect :

'Section 7. Value of assets how to be determined.--(1) Subject to any rules made in this behalf, 'the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold In the open market on the valuation date.

(2) Notwithstanding anything contained in sub-section (1),--

(a) where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as may be prescribed ;

(b) where the assessee carrying on the business is a company not resident in India and a computation in accordance with clause (a) cannot be made by reason of the absence of any separate balance-sheet drawn up for the affairs of such business in India, the Wealth-tax Officer may take the net value of the assets of the business in India to be that proportion of the net value of the assets of the business as a whole wherever carried on determined as aforesaid as the income arising from the business in India during the year ending with the valuation date bears to the aggregate income from the business wherever arising during that year.

(3) Notwithstanding anything contained in sub-section (1), where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under Section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date.'

4. Section 17 of the said Act, which is to the following effect :

'Section 17. Wealth escaping assessment.--(1) If the Wealth-tax Officer-

(a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under Section 14 of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose fully and truly all material facts necessary for assessment of his net wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped assessment for that year, whether by reason of under-assessment or assessment at too low a rate or otherwise ; or

(b) has, in consequence of any information in his possession, reason to believe, notwithstanding that there has been no such omission or failure as is referred to in Clause (a), that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under-assessment or assessment at too low a rate or otherwise ;

he may, in cases falling under Clause (a) at any time within eight years and in cases falling under Clause (b) at any time within four years of the end of that assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under Subsection (2) of Section 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under that sub-section.

(2) Nothing, contained in this section limiting the time within which any proceeding for assessment or reassessment may be commenced, shall apply to an assessment or reassessment to be made on such person in consequence of or to give effect to any finding or direction contained in an order under Section 23, 24, 25, 27 or 29 :

Provided that the provisions of this sub-section shall not apply in any case where any such assessment or reassessment relates' to an assessmentyear in respect of which an assessment or reassessment could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any provision limiting the time within which any action for assessment or reassessment may be taken '.

deals with the wealth escaping assessment and it transpires that by a notice dated March 27, 1973, served on the petitioner, the said respondent No. 2, for the assessment year 1968-69, alleged that he had reason to believe that the net wealth of the petitioner chargeable to wealth-tax for the assessment year 1968-69, had escaped assessment within the meaning of the said Section 17 and as such he proposed to reassess such net wealth, which had so escaped assessment. The notice further required the petitioner to deliver a return of net wealth within 35 days of the receipt of the same.

5. As stated hereinbefore, the petitioner at all material times contended that in respect of the assessment year 1968-69, all the material and relevant facts were fully and truly disclosed by her before the said respondent No. 2, apart from disclosing all necessary and relevant evidence for necessary formation of opinion, truly and fully, before the said respondent No. 2 and in fact there was no omission or failure whatsoever on her part to disclose fully and truly any material or relevant fact necessary for the assessment in question. She has categorically averred that no wealth chargeable to tax in the relevant assessment orders had escaped assessment as has been alleged. She has also raised the doubt about the due formation of belief by the respondent No. 2 and in fact she has contended that the said respondent No. 2 had no reason at all to believe, which could be the basis for the issue of the impugned notice. However, she by her letter of April 9, 1973, denied categorically the basis and the charges of the notice in question and stated duly that all material facts necessary for the purpose of the wealth-tax assessment for the assessment years were fully, truly and faithfully disclosed by her at the time of the assessment and that the said respondent No. 2 could not have any reason whatsoever, which could lead him to believe that her wealth had escaped assessment. The validity and the authority of the said notice was also denied and the petitioner further required of the respondent No. 2 to disclose the allegations, if any, which led him to believe that her wealth chargeable to tax had escaped assessment. It appears from the statements in the petition that in spite of such demand, the respondent No. 2 has failed and neglected to disclose any materials or reasons in initiating all the concerned reassessment proceedings and in fact it has been contended that such silence would ex facie prove that the said respondent No. 2 had no basis for the initiation of the proceeding. It has also been an admitted fact that without prejudice to her rights and contentions, the petitioner filed a return together with a letter of April 30, 1973, in which she has again denied and disputed the allegations made in the concerned notice.

6. Then again, by a notice dated November 16, 1973, issued under Section 16(2) of the said Act, which is to the following effect :

' Section 16(2). If the Wealth-tax Officer is not so satisfied, he shall serve a notice on the assessee either to attend in person at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the assessee may rely in support of his return ', the Wealth-tax Officer, ' H ' Ward, respondent No. 1, directed the petitioner to attend his office on November 24, 1973, for furnishing further information and production of necessary documents in support of her return filed in pursuance of the aforesaid notice under Section 17. It appears that in response thereto, the authorised representative of the petitioner appeared before the respondent No. 1 and denied and disputed the allegations made by the said respondent No. 1. Thereafter, by a letter dated December 20, 1973, the petitioner again placed on record that all material and relevant facts for the purpose of assessment were duly furnished at the time of the assessment. She has further contended that the alleged belief, as mentioned in the impugned notice, was a mere pretence and does not exist. In fact, there was no material whatsoever, on the basis of which the said respondent No. 2 could have entertained any belief as required by Section 17 of the said Act. As such, she has contended that the notice in question was wholly without jurisdiction or authority of law and the same was issued in excess of jurisdiction, apart from being arbitrary and illegal. These apart, she has contended that the conditions precedent for assumption of jurisdiction under Section 17 of the said Act do not and cannot exist in the facts of the present case. In fact, such conditions have not been fulfilled or complied with. It has further been alleged by the petitioner that the respondent No. 2 is, in fact, by the impugned action seeking to reconsider or review or sit in matters which had been finally decided or concluded at the time of the original assessment order in question, and as such the said respondent was not entitled to or cannot assume any jurisdiction under Section 17 as aforesaid for reconsidering the assessment in question. It has been alleged, that the said respondent No. 2 was purporting to assume jurisdiction under Section 17 as aforesaid on a mere change of opinion or with a view to change the method of valuation.

7. The return to the rule of the respondents was filed by the Deputy Director (Inspection) on his behalf and on behalf of the other respondents. It has been stated in the said return that during the assessment year 1968-69, the petitioner held 400 shares of Messrs. Central India General Agency Ltd. and the value of such shares was shown at Rs. 12.54 each on the valuation date. In the statements filed along with the wealth-tax return for the year 1968-69, shares in the said company being one of the investments of the petitioner, were shown as valued at Rs. 12.54 per share unquoted. At the time of the original assessment, the assessee did not furnish any basis for the value shown on those shares nor did she furnish any material particulars relevant for establishing that the value shown reflected the value which the shares would have fetched, if sold in the open market. The original assessment was completed by taking the value of the said shares at Rs. 12.63 per share. In or about August, 1972, a Special Cell of the Directorate of Inspection (Inv.) was set up under the Ministry of Finance, inter alia, to collect and supply information and make research into the techniques, evasion/avoidance of taxes. From January, 1973, certain investigations were made by the Special Cell of the said Directorate, inter alia, regarding the genuineness of the valuation of the shares of certain big industrial firms for the assessment purpose of the shareholdings and the results of such investigations were duly communicated to the CIT. In the case of the said company, it was noticed that the same is a 100% subsidiary company, which has earned substantial profits and has built up huge reserves and is not distributing any dividend or was distributing a nominal dividend, with the result the reserves and profits were not recorded in the balance-sheets of the holding company and the value of the shares of the said company, taking into consideration the reserves and profits of the subsidiary company, worked out at a figure very much higher than what was shown by the petitioner. It has also been contended that after carefully perusing the report of the Directorate as above, and after perusing the relevant balance-sheet of the company as mentioned above, for the year ending 31st March, 1968, taking into account the further data calculated by the deponent he applied his mind to the facts and bona fide had reason to believe that the petitioner had failed to disclose fully and truly all material facts pertaining to the value of the shares of the concerned company on the relevant valuation date and that, as a result of that, net wealth chargeable to tax for the year 1968-69 had escaped assessment. The said deponent has further stated that, in any event, in consequence of information in his possession, which are relevant to the calculation and the value of the net wealth escaping assessment, he had reason to believe that the net wealth chargeable to tax for the year 1968-69 had escaped assessment. He has further stated that the balance-sheet of the said company, as on 31st March, 1968, showed, inter alia, that the company had a wholly-owned (100%) subsidiary by the name of Messrs. Ujjain General Trading Sbciety Ltd., which had huge reserves which were not at all taken into account in the valuation submitted by the petitioner at the time of the assessment. The deponent has stated that if such reserves., which were in fact the reserves of the holding company, i.e., Messrs. Central India General Agency Ltd., had not disclosed all the value of the shares, even if quoted, would have been at least approximately Rs. 277 per share. These apart, the said deponent has further stated that on such bona fide belief, he had issued the impugned notice and the concerned WTO would hear the petitioner with regard to the fact as to whether or not the net wealth should be recomputed or reassessed.

8. In the above state of pleadings, the petitioner contends, inter alia, that the conditions precedent for the assumption of jurisdiction under Section 17 of the said Act did not exist and the WTO, 'G' Ward, respondent No. 2, could have and in fact had no reason to believe that any wealth chargeable to tax for the assessment year 1968-69 had escaped assessment as alleged and furthermore the alleged belief of the said respondent No. 2 as mentioned in the impugned notice does not exist and in fact the same was a mere pretence. It was also contended that there was no material on the basis of which the said respondent No. 2 could entertain any belief that any wealth of the petitioner chargeable to tax had escaped assessment. It was of course contended that all the material and relevant facts necessary for assessment of the net wealth of the petitioner, for the assessment year in question, were fully and truly disclosed before the said respondent No. 2 at the time of the relevant assessment and there was no omission or failure on her part to disclose before the said respondent fully and truly all relevant facts material for the assessment in question. It was further submitted that there was or could be no information, as a consequence whereof, the said respondent No. 2 could have entertained any belief that any wealth of the petitioner chargeable to tax for the assessment year 1968-69 had escaped assessment or had been under-assessed. In fact, it was contended that there could be no information coming to the possession of the said respondent, which could be the ground for entertaining any belief that any wealth of the petitioner had escaped assessment or her wealth has been under-assessed. These apart, mala fide exercise of power by the respondent No. 2 has been alleged, apart from contending that the said respondent had no authority, power, competence and jurisdiction in the instant case for purporting to reopen and thereby unsettle an existing fact, which was duly determined by his predecessor-in-office, on proper materials and in exercise of his due jurisdiction. In fact, it has been contended that the purported reopening was without any basis, not bona fide, and on due application of mind, but was done at the dictates of the superiors and that too for collateral purposes.

9. Mr. Bajoria, after placing Section 17 of the said Act, submitted that since steps thereunder can be taken in the case of, (1) non-filing of return due to omission, and (2) subsequent information coming to the possession or notice of the officer concerned, action in the instant case must be deemed to have been taken under the second limb and as such four years was the period of limitation. The assessment in the instant case for the assessment year 1968-69 was completed on 19th December, 1969, and the purported steps to reopen by the notice in annex. ' B' to the petition was taken on 27th March, 1973. It should also be remembered that the relevant valuation date was 31st March, 1968. The reply to the said notice in annex. ' C ' was filed by the petitioner on 9th April, 1973, stating therein that at the time of the original assessment there was full and true disclosure of all material facts necessary for the assessment of the net wealth of the petitioner for the assessment year in question and there was no omission or escapement of any kind or any default on her part. It was also pointed out by her that the assessment was duly completed after taking into consideration all or every relevant aspect and after detailed discussion and full satisfaction. As such it was claimed that there was no reason to reopen the matter and to hold the opinion that the petitioner's net wealth chargeable to wealth-tax had escaped assessment within the meaning of Section 17 of the said Act. It was also claimed that in the notice the reasons for such action as taken were not disclosed and furthermore the notice was invalid and inoperative for such defects. The petitioner had further requested for the supply of the reasons, which Mr. Bajoria has submitted, was not duly supplied to her and as such from the attending circumstances as mentioned above, the petitioner had to gather that the action was taken on the basis of information. Mr. Bajoria, in view of the facts of the case, submitted that there was no omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary and relevant for the assessment in question, which again were duly considered at the time of making the assessment. To substantiate the aforementioned submissions, he placed the relevant assessment order, annex. 'A' to the petition, wherein the particulars of quoted and unquoted shares of the assessee are to be found. Mr. Bajoria has also left out and advanced no arguments on the unquoted shares of Woodcraft Products Ltd., Sujata Apparels & Exports Ltd. and Hyderabad Agency Pvt. Ltd. and advanced his arguments in respect of the unquoted shares of Central India General Agents Ltd. only, as allegations have been made in justification of the action, not against the unquoted shares of the former and other companies but only against the unquoted shares of the latter. It was appropriately submitted by him and that too on a reference to the statements made in the affidavit-in-opposition that the alleged basis of exercise of power in the instant case was that along with the wealth-tax return for the assessment year 1968-69, share in Central India General Agents Ltd. being one of the investments of the petitioner, was shown as valued at Rs. 12.54 per share unquoted and at the time of the original assessment, the assessee did not furnish any basis for the value shown of those shares nor did she furnish any material particulars relevant for establishing that the value as shown reflected the value which the shares would have fetched, if sold in the open market. The original assessment was, however, completed by taking the value of the shares at Rs. 12.63 per share. Mr. Bajoria of course contended that the basis as aforesaid was wrong as admittedly there was true and faithful disclosure by the assessee and the norms for valuing the unquoted shares as admittedly adopted was also wrong. He submitted that the unquoted shares should be valued taking into consideration (1) the yield, (2) break-up value, and (3) capitalised value or average of the two.

10. The real reason for the action under Section 17, it was submitted by Mr. Bajoria, and that also on a reference to the affidavit-in-opposition was the report of the Directorate of Inspection (Inv.) on purported perusal of the balance-sheet of Central India General Agents Ltd. for the year ending 31st March, 1968, and taking into account the further data collected for the purpose of calculating the net wealth. Such special cell of the Directorate concerned appears to have been set up in or about August, 1972, under the Ministry of Finance, for collecting and supplying information and to have a research into the techniques of evasion/avoidance of taxes which they made by certain investigations from January, 1973, regarding the genuineness of the valuation of shares of certain big industrial firms for the assessment purposes by the shareholders and their report as mentioned above was communicated to the CIT. In the case of Central India General Agents Ltd. it was found that the company had a 100% subsidiary company which was earning substantial profits and had built up huge reserves but was not distributing dividends or was distributing only a nominal dividend, as a result whereof the reserves and profits were not reflected in the balance-sheet of the holding company and the value of the shares of the said Central India General Agents Ltd., after taking into consideration the reserves and profits of the subsidiary, worked out at a figure much higher than what was shown by the petitioner.

11. It was thus argued by Mr. Bajoria that some information leading to escapement of income would mean mere change of opinion and that would not be sufficient cause for reopening either under Clause (a) or (b) of Section 17 of the said Act. Therefore, the officer concerned as stated hereinbefore must have acted on the basis of information after the assessment was completed and thus the question for consideration would be whether the necessary or required belief can be formed or entertained on the basis of such information as disclosed above and in any event it was contended that such belief cannot be entertained or formed merely on a change of opinion.

12. In support of his submission on the principle of valuation of unquoted shares, Mr. Bajoria reiterated his principle of valuation as mentioned hereinbefore and with reference to Section 7 of the said Act, which lays down the principle of valuing the assets to the following effect :

'Section 7. Value of assets how to be determined.--(1) Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date.

(2) Notwithstanding anything contained in Sub-section (1),--

(a) where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as may be prescribed ;

(b) where the assessee carrying on the business is a company not resident in India and a computation in accordance with Clause (a) cannot be made by reason of the absence of any separate balance-sheet drawn up for the affairs of such business in India, the Wealth-tax Officer may take the net value of the assets of the business in India to be that proportion of the net value of the assets of the business as a whole wherever carried on determined as aforesaid as the income arising from the business in India during the year ending with the valuation date bears to the aggregate income from the business wherever arising during that year.

(3) Notwithstanding anything contained in Sub-section (1) where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under Section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date.'

13. He submitted that since there are no rules for valuing the unquoted shares, the principle as mentioned by him should be followed and in fact he submitted that such principle was duly followed by the petitioner while filing the return including the valuation of those unquoted shares. It was also submitted by Mr. Bajoria, with reference to Section 16 of the said Act, which is to the following effect :

' Section 16. Wealth-tax authorities to follow orders, etc. of the Board.--(1) All officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board :

Provided that no orders, instructions or directions shall be given by the Board so as to interfere with the discretion of the Appellate Assistant Commissioner of Wealth-tax in the exercise of his appellate function. (2) Every Wealth-tax Officer employed in the execution of this Act shall observe and follow such instructions as may be issued to him for his guidance by the Director of Inspection or by the Commissioner or by the Inspecting Assistant Commissioner within whose jurisdiction he performs his functions '. that in terms thereof the procedure for valuation which was laid down by the Board in its Circular No. 2 (WT) dated 31st October, 1967, for valuation of unquoted equity shares of investment companies, holding companies and managing agency companies and more particularly Sub-clause 3 thereunder, which is to the following effect : (see [1968] 69 ITR 34)

'Sub-clause 3: Unquoted equity shares of investment companies which are substantially holding companies.--An investment company, whose assets to the extent of 50% or more consist of shares in companies controlled by it will be treated as a holding company. The fair market value of the shares of an investment company, which is also a holding company, will be determined by adding a premium of 10% to the value of the shares arrived at on the basis set out in the preceding paragraph ', are applicable to the petitioner. It has been specifically contended by the petitioner that since the valuation as in the instant case was made according to such instructions, which were binding on the officer concerned he should have accepted such valuation. The above Circular was thereafter amended by Circular No. 118 dated 15th September, 1973 (see : [1973]92ITR1(Delhi) ) and such amended circular, not being a retrospective one, it was submitted by Mr. Bajoria, to be not applicable in the case of the petitioner and more particularly when the notice was dated 27th March, 1973, i.e., during the pendency of the earlier circular and the assessment order was made on 19th December, 1969. Thus, it was also contended by Mr. Bajoria that there was no irregularity or laches or failure on the part of the petitioner to have admittedly valued the connected unquoted shares on the average of the two methods and that too on the basis of the first circular, as was in force on the relevant date and time and as such the reasons as mentioned for, the initiation under Section 17 were incorrect and inappropriate. It was in fact submitted that there was no non-disclosure by the assessee, giving jurisdiction to the officer concerned to reopen or initiate proceedings under Section 17 and more so when the basis of the valuation was admittedly furnished. The valuation of Rs. 12.63 per share as made was said to be incorrect and baseless. The basis as disclosed in this proceeding was really the basis as in the 2nd circular, which was not admittedly in force when the assessment in the instant case was completed on the basis of accepting of the valuation statement of the concerned unquoted shares as filed during the pendency or operation of the 1st circular. The petitioner was not admittedly covered by the 2nd circular and as such Mr. Bajoria also submitted that 'asset backing' as mentioned in Clause 2(a) thereunder, and on which Mr. B. L. Pal placed strong reliance, would not also have any effect and he submitted that such argument on the basis of the statement in the affidavit-in-opposition, was perhaps due to the fact that the said opposition was filed after the 2nd circular was brought into force and there cannot be any other explanation than this as the transactions in the instant case were, without any doubt, of earlier origin.

14. The report, which was the basis for re-opening, was produced in another proceeding and by consent of parties the same was looked into. The copy of the order initiating the proceeding in the instant case was produced. Mr. Bajoria took inspection of the same from the records and he filed a copy of the said report and the basis of the valuation of the concerned shares as filed before the authorities concerred. The copies of the said records have also been looked into and kept in the records of this case by consent of parties. The order ex facie shows that the same was issued on the basis of a letter dated 20th March, 1973, from the IAC (Survey Range), Calcutta, enclosing therewith the report dated 14th March, 1973, from the Directorate concerned and, applying the recommendations, it was opined that the approximate market value of the concerned shares would be Rs. 277 per share as against Rs. 12.54 per share as claimed. It has of course been noted in the order that the shares are unquoted and even then it has been recorded in the order in question that the assessee did not disclose the market value of the shares in the return and she had not supplied all relevant and necessary information for working out the correct value of the shares. Mr. Bajoria submitted that the order itself shows that the assessee duly informed that the connected shares were not quoted and if they are not quoted then how could the assessee get or furnish their market value excepting by arriving at the value on the basis of calculations as in the 1st circular as aforesaid which was in the field at the relevant time and the assessee having admittedly arrived at the valuation on application of the said 1st circular, has not done anything wrong and in fact she has acted properly and she duly complied with or fulfilled her obligations and that too when the shares were unquoted. It is also clear from the order in question that the only information which is the basis for reopening was the letter or report dated 20th March, 1973, and as such also the conditions precedent for initiating the proceedings under Section 17 of the said Act were said to be not complied with or fulfilled. It was very candidly stated by Mr. Bajoria that the proceedings in the instant case could have been on the basis of the recordings as referred to hereinbefore, initiated if the shares were quoted and such not being the case and the shares having been specifically mentioned to be unquoted, the entire basis and the initiation was bad, void, irregular and without jurisdiction. To substantiate the statements that the shares were stated and claimed to be unquoted, he also referred to the copy of the statement as produced and which has admittedly been received by the authorities concerned. In view of the above, it was also contended that the information as received and relied upon would not enable the authorities concerned to reopen the proceeding under Section 17 of the said Act.

15. It was also submitted by Mr. Bajoria that the officer concerned acted only on the basis of the report and recommendation as above and as such there was also no independent exercise or formation of opinion and due application of mind. In fact, he submitted that these recommendations and reports were blindly and machanically followed. In fact, the notice in the instant case was also contended to have been issued as soon as the report and recommendation was received. It was thus contended that there was no due formation of opinion and the proceeding was initiated on a mere change of opinion and the materials as disclosed for holding the necessary opinion were also variable and as such also there was no application of mind.

16. Since the assessing officer, at the time of making the assessment, has given the reasons for accepting the method adopted by the petitioner, it was contended by Mr. Bajoria that the said method was binding on the WTO concerned and in view of such disclosure as duly made, there was no omission or any failure on the part of the assessee to disclose fully and truly all facts relevant or material for the assessment and the more so when the number of shares, their nature and character and so also the method of calculation was duly disclosed before and made known to the officer concerned.

17. To establish his submissions that the circulars as mentioned hereinbefore and as in force on the relevant date or time, reliance was placed by Mr. Bajoria on the case of Tata Iron & Steel Co. Ltd. v. Kum. D.V. Bapat : [1974]96ITR1(Bom) . In that case, a point arose about the binding nature of the orders, instructions and directions as issued by the Board from time to time and it was argued that the ITO was bound by them. It was conceded therein on behalf of the revenue that these instructions, orders and directions were binding on the officers but not on the courts. The Supreme Court, on a consideration of its earlier determination in the case of Navnitlal C. Javeri v. K.K. Sen : [1965]56ITR198(SC) , has observed that the circulars involved in the case were not only binding on the ITOs but they should have been given effect to by the court. This apart, it was also submitted that the change effected in the 1st circular by the 2nd one was prospective and not retrospective and as such also the instructions in the 2nd circular could not be made effective in this case and that too in view of the facts as mentioned above. These apart, on his submissions on the binding nature of the circulars, Mr. Bajoria further referred to the determination of the Bombay High Court in the case of Navnitlal Ambalal v. CIT : [1976]105ITR735(Bom) .

18. On the facts as stated hereinbefore that the relief to the assessee was once and initially granted, Mr. Bajoria contended that such relief once granted on consideration of relevant facts, cannot be changed, the more so when the order as made was legal and correct and for that purpose reliance was placed on the determination of the Supreme Court in the case of CIT v. Simon Carves Ltd. : [1976]105ITR212(SC) . In that case, in the original assessment of the respondent, a non-resident company carrying on business as construction engineers, for the assessment year 1959-60, the ITO invoked Rule 33 of the Indian I.T. Rules, 1922, and applying one of the three methods permitted therein, computed its income through or from certain contracts (business connection) in India, at Rs. 16,16,005. Subsequently, the ITO reopened the assessment under Section 147(b) of the I.T. Act, 1961, and applying a different method permissible, determined the income at Rs. 64,51,933. The Tribunal held that the ITO could not in reassessment proceedings depart from the method of computation adopted in the original assessment and directed that the reassessment be made adopting the same method of computation as in the original assessment subject to any adjustments which might be justified. On a reference, the High Court held that this was not a case of income escaping assessment. On appeal, the Supreme Court has observed thus (head note) :

' Discretion was vested in the Income-tax Officer under Rule 33 for the purpose of making his choice of the method. There was nothing to show that the discretion was not exercised by him in a proper or judicious manner ; nor was it suggested that the officer was actuated by some oblique motive. From the mere fact that the method selected by him was such as resulted in lower tax liability of the assessee compared to the liability which would have resulted from the adoption of another method, it did not follow that the discretion was not exercised in a proper and judicious manner. The order made by the Income-tax Officer at the time of the original assessment was a legally correct order and was not vitiated by any error. The absence of an error justified the inference that this was not a case of income escaping assessment.'

19. Since it was contended that reopening was done because of mere change of opinion, which was not permissible, reliance was placed by Mr. Bajoria on the determination in the case of Smt. Nirmala Birla v. WTO : [1976]105ITR483(Cal) [FB]. In that case, it has been observed that Section 17 provides the machinery for the issue of a notice under Section 14(2) and the notice need not specify under which clause of Section 14(2) the same has been issued. In that case (head note) :

'B. M. Birla created a trust in 1962 for the benefit of his son, G. P. Birla, and the wife and children of G. P. Birla. The trust filed its return under the Wealth-tax Act, 1957, for the assessment year 1968-69, for which the relevant valuation date was March 31, 1968. The trust held 10,000 shares of C.I.I. Ltd. The value of these shares was stated in the return to be Rs. 1,30,000 at Rs. 13 per share which was the value quoted at the Madhya Pradesh Stock Exchange. C.I.I. Ltd. was one of three closely-held companies of the Birla group. In 1970 and 1971, there were four reports regarding under-assessed wealth of the three companies and about the genuineness of the stock exchange quotations of the C.I.I. shares. It was observed in one of the reports that there was vast difference between the Stock Exchange Report value and the break-up value and market value of the shares of C.I.I. Ltd., and that the market quotations were manipulated and based on collusive transactions. The Central Board of Direct Taxes gave directions to Income-tax Officers to take into consideration in all pending assessments the new facts which had been brought out. In spite of these directions, in making the assessment on the trust on January 7, 1972, the Wealth-tax Officer accepted the quotations of the stock exchange. More than a year later, the Director of Inspection (Investigation), of a Special Cell of the Ministry of Finance addressed a letter to the Commissioner of Income-tax, giving details of the investigation and findings of the Directorate about the share transactions of C.I.I. Ltd. and other companies. This letter was forwarded to all Wealth-tax Officers with the Inspecting Assistant Commissioner's endorsement dated March 20, 1973, for 'favour of information and necessary action'. On March 29, 1973, the Wealth-tax Officer issued notice to the trust under Section 17 of the Wealth-tax Act for reopening the assessment for the assessment year 1968-69; Thereupon, the trustees of the trust filed an application under article 226 of the Constitution and obtained a rule nisi. It was contended for the petitioners, inter alia, that: (1) though the notice did not state that it was under either Clause (a) or Clause (b) of Section 17, the Wealth-tax Officer had stated in his affidavit-in-opposition that he had reason to believe either under Section 17(1)(a) or under Section 17(1)(b), which he was not competent to do ; the Wealth-tax Officer could have reason to believe only under one of the Clauses (2) that in issuing the notice, the Wealth-tax Officer merely carried out the decision of superiorauthorities and did not form his own opinion ; and (3) that there were no grounds for issuing the notice.'

20. Apart from holding as aforesaid, it has also been observed that (p. 484) ;

' If it is found that some information did come to the knowledge of the officer which was not known to him before and, on the new facts that were brought to light, a belief under either Clause (a) or (b) could be formed, the notice could not be struck down. Assuming that it is doubtful as to whether the case comes under Section 17(1)(a), the new information will constitute information under Section 17(1)(b). No question of limitation was involved., Therefore, the notice of reassessment could not be struck down on the ground that the officer held alternative beliefs,'

21. The Rajya Sabha debate of 15th May, 1973, including the deliberations by the Minister of Finance read along with the facts of that case were considered and on the facts of that case and the internal evidence it has been observed that there was no basis for the contention that the officer did not apply his own mind. It has also been observed that (p. 485) :

' There is a difference between ' conclusion ' and ' facts or materials for conclusion'. The conclusion of the officer's superior authorities might have been that the share transactions which led to the prices quoted in the Madhya Pradesh Stock Exchange were bogus. But the requisite facts or materials for that conclusion were not on record. The conclusions reached by the different authorities were surmises or conjectures and in order to confirm them further evidence was necessary. It was in this context that the officer completed the petitioner's assessment for 1968-69, on the basis of the Stock Exchange quotations in January, 1972. Enquiries were carried on to discover evidence and as soon as evidence was available as a result of the new facts discovered by the Special Cell of the Directorate of Inspection (Investigation), the assessment for 1968-69 was reopened. It is true that on a mere change of opinion an assessment cannot be reopened. But there is a distinction between change of opinion unsupported by new information and a change of opinion supported by new information. The instant case was a case of change of opinion supported by new facts or materials or information hitherto unknown to the officer. If it be ultimately found that the notice could not be supported under Section 17(1)(a), there could be no doubt that it would be a valid notice under Section 17(1)(b). '

22. On the basis of the observations as aforesaid, Mr. Bajoria contended that the difference or dispute in the instant case was whether the shares were quoted or unquoted and since there was no new information, the action in initiating the proceeding under Section 17 was improper, irregular and unauthorised.

23. Mr. B.L. Pal, appearing for the answering respondent, submitted that the provisions of Section 17 of the said Act and those of Sections 147 and 148 of the I.T. Act, 1961, not being in pari materia or the same, the cases as cited by Mr. Bajoria on the I.T. Act and more particularly on the question of reopening, would not have any application in this case. In fact, he submitted that Section 17 of the said Act is not analogous to Section 148 of the I.T. Act. He submitted that when under the said Act there is no provision for recording reasons, the WTO can proceed without the reasons being recorded. In support of such submissions reference was made to the case of ITO v. Bachu Lal Kapoor : [1966]60ITR74(SC) . In that case, in the counter-affidavit filed by the ITO in the High Court, it was stated that he had reason to believe, in consequence of information in his possession, that income, profits and gains chargeable to income-tax had escaped assessment. His information was that, notwithstanding a compromise decree, the members of the family were living together, had joint mess and the business was run by the respondent-assessee and the compromise was a make-believe one and the family in fact continued to be a joint one. It has been observed further that if the case of the revenue was true and the fact of the continuance of the joint Hindu family was kept back from the knowledge of the ITO, the same would be a clear case of the joint family escaping assessment during the relevant year and in that case Section 34(1) of the Indian I.T. Act, 1922, would immediately be attracted and the notice issued would be good. In view of the above Mr. Pal submitted that when the affidavit-in-opposition in this case has disclosed or established primary connection, no interference at this stage should be made and to substantiate such submissions he relied on the determination in the case of Kantamani Venkata Narayana & Sons v. First Addl. ITO : [1967]63ITR638(SC) .

24. It was further contended by Mr. Pal and that too with reference to the statements in the affidavit-in-opposition of the respondents, that the petitioner did not give the due particulars of the unquoted shares, as a result whereof, in the special background of the case, the initiation under Section 17 had to be made. In fact, it was contended by him that the valuation of the unquoted shares was not proper and due, and not in conformity with the rules for such valuation. For the method of valuation, reliance was placed by Mr. Pal on the determinations in the case of CWT v. Mahadeo Jalan : [1972]86ITR621(SC) , wherein it has been observed that the following principles (head note) :

' (1) Where the shares are of a public company and are quoted on the stock exchange and there are dealings in them, the price prevailing on the valuation date is the value of the shares.

(2) Where the shares are of a public company which are not quoted on a stock exchange or of a private company, their value is determined by reference to the dividends, if any, reflecting the profit-earning capacity on a reasonable commercial basis. But if the profits are not reflected in the dividends which are declared and a low earning yield is shown by the company, which is unrealistic on a consideration of the financial affairs disclosed for the relevant year, the Wealth-tax Officer can, on an examination of the balance-sheet, ascertain the profit-earning capacity of the concern and, on the basis of the potential yield, fix the valuation. In other words, the profits which the company has been making and should be making will ordinarily determine the value. The dividend and earning method or yield method are not mutually exclusive ; both should help in ascertaining the profit-earning capacity. If the results of the two methods differ, an intermediate figure may have to be computed by adjustment of unreasonable expenses and adopting a reasonable proportion of the profits.

(3) In the case of a private company also where the expenses are incurred out of all proportion to the commercial venture, they will be added back to the profits of the company in computing the yield.

(4) Where the dividend yield and earning method break down by reason of the company's inability to earn profits and declare dividends, if the set-back is temporary then it is perhaps possible to take the estimate of the value of the shares before set-back and discount it by a percentage corresponding to the proportionate fall in the price of quoted shares of companies which have suffered similar reverses.

(5) Where the company is ripe for winding up then the break-up value determines what would be realised by that process.

(6) Valuation by reference to the assets would be justified where the fluctuations of profits and uncertainty of conditions at the date of the valuation prevent any reasonable estimation of prospective profits and dividends', are normally applicable, where for the purpose of wealth-tax the shares held by an assessee in a company are to be valued under Section 7 of the W.T. Act, 1957, and the facts and circumstances of the case, the nature of the business of the company, the prospects of profitability and such other considerations should be taken into account. The rules as mentioned hereinbefore are also stated to be not hard and fast rules. It has, however, been observed that the market value, except in exceptional cases, cannot be determined on the hypothesis that, because in a private company one holder can bring it into liquidation, it should be valued as on liquidation by the break-up method. The yield method is the generally applicable method while the break-up method is the one resorted to in exceptional circumstances or where the company is ripe for liquidation. It has been observed that the facts which are likely to determine the value of a share on any particular day or at any particular time are (p. 622) :

' (i) The profit-earning capacity of the company on a reasonable commercial basis;

(ii) its capacity to maintain these profits or a reasonable return for the capital invested ; and in special cases such as investment companies, the asset backing ;

(iii) the prospects of capitalisation of its earning in the shape of declaration of bonus shares or where the company is financially and commercially sound, the prospects of issue of further capital where the existing shareholders have a right to apply for and obtain them at a certain price which is generally less than the market value, offering an increased yield on their investment, on the assumption that the company will be able to maintain the same rate or at least increase the agregate payment of dividends on the increased capital.'

25. In addition to the above, it was further submitted by Mr. Pal that for due valuation of the assets as in the instant case, the shares of the holding company and that of the subsidiary company will have to be clubbed together in the hands of the holding company and in support of his contentions and also for the necessary rules for valuation, he referred to the following portions :

' Holding companies

For the purpose of differentiation from investment companies, we shall regard holding companies as those which hold a controlling interest in one or more other companies.

If the holding company does not itself carry on trading operations, the valuation programme would first include valuations of the shares of each subsidiary company. These values would be applied to the shares owned by the holding company. Adding to this total the value of the holding company's other assets, and deducting its liabilities, would give the total net assets value. If any overhead expenses (other than interest, which is covered by deducting liabilities) are incurred by the holding company, these could be capitalized at the average percentage rate used for the subsidiary companies, and the result deducted from the net assets value. The remaining figure would be the value of the undertaking of the holding company.

If the holding company does carry on trading operations, the maintainable yield or dividend paying capacity from them would be capitalized at an appropriate rate and added to the net value of the assets not used for trading.

Where a holding company has a 100 per cent, interest in all of its subsidiaries, and all of the companies operate together as units in similar spheres of activity, the valuation of the complete enterprise can proceed asif there were only one company. Similarly, the valuation of certain subsidiaries could be combined in instances were the proportionate interest of the holding company is the same and the activities and structure justify the same rate of yield.

Where the valuation is based upon a combination of the holding company and one or more subsidiaries, the maintainable profits could be aggregated and the retention for reserve determined. Where the valuations of the shares in subsidiary companies are made separately, a retention for reserves would be provided in each company. In this case no further retention would be necessary in the holding company in respect of dividends received from those subsidiaries. The retention should not be made twice.

In all valuations of shares in holding companies, care must be taken to ensure that inter-company balances and internal trading operations are adjusted correctly.' (From The Valuation of Company Shares and Businesses, 5th edn., page 187 by A.V. Adamson).

26. It was contended that if the above rule of asset backing was followed in the instant case then the result of valuation would have been different and that certainly would have justified the initiation of proceedings under Section 17 of the said Act and bona fides of the same.

27. In support of his contentions that the officer concerned had acted duly in the instant case, as he was authorised to act on informations, Mr. Pal relied on the determinations in the case of Anandji Haridas & Co. (P.) Ltd. v. S.P. Kushare, STO : [1968]1SCR661 . In that case, the appellant, a registered dealer, whose ' year ' for the purposes of the C.P. and Berar Sales Tax Act, 1947, was the year ending October 31, did not submit returns of its turnover for any period after April 30, 1952. On September 13, 1955, the assessing authority issued a notice, inter alia, under section 11(4)(a) for failure to furnish the return for the period January 1, to December 31, 1953, requiring attendance and production of books and documents on September 22, 1955. Similar notices were issued on October 27, 1955, and July 7, 1956, the periods January 1, to December 31, 1954, and January 1, to December 31, 1955, respectively. The appellant took time repeatedly for submitting an explanation. In 1958, fresh notices were issued on a transfer of the case, whereupon the appellant objected to the validity of these notices on the ground that its assessment year was not the calendar year as mentioned in the notices but the year ending October, 31. Another set of notices was issued on July 8, 1959. The appellant filed writ petitions challenging that the notices issued in 1959 were barred by time. The petitions having been dismissed the appellant appealed to the Supreme Court, and it has been observed by majority that :

(i) the knowledge of the fact that the appellant had not submitted its quarterly returns as well as the treasury challans constituted an information to the assessing authority from which he could be satisfied that the turnovers for the relevant periods had escaped assessment ; and, therefore, the appellant's case fell both under Section 11(4)(a) and Section 11(4)(1). It was open to the assessing authority to proceed against the appellant under any one of those two sections. Since the appellant was proceeded against under Section 11(4)(a) the appellant could not have the benefit of the period of limitation prescribed under Section 11(4)(1). Section 11(4)(a) became a discriminatory provision in view of Section 11(a)(3). It offended article 14 of the Constitution and had to be struck down. Both section 11(4)(a) and Section 11A(1) concerned themselves with escaped assessments. The classification made between registered and unregistered dealers had no nexus with that object and was not a reasonable classification.

(ii) that a notice under Section 11(4)(a) or Section 11A(1) was not a condition precedent for initiating proceedings under those provisions. All that the sections prescribed was that before taking proceedings against a dealer under those provisions he should be given a reasonable opportunity of being heard. The period of 30 days prescribed by Rule 32 of the rules framed under the Act was not mandatory. When the appellant received the notices of 1955 and 1956, it did not object to their validity but merely asked for time which was given. The fact that only nine days were given by the notices for submitting an explanation could not have prejudiced the appellant. The notices were to be read together and so read they gave the appellant the reasonable opportunity contemplated by Section 11(4)(a) and Section 11A(1).

28. The findings and observations of the Supreme Court as above, according to Mr. Pal, would thus take us to the determination of the Supreme Court in the case of Kalyanji Mavji & Co. v. CIT : [1976]102ITR287(SC) , wherein it has been observed that (headnote) :

' The word 'information' in Section 34(1)(b) is of the widest amplitude and comprehends a variety of factors. Nevertheless, the power under Section 34(1)(b), however wide it may be, is not plenary because the discretion of the Income-tax Officer is controlled by the words ' reason to believe '. Information may come from external sources or even from the material already on record or may be derived from the discovery of new and important matter or fresh facts ', and it has also been observed that Section 34(1)(b) would apply to the following cases (head note) :

' (1) where the information is as to the true and correct state of the law derived from relevant judicial decisions ;

(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer ;

(3) where the information is derived from an external source of any kind : such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment ; and

(4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record or the facts disclosed thereby or from other- enquiry or research into facts or law.

Where, however, the Income-tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, Section 34(1)(b) would have no application', and following such determinations, he argued that in view of 'the tests and circumstances as indicated and laid down, the initiation in the instant case was due, legal and bona fide.

29. On a reference to the Full Bench decision of this court in the case of Smt. Nirmala Birla v. WTO : [1976]105ITR483(Cal) , Mr. Pal submitted that it is true that on a mere change of opinion, an assessment cannot be reopened but as observed in that case there is a distinction between change of opinion unsupported by new information and change of opinion supported by new information and as such the initiation for reopening, in the facts of the case, was due and proper. It was also contended by Mr. Pal that if the order as impeached is a legally correct order, then following the determinations in the case of CIT v. Simon Carves Ltd. : [1976]105ITR212(SC) no interference in this case need or should be made as the order in the instant case was legally correct. These apart, Mr. Pal also submitted that the determination in the case of Navnitlal Ambalal v. CIT : [1976]105ITR735(Bom) supports the case of the revenue in the instant case and not that of the assessee.

30. Thus, the admitted position in the instant case is that the petitioner duly filed her return and that too, according to her, after truly and faithfully disclosing all and every facts material for the assessment and also on disclosure of the concerned unquoted shares, after appropriately valuing them in terms of the 1st circular as mentioned hereinbefore, which was relevant and current at the time of filing of the return. The WTO, after completion of the assessment in question, sought to reopen the same on initiation of proceedings under Section 17 of the said Act. The reasons for such initiation were not supplied to the petitioner in spite of demand. But they have subsequently been gathered from the disclosure in these proceedings, amongst others. Such initiation appears to have been made on the basis of the records as disclosed and mainly to the effect that the assessee did not furnish any basis for the value of the concerned unquoted shares as shown, and that apart, she did not furnish any material particulars relevant for establishing that the value, as shown, reflected the value which the shares would have fetched, if sold in open market. In their affidavit-in-opposition, the answering respondents have of course shifted the reasons as disclosed earlier and contended that on perusal of the balance-sheet of the Central India General Agents Limited, whose unquoted shares or their value were in dispute and was the basis of the initiation, read along with the report of the Directorate of Inspection (Inv.) and also taking into consideration the further data collected for the purpose of calculating net wealth, it was found and held that there was no true and faithful disclosure by the petitioner of her net wealth chargeable to tax and there was omission or failure on her part to disclose truly and faithfully all material facts relevant for the assessment. It was in fact found that the company as mentioned hereinbefore was holding 100% shares in a subsidiary company which was earning substantial profits and had built up huge reserves but was not distributing dividends, as a consequence whereof, the reserves and profits were not reflected in the balance-sheet of the holding company. This information, leading to escapement, would mean nothing but mere change of opinion, which would not be sufficient or permissible for the necessary reopening under Section 17(a) and (b) or either of them.

31. Section 7 of the said Act gives a guideline for determination of the value of assets and there are, excepting the circulars as mentioned hereinbefore, no rules for valuing the unquoted shares. Under Section 16 of the said Act read along with the determinations in the case of Tata Iron & Steel Co. Ltd. v. Kum. D.V. Bapat : [1974]96ITR1(Bom) , Navnitlal C. Javeri v. K.K. Sen : [1965]56ITR198(SC) and Navanitlal Ambalal v. CIT : [1976]105ITR735(Bom) the procedure for valuation as laid down by the Board and such procedure as was operative at the relevant time, would be binding on the revenue and the courts can look into them. The procedure which was current in the instant case was the procedure as laid down by the 1st circular and not the second one. The said second circular being prospective and not retrospective had no application in this case. As such the purported initiation of the proceeding on the basis thereof or for the violation of the same, if any or if at all, was incompetent. Since the petitioner has filed her statement of valuation of the concerned unquoted shares on the basis of the procedure and principles as indicated in the 1st circular, it cannot be said that there were laches of any kind on her part. As the petitioner was not covered or governed by the 2nd circular, the arguments of asset backing as advanced by Mr. Pal, in my view, would be of no avail or any assistance. There is also no doubt that the concerned shares were unquoted, and such fact was also duly intimated by the assessee. Thus, there were no laches or any negligent conduct on her part and since the shares are not admittedly quoted, it was not certainly possible for the assessee to furnish the market value of the shares and any demand on that point, by the officer concerned, would be unreasonable. I am of the view that when reasons are recorded, even though they are not required to be recorded, the courts will have to and they can consider such reasons as that would disclose the mind of the officer and the basis for the action under Section 17.

32. On the admitted facts that the officer concerned acted on the basis of the report as mentioned hereinbefore, Mr. Bajoria was justified in his arguments that there was no independent exercise of mind or formation of opinion and the officer concerned, for initiating the proceedings under Section 17, blindly or mechanically followed the said recommendations or report. So it can be safely observed that there was no due formation of opinion and the proceeding was initiated, as mentioned hereinbefore, on a mere change of opinion and the materials as disclosed for holding the necessary opinion were variable as also it should be deemed that there was no application of mind. When the officer concerned, at the time of making the assessment, has given his reasons, on accepting the method adopted by the assessee, the same or the method should be binding on him and in view of the admitted disclosure made in this case, it cannot be said that there was omission or failure on the part of the assessee to disclose fully and truly all facts relevant or material for the assessment. When the necessary relief has once been granted to the assessee on due disclosure and consideration of relevant facts, such relief should not ordinarily be changed and more particularly when the order, as made, was legal. I am further of the view that, that apart, the provisions of Section 17 can be invoked on disclosure of new information. In the instant case, there being no such new information, the action as initiated was also improper.

33. I do not also accept the submissions of Mr. Pal that under Section 17 of the said Act no reason is required to be recorded by the WTO and he can proceed without the necessary reasons being recorded, since there is no provision for recording such reasons. Section 17 in fact corresponds to Section 34(1) of the Indian J.T. Act, 1922, with the exceptions of the years for reopening. The reasons of the officer concerned should disclose the circumstances for which such special power as under Section 17 is exercised and those reasons are also subject to the scrutiny by the courts, for the purpose of finding out the due formation of opinion, justifying such initiation and application of mind. The expression ' reason to believe ' in Section 17 does not mean a purely subjective satisfaction on the part of the WTO. The belief must be held in good faith ; it cannot be merely a pretence. The court has every right to examine whether the reasons for the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant to the purpose of the section. If there are reasonable grounds for the officer to believe that there has been non-disclosure as regards any fact, which could have a material bearing on the question of under-assess-ment, that would be sufficient justification for such officer to issue notice under Section 17(a). The adequacy of the grounds is not a matter for investigation by the court. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The WTO under, Section 17(b) can also initiate proceedings when, (1) he has reason to believe that wealth has escaped assessment, and (2) such belief must have been caused by some information in his possession. Such officer cannot initiate proceedings merely because he happens to change his opinion or to hold an opinion different from his predecessor, on the same set of facts. The determination in the case of ITO v. Bachu Lal Kapoor : [1966]60ITR74(SC) on the facts of this case, in my view, are distinguishable as there, the officer concerned proceeded on the basis of information which came to his possession subsequently, whereas in this case, the assessment was duly completed on necessary disclosure and on evidence and the more so when there is no justification in the submissions of the respondents that the petitioner did not give the due particulars of the unquoted shares.

34. There is further no substance in the submissions of the respondents that the valuation of the unquoted shares as given by the assessee, was not proper and due and was not in conformity with the rules for such valuation. The rules as laid down in the case of CWT v. Mahadeo Jalan : [1972]86ITR621(SC) not being hard and fast rules, they, in my view, will not have any application in the admitted facts and special circumstances of this case. I further find that because of the special facts of this case as mentioned hereinbefore, the theory or rule of asset backing or clubbing together the shares of the holding and subsidiary companies, would not also have any application in the instant case. It cannot be doubted that in terms of the determinations in Anandji Haridas and Co. (P.) Ltd. v. S.P. Kushare, STO : [1968]1SCR661 , the WTO concerned would be entitled to act on informations. But the admitted facts of that case being different from the admitted facts of the present one, the determination as made therein would not hold good in this case. It is true and as very candidly submitted by Mr. Pal that, on mere change of opinion, an assessment cannot be reopened and there is distinction as observed in the case of Smt. Nirmala Birla v. WTO : [1976]105ITR483(Cal) [FB] between change of opinion unsupported by new information and change of opinion supported by new information. In the instant case, since there was in fact no new information relevant for initiation of proceedings under Section 17, the initiation as made cannot be supported, the more so when the necessary informations were duly and bona fide supplied by the assessee and the initiation, as mentioned hereinbefore, was made practically on a mere change of opinion.

35. These apart, in the instant case, as submitted by Mr. Bajoria, reasons different from the recorded reasons have been disclosed in the affidavit-in-op-position and still different reasons have been put forward at the Bar at the time of hearing. These reasons are also different from the recorded reasons. Such shifting of the stand, in a proceeding under Section 17, should not be allowed and must not be permitted. If such shifting of the stand for justifying the action is allowed then the very purpose of Section 17 and the checks contained therein against arbitrary and excessive use of power and jurisdiction, would be frustrated.

36. In view of the above, the arguments of Mr. Bajoria succeed and as such the rule is made absolute. There will, however, be no order for costs. Let appropriate writs be issued.

37. This order will not, however, prejudice the respondents to proceed further and in accordance with law, if they so intend or are so advised.

38. Stay of operation of the order as prayed for is refused.


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