Ramanbhai B Patel Huf vs The Dy C I T Assessment Opponents

(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These appeals arise out of a common judgement of the Income Tax Appellate Tribunal(“the Tribunal” for short) dated 29.2.2000. They have been heard together and are being disposed of by this common order.

2. At the time of admission of this appeal common substantial question of law framed by the Division Bench was as under :

"Whether in the facts and circumstances of the case the Tribunal was right in law in sustaining the levy of penalty under Section 18(1)(c) and in doing so ignored the assessment case under the Wealth Tax Act of the same assessee and of his brother?”

3. Brief facts may be noted from Tax Appeal No.147/2000. Assessee is an HUF. Assessment year under consideration is 1986­1987. For such assessment year, the assessee had not filed its return of wealth though the net wealth exceeded statutory limit. The department therefore, issued a notice dated 26.2.1998 under section 17 of the Wealth Tax Act, 1956(“the Act for short). In response to such notice, the assessee filed return of wealth on 17.5.1988 and disclosed net wealth of Rs.4,08,194/­. Such return was assessed by the Deputy Commissioner of Wealth Tax under section 16(3)of the Act. He computed net wealth of assessee at Rs.28,38,855/­. Penalty proceedings under section 18(1)(c) of the Act were thereupon instituted. A show cause notice for this purpose was issued to the assessee in response to which reply dated 11.4.1991 was filed. In such reply the assessee contended that no material facts about wealth had been disclosed. The assessee had also disclosed value of various properties as per the books of accounts. If due to adoption of different method of valuation, there was a difference in the ultimate wealth assessed, such difference would not give rise to any penalty proceedings.

3.1 The Deputy Commissioner considered the assessee's reply but proceeded to impose penalty of Rs.30,522/­ by his order dated 12.9.1991 making following observations :

“ Further, the wealth assessed at Rs.30.89,341/­ is accepted by the assessee. These facts clearly proves that though the assessee had taxable wealth he did not file the return of wealth as per the provisions of section 14(1) of the W.T. Act and he filed the return of wealth only after concealment of wealth was detected during the search u/s.132 of the I.T. Act and subsequent issue of notice u/s.17 of the W.T. Act. Thus, the assessee's case is clearly covered by the provisions of section 18(1)(c) of the W.T. Act.”

3.2 Said order of the Deputy Commissioner was challenged by the assessee before the Appellate Commissioner. Before the Commissioner, assessee contended that there was no concealment of wealth. Assessee had disclosed all material facts before the Deputy Commissioner and also produced books of accounts duly maintained by the assessee. The assessee had adopted valuation as per such books. The Deputy Commissioner had taken valuation of asset on the basis of rule 1BB of the Wealth Tax Rues, 1957(“the Rules” for short). This was a bona fide difference of opinion regarding valuation of property which would not give rise to penalty proceedings. The assessee also contended that there was no mala fide intention its part. The assessee also contended that when the Assessing Officer brought to its notice the provisions of rule 1BB, the assessee calculated and submitted statement of valuation on that basis upon which the assessment was framed adopting such valuation.

3.3 The Appellate Commissioner dismissed the assessee's appeal. In such appellate order he accepted the assessee's contention that there was a bona fide difference of opinion regarding the valuation of the immovable property. He however, proceeded to confirm the penalty on the basis of explanation (4) to section 18(1)(c) of the Act.

3.4 Such order of the Commissioner(Appeals) was challenged by the assessee before the Tribunal. The Tribunal upheld such order and held that in view of clear provisions contained in explanation(4) to section 18(1)(c) of the Act, the contentions of the assessee cannot be upheld.

4. Facts are identical in both the appeals. They are therefore, not separately noted with respect to Tax Appeal No.145/2000.

5. Learned counsel Shri Bandish Soparkar for the appellant submitted that the assessee having filed the return and having disclosed full particulars of the immovable properties exigible to wealth tax, it cannot be stated that the assessee concealed the particulars of the assets. He further submitted that the assessee had not furnished inaccurate particulars of such assets and the difference in valuation was solely on account of different methods adopted by the assessee and the Assessing Officer. He heavily relied on the findings of the appellate authority that there was bona fide difference of opinion regarding valuation of the immovable property. He submitted that if this be so, no penalty under explanation(4) of section 18(1)(c) of the Act could have been imposed. Counsel submitted that the Assessing Officer did not give any clear findings as to for which default of the assessee, the penalty was being imposed namely, for concealment of particulars or for furnishing inaccurate particulars of any asset. In that view of the matter, no penalty could have been imposed. In this respect counsel relied on the decision of this Court in case of Commissioner of Income­tax, Gujarat­III v. Manu Engineering Works reported in (1980) 122 ITR 307(Guj.) and in case of New Sorathia Engineering Co. v. Commissioner of Income­tax reported in (2006) 282 ITR 642(Guj).

5.1 Counsel further submitted that the appellate authority could not have confirmed the order of the Assessing Officer, particularly, when he came to the conclusion that difference in valuation was on account of bona fide difference of opinion in the valuation methodology. He submitted that explanation(4) of section 18(1) (c) of the Act was applied by the Commissioner at the appellate stage denying any opportunity to the assessee to establish that value stated by him in the return represented the correct value of the asset. In this respect counsel relied on decision of Madhya Pradesh High Court in case of Commissioner of Wealth­Tax v. Sanghi Bros.(India) Ltd. reported in (2008) 301 ITR 129(MP).

6. On the other hand, learned counsel Shri Manav Mehta for the Revenue opposed the appeal contending that three authorities have found that the assessee had concealed the particulars of asset and also furnished inaccurate particulars. He submitted that no return was filed till notice under section 17 of the Act was issued. Even in the return that was filed belatedly, the assessee adopted wholly impermissible method for valuation of the assets. Difference in valuation between that disclosed by the assessee in the return as compared to valuation accepted in the final order of assessment far exceeded the permissible margin provided under explanation(4) of section 18(1)(c) of the Act. The Assessing Officer therefore, rightly imposed penalty which was upheld by the Appellate Commissioner and the Tribunal. Counsel relied on decision of the Madras High Court in case of V.G. Paneerdas and Co. P. Ltd. v. Commissioner of Wealth­tax reported in (2006) 284 ITR 444(Mad), wherein the High Court upheld the penalty where the assessee has filed nil return and eventually it was found that the assessee had sizable wealth.

7. Having heard learned counsel for the parties and perused the documents on record, we may notice the statutory provisions first. Section 18(1)(c) of the Act provides for penalty in case an assessee has concealed the particulars of any assets or furnished inaccurate particulars of any assets or debts. Explanation(4) to said sub­ section provides that where the value of any asset returned by any person is less than seventy per cent of the value of such asset as determined in an assessment under section 16 or 17, such person shall be deemed to have furnished inaccurate particulars of such asset within the meaning of clause(c) of this sub­section. Explanation further provides that such deeming fiction shall arise unless the assessee proves that the value of the asset as returned by him is the correct value. Relevant portion of Section 18(1)(c) reads as under :

“18(1) If the Wealth­tax Officer, Appellate Assistant Commissioner, Commissioner(Appeals), Commissioner or Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person­ (c) has concealed the particulars of any assets or furnished inaccurate particulars of any assets or debts.

Explanation 4 : Where the value of any asset returned by any person is less than seventy per cent of the value of such asset as determined in an assessment under section 16 or 17, such person shall be deemed to have furnished inaccurate particulars of such asset within the meaning of clause(c) of this sub­section, unless he proves that the value of the asset as returned by him is the correct value.”

● Section 7 of the Act pertains to value of assets and how the same is to be determined. Sub­section(1) of section 7 provides that 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 Wealth­tax Officer it would fetch if sold in the open market on the valuation date.

● Rule 1BB of the Rules in turn provides for valuation of house property. It lays down a formula as per which for the purpose of sub­section(1) of section 7, the value of a house which is wholly or mainly used for residential purpose has to be ascertained.

8. With this statutory provisions in mind, if we revert back to the case on hand, the assessee filed wealth tax return in response to notice under section 17 of the Act in which it disclosed the valuation of assets at Rs.4,08,194/­. The Assessing Officer however, applying rule 1BB of the Rules, computed such wealth tax at Rs.28,38,855/­.

9. In the penalty order that the Assessing Officer passed, he did not give any clear findings as to for which breach such penalty was being imposed i.e. for concealment of the particulars of any asset or for furnishing inaccurate particulars of any asset. In fact the reproduced portion of the Assessing Officer would suggest that he was inclined to impose penalty only for concealment of particulars of assets. If this be so, we fail to see how the penalty could be sustained. It is not in dispute that the assessee did file return and gave full particulars of the assets held. This was therefore, not a case of assessee concealing the particulars of the assets. Assessing Officer however, did in the earlier part of the order briefly touch on the question of valuation of the assets. His ultimate order however, was not on the basis of any inaccurate particulars supplied by the assessee. In this respect we may peruse the decision of this Court relied upon by the counsel for the appellant. In case of New Sorathia Engineering Co.(supra), Division Bench of this Court relied on and referred to earlier decision in case of Manu Engineering Works (supra) and deleted penalty making following observations :

“The penalty order and the order of Commissioner (Appeals) show that no clear­cut finding has been reached. The Tribunal has failed to appreciate this legal issue. Applying the ratio to the facts of the case it is apparent that the order of penalty cannot be sustained and the Tribunal could not have sustained the same. The Tribunal having failed to take into consideration and deal with the decision of the jurisdictional High Court it would constitute an error in law which goes to the very basis of the controversy involved and hence, the impugned order of the Tribunal cannot be upheld.”

● In case of Engineering Works (supra), Division Bench has held as under :

“..... We find from the order of the IAC, in the penalty proceedings, that is, the final conclusion as expressed in para. 4 of the order: “I am of the opinion that it will have to be said that the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income”. Now, the language of “and/or” may be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi­criminal case, but it was incumbent upon the IAC to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. No such clear­cut finding was reached by the IAC and, on that ground alone, the order of penalty passed by the IAC was liable to be struck down.”

10. We therefore, are of the view that the Assessing Officer erred in imposing the penalty without any clear findings as to whether there was concealment of particulars of any assets or providing of inaccurate particulars of any assets. His main thrust seemed to be on the ground of concealment of particulars which as we have noted was not a valid ground. Interestingly, the Commissioner(Appeals) did not go into the aspect of concealment of particulars. He relied on explanation(4) of Section 18(1)(c) of the Act. Thus he based his conclusions solely on providing inaccurate particulars by the assessee. He noticed that the net wealth return by the assessee was less than 70% of what the Assessing Officer computed in the assessment framed under section 16 of the Act. He therefore, was of the opinion that penalty under section 18(1)(c) of the Act must follow by virtue of explanation(4) thereof.

11. We are of the opinion that the Appellate Authority could not have applied such an explanation in the facts of the present case. We say so because the Assessing Officer never applied said explanation. Though the show cause notice is not on record, from the discussions made by the Assessing Officer in the order and the assessee's reply we can safely presume that in such show cause notice there was no proposal that the assessee would be visited with penalty by virtue of deeming fiction created in explanation(4) of section 18(1)(c) of the Act. It was the Commissioner(Appeals) who for the first time at the appellate stage realized that case may fall within such explanation. When we are dealing with penalty proceedings, which are quasi criminal in nature, we must put the Revenue to strict compliance of the legal requirements.

12. We may notice that explanation(4) of Section 18(1)(c) of the Act though does give rise to a presumption under certain circumstances, such presumption is not irrebuttable. The rebuttable can come in the form of assessee being able to prove that valuation of the assessee as returned by him is the correct value of the asset. It is of­course true that if the returned value of assets is less than 70% of the value of such assets as determined in the assessment framed under section 16 or 17 of the Act and also if the assessee did not prove that the value of the asset as returned by him is the correct value, such a situation would give rise to a deeming fiction and the Assessing Officer would presume that the assessee had furnished inaccurate particulars of such assets within the meaning of clause(c) of Section 18(1) of the Act. However, before such a deeming fiction could arise, the assessee had a right to prove that the value of the asset as returned by him was the correct value. We are also prepared to proceed on the basis that once it is established that the margin between the two values is more than 30%, the onus would be on the assessee to show that his valuation represented the correct value of the asset to avoid the penal liability by virtue of the fiction as provided in Explanation (4). However, when neither in show cause notice, nor during the proceedings before the Assessing Officer, there was even a remote hint that such deeming fiction would be made applicable in such as case, the onus could not be on the assessee to lead evidence to show that the value of the asset as returned by him was a correct value.

13. We may recall that Shri Mehta relied on the decision of Madras High Court in case of V.G. Paneerdas and Co. P. Ltd. (supra), which was however, a case wherein the assessee had filed a nil return even in response to notice under section 16 of the Act. Ultimately, it was found that the assessee had sizable net wealth. It was in this background the High Court upheld the penalty rejecting the assessee's contention that it had bona fide impression that no return was required to be filed. Such case therefore, stands on a different footing.

14. Under the circumstances, we are of the opinion that the Tribunal erred in confirming the penalty orders imposed by the Assessing Officer and confirmed by the CIT(Appeals). In the result, we answer the question in the negative i.e. in favour of the assessee and against the Revenue.

15. Before closing we may record that the decision of the Madhya Pradesh High Court in case of Sanghi Bros.(India) Ltd.(supra), arose in a very different factual background. It was a case wherein the assessee in the return of wealth filed, adopted valuation of immovable asset on the basis of methodology provided in rule 1BB of the Rules. Ultimately when there was a difference in the ultimate valuation accepted in the assessment, the question of penalty arose. It was in this background that Division Bench of Madhya Pradesh High Court referring to decision in case of Commissioner of Wealth­tax v. Sharvan Kumar Swarup and sons reported in (1994) 210 886(SC), held that methodology chosen by the assessee for valuation of asset was a known method and therefore, it cannot be said that assessee had made any concealment with regard to the property. Such decision is thus clearly distinguishable. In the present case, the assessee had adopted the method of valuation which was not permissible under the Act. For valuation of house property which is used wholly or mainly used for residential purposes, the formula provided under rule 1BB of the Rules is to be applied. The assessee instead, valued the property on the basis of its books of accounts. We are therefore, of the opinion that had the assessee been put to notice with respect to explanation(4) of section 18(1)(c) of the Act and consequently given opportunity to rebut the presumption, perhaps the situation would have been different

16. Both the appeals are allowed. Orders under challenge are quashed.

(Akil Kureshi,J.) (Harsha Devani,J.) (raghu)