2013 (7) TMI 270 - AT - Wealth-tax

Validity of proceedings u/s 17 - Reasons for re-assessement not furnished to assessee - Held that - right course of action for the Assessing Officer is to furnish the reasons of reopening the assessment to the assessee and in case the assessee has any objection to such reopening, the AO will adjudicate on the same in accordance with law and by way of a speaking order before assuming jurisdiction in reopening the assessment proceedings - In the present case, this exercise has not been carried out - Matter remitted back to Assessing Officer - Following decision of G.K. Drive Shafts vs. ITO 2002 (11) TMI 7 - SUPREME Court - Decided in favour of Assessee.

Summary

Issues:
1. Validity of initiation of proceedings under section 17 of the Wealth Tax Act without communicating reasons to the assessee.
2. Assessment of net wealth and inclusion of Test Drive vehicles for wealth tax.
3. Allowance of deduction for outstanding loan liability without verification.

Issue 1: Validity of initiation of proceedings under section 17:
The appellant challenged the legality of the initiation of proceedings under section 17 of the Wealth Tax Act, contending that the Assessing Officer (AO) failed to communicate the recorded reasons for initiating the proceedings, which is mandatory. The appellant argued that the assessment under section 16(3)/17 was made without proper application of mind. The Commissioner of Income Tax (Appeals) upheld the initiation without considering the lack of communication of reasons. The appellant requested the reasons for reopening the assessment, emphasizing that mere compliance with notices does not imply acquisition to jurisdiction. The Tribunal referred to the case law and directed the AO to furnish the reasons for reopening the assessment before proceeding with any additions, emphasizing the importance of adherence to procedural requirements.

Issue 2: Assessment of net wealth and inclusion of Test Drive vehicles:
The appellant disputed the net wealth assessment and the inclusion of Test Drive vehicles valued at Rs. 60,20,791 in the assessment, arguing that these vehicles were used exclusively for business purposes and thus exempt from wealth tax under the relevant provision of the Wealth Tax Act. Both the AO and the CIT(A) upheld the assessment without considering the business use of the vehicles. The Tribunal refrained from making observations on the merits but directed the AO to re-examine the issue and consider any evidence presented by the appellant for a fresh assessment, emphasizing the need for a thorough review on merits.

Issue 3: Allowance of deduction for outstanding loan liability:
The appellant contested the direction by the CIT(A) to verify and allow the deduction of the outstanding loan liability owed to the bank, arguing that the loan, fully utilized for acquiring a Motor Car, was an admissible deduction under the relevant provision of the Wealth Tax Act. The Tribunal acknowledged the undisputed nature of the loan liability but directed the AO to deal with the issue on merits and consider any evidence produced by the appellant during fresh adjudication. The Tribunal allowed the appeal for statistical purposes, emphasizing the need for a comprehensive review of the deduction on its merits during reassessment proceedings.

In conclusion, the Tribunal addressed the issues raised by the appellant regarding the validity of proceedings under section 17, the assessment of net wealth, and the allowance of deduction for outstanding loan liability. The Tribunal emphasized procedural compliance, the need for a thorough review on merits, and directed the AO to re-examine the issues and make decisions in accordance with the law.