2014 (1) TMI 1928 - AT - Wealth-tax

Reopening of wealth tax assessment - Determining the taxable wealth - Wealth Tax assessment passed u/s 16(3) read with section 17 of the Wealth Tax Act - rational nexus between the reasons and the belief - Whether entire reopening of assessment beyond four years from the end of the assessment year in question was bad in law as there was no omission on the part of the appellant to disclose all material facts and in furnishing necessary information for completion of the assessment? - HELD THAT - As seen from the order of AO even though the assessment was reopened to examine the transaction between M/s Satyam computers and assessee, no such exercise was undertaken and no findings were given on that issue. The additions made are on revaluation of property which was already revalued in original assessment and denial of exemption claimed on the reason that details were not filed. There is no nexus between the reasons recorded and additions made in the guise of escapement of wealth. We rely upon the decision of case of Ganga Saran Sons P. Ltd. 1981 (4) TMI 5 - SUPREME COURT for the proposition that if there is no rational nexus between the reasons and the belief , so that on such reasons the A.O. cannot have reason to believe that any part of the income of the assessee has escaped assessment and such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts, the notice issued by the A.O. is to be struck as invalid. We find that recording of reasons before the issue of notice under section 17 has absolutely no nexus with the assessment made. AO had no tangible material to come to the conclusion that there was escapement of income from the original assessment. The assessment made under sec. 16(3) has been wrongly reopened under sec. 17 beyond period of 4 years, as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself. The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and M/s. Satyam Computer Services Limited, which was not established in the reassessment to justify the reopening. There being no nexus or live-link with the reasons recorded and the formation of belief to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment itself, and there being no tangible material for the reopening of the assessment, the CWT(A) erred in confirming the order of the Assessing Officer. We, therefore, hold that the reopening of the jurisdiction under section 17 is bad in law and is to be quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment beyond four years.
2. Nexus between reasons recorded for reopening and the additions made.
3. Validity of additions made on revaluation of properties.
4. Exemption claims under section 2(ea) of the Wealth Tax Act, 1957.
5. Impact of previous assessments on current exemption claims.

Issue-Wise Detailed Analysis:

1. Validity of Reopening the Assessment Beyond Four Years:
The primary issue was whether the assessment could be reopened after four years. The Assessee argued that the reopening was invalid as there was no failure on their part to disclose all material facts. The Tribunal noted that the original assessment was completed under section 16(3) after scrutiny, and the assets were revalued and exemptions allowed. The Tribunal cited the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., emphasizing that reopening on mere change of opinion is not permissible without "tangible material" indicating income escapement. Thus, the Tribunal concluded that the reopening was invalid as it was based on a change of opinion without new tangible material.

2. Nexus Between Reasons Recorded for Reopening and the Additions Made:
The Tribunal found that the reasons recorded for reopening-examining transactions between the Assessee and Satyam Computer Services Ltd.-had no nexus with the additions made, which were based on revaluation of properties and denial of exemptions. The Tribunal relied on the Supreme Court's decision in Ganga Saran & Sons P. Ltd. vs. ITO, asserting that there must be a rational nexus between the reasons recorded and the belief of income escapement. Since no such nexus existed, the reopening was deemed invalid.

3. Validity of Additions Made on Revaluation of Properties:
The Tribunal noted that the additions made during reassessment were based on revaluation of properties already assessed in the original assessment. The Assessee had adopted values consistent with SRO records, except for minor discrepancies. The Tribunal held that reassessment based on revaluation of the same properties without new evidence constituted a change of opinion, which is not a valid ground for reopening.

4. Exemption Claims Under Section 2(ea) of the Wealth Tax Act, 1957:
The Assessee argued that certain lands claimed as exempt were not urban lands under section 2(ea) of the Wealth Tax Act. The Tribunal found that the Assessee's claims for exemption were consistent with past assessments. The Tribunal held that the Assessing Officer (AO) had no grounds to deny exemptions previously allowed, reinforcing that the reopening lacked justification.

5. Impact of Previous Assessments on Current Exemption Claims:
The Tribunal emphasized that the assets claimed as exempt in the current assessment were also exempted in past assessments. There was no change in the facts or circumstances to warrant a different view. The Tribunal concluded that the AO's denial of exemptions was unjustified and unsupported by new evidence.

Conclusion:
The Tribunal quashed the reopening of assessments for all cases under consideration, citing lack of tangible material, absence of nexus between recorded reasons and additions, and unjustified denial of exemptions. The appeals were allowed, and the reassessments were declared invalid.

Order Pronounced:
The Tribunal pronounced the order in the open Court on 8th January, 2014, allowing all appeals under consideration.