2018 (8) TMI 994 - HC - Wealth-tax

Valuation of net wealth - unaccounted wealth on account of seized hundis - ITAT reduced the value of seized hundies by 25% while rejecting the appellant s contention that, it should be valued at ₹ 6,20,000/- - Held that - the value of asset for the purposes of this Act is to be determined strictly in terms of the provisions of this Section and not by any other mode. Rule 14 of Schedule-III of the Wealth Tax Act provides that the value of any asset in its books should be taken as the value for wealth tax purposes. In the case in hand, the Wealth Tax Officer, CWT (Appeals), as well as, the Tribunal has not done the aforesaid exercise, but instead adopted value of such inchoate instruments as found in the proceedings under the Income-Tax Act. In our view, the mode adopted to determine the value of the Bills of Exchange/hundis by the authorities under the Wealth Tax Act, as well as, by the Tribunal was contrary to the provisions of Section 7 of the Wealth-Tax Act. - Decided in favor of assessee.

Issues:
1. Interpretation of the value of Blank Bills of Exchange for Wealth Tax purposes.
2. Assessment of unaccounted wealth based on seized hundis.
3. Rejection of affidavits filed by the assessee.
4. Determination of market value of hundis/Bills of Exchange.

Issue 1: Interpretation of the value of Blank Bills of Exchange for Wealth Tax purposes:
The appeal under Section 27A of the Wealth Tax Act, 1957 questioned the valuation of a Blank Bill of Exchange as a document pregnant with value. The appellant declared total wealth in the return, including unaccounted income due to seized Bills of Exchange. The Wealth Tax Officer made additions to the declared wealth, leading to an appeal to the Commissioner of Wealth Tax (Appeals) and subsequently to the Income Tax Appellate Tribunal. The Tribunal partly allowed the appeal but rejected the appellant's contention regarding the value of the seized hundis. The issue revolved around whether the value of the hundis should be considered at the declared amount of ?6,20,000.

Issue 2: Assessment of unaccounted wealth based on seized hundis:
The core issue related to the sustenance of additions towards unaccounted wealth based on seized hundis during a search operation. The Tribunal upheld the additions made by the Wealth Tax Officer, considering the value of Blank Bills of Exchange/hundis found during the search operations as taxable wealth. The Tribunal's decision was based on factual details and the value determined in income-tax proceedings.

Issue 3: Rejection of affidavits filed by the assessee:
The assessee had filed affidavits of borrowers denying receipts and loans confirmation, which were rejected by the Tribunal. The Tribunal found sufficient evidence that the assessee had advanced money to these individuals. The Tribunal upheld the additions to the wealth declared, discounting the value determined in income-tax proceedings by 25%.

Issue 4: Determination of market value of hundis/Bills of Exchange:
The appellant argued that the market value of the hundis/Bills of Exchange should be taken at the declared amount of ?6,20,000. The Tribunal, however, considered the nature of the instruments as inchoate negotiable instruments with uncertain realisation value. The appellant contended that the value should not have been determined based on income-tax proceedings but in accordance with Section 7 of the Wealth Tax Act. The Tribunal's decision to discount the value by 25% was based on the inchoate nature of the instruments and the difficulty in determining their actual market value.

In conclusion, the High Court allowed the appeal, emphasizing that the value of assets for wealth tax purposes should strictly adhere to the provisions of Section 7 of the Wealth Tax Act. The Court found that the mode adopted by the authorities to determine the value of the hundis/Bills of Exchange was contrary to the Act. The Court upheld the Tribunal's decision to discount the value by 25% based on the inchoate nature of the instruments and the challenges in realizing their actual value.

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