1985 (3) TMI 80 - AT - Wealth-tax

Summary

Issues Involved:
1. Jurisdiction of the CWT under Section 25(2) of the Wealth Tax Act.
2. Material on record to invoke Section 25(2).
3. Applicability of Rule 2 regarding valuation of interest in the firm.
4. Relevance of internal audit objections in revisional proceedings.
5. Powers of the CWT while the matter is pending before the AAC.

Detailed Analysis:

1. Jurisdiction of the CWT under Section 25(2) of the Wealth Tax Act:
The assessee challenged the jurisdiction of the CWT to revise the assessment order under Section 25(2) of the Wealth Tax Act, arguing that the CWT's action was without jurisdiction since the matter was pending before the AAC. The Tribunal referred to the Supreme Court's decision in CIT vs. Amritlal Bhogilal & Co., which clarified that the CIT can exercise revisional jurisdiction on an order passed by the ITO even if it is pending before the AAC. Therefore, the ground taken by the assessee on this issue was decided against the assessee.

2. Material on record to invoke Section 25(2):
The Tribunal examined whether the internal audit objection could be considered part of the record available to the WTO at the time of passing the assessment order. It was concluded that the internal audit objection, which arose after the assessment order, could not be part of the record of the assessment proceedings. The Tribunal relied on the Calcutta High Court's judgment in Ganga Properties vs. ITO, which held that materials not in existence at the time of assessment cannot form part of the record for revisional jurisdiction. Therefore, the CWT's invocation of Section 25(2) based on the internal audit objection was deemed without jurisdiction.

3. Applicability of Rule 2 regarding valuation of interest in the firm:
The CWT directed the WTO to ascertain the market value of the assessee's interest in the firm as per Rule 2 of the WT Rules, instead of adopting the book value. The Tribunal noted that the WTO had applied his mind to the provisions of law and had rightly not considered the Valuation Officer's report obtained for an earlier year under the IT Act. The WTO had followed the Supreme Court's principles in CWT vs. Nizam's Family Trust, which allowed the WTO to adopt the book value if the difference between the market value and book value was below 20 percent. Therefore, the WTO's application of law was found to be correct.

4. Relevance of internal audit objections in revisional proceedings:
The Tribunal held that the internal audit objection, being subsequent to the assessment order, was extraneous to the assessment proceedings. It was emphasized that the CWT could not direct the WTO to revise the assessment based on the internal audit observation, as it was not part of the record before the WTO. This position was supported by the Calcutta High Court's judgment in Ganga Properties and the Gujarat High Court's decision in CWT vs. Shri Hasmukh V. Chokshi, HUF.

5. Powers of the CWT while the matter is pending before the AAC:
The Tribunal reiterated that the CWT has the authority to exercise revisional jurisdiction even when the matter is pending before the AAC, as established by the Supreme Court in CIT vs. Amritlal Bhogilal & Co. However, the CWT's direction must be based on the record available at the time of the original assessment, not on subsequent materials like internal audit objections.

Conclusion:
The Tribunal concluded that the CWT's order under Section 25(2) was without jurisdiction and quashed it. The assessee's appeal was fully allowed, and the action of the CWT was deemed bad in law.