1984 (4) TMI 68 - AT - Income Tax

Assessment Proceedings, Assessment Year, Audit Objection, Gift Tax, Quoted Equity Shares, Reassessment Proceedings, Supreme Court, Wealth Tax

Issues Involved:
1. Validity of the reopening of assessment under section 16(1)(b) of the Gift-tax Act, 1958.
2. Applicability of Circular No. IB/GT of 1968 and subsequent circulars.
3. Method of valuation of unquoted shares for gift-tax purposes.
4. Impact of revenue audit objections on reopening assessments.
5. Consideration of events post the date of the gift in valuation.

Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 16(1)(b):
The assessee challenged the reopening of the assessment by the Gift-tax Officer (GTO) under section 16(1)(b) on several grounds, including the absence of specification in the notice whether it was under clause (a) or (b), and the assertion that the reopening was based on a mere change of opinion regarding the valuation of shares. The Commissioner (Appeals) annulled the reassessment, stating that the original assessment was made in accordance with the Board's instructions prevailing at the time. The Tribunal upheld this view, emphasizing that the GTO acted beyond his jurisdiction in reopening the assessment under section 16(1)(b) merely due to a change of opinion.

2. Applicability of Circular No. IB/GT of 1968 and Subsequent Circulars:
The Commissioner (Appeals) noted that the original assessment was made following Circular No. IB/GT of 1968, which was beneficial to the assessee. The Tribunal agreed, stating that the subsequent circulars issued in 1974 and 1975 could not have retrospective effect to alter the assessment for the year 1973-74. The Kerala High Court's decision in CIT v. B.M. Edward, India Sea Foods supported this view, holding that assessments should be completed in accordance with the circulars in force during the relevant assessment year.

3. Method of Valuation of Unquoted Shares for Gift-tax Purposes:
The valuation of shares was initially done as per the Wealth-tax Rules, which was challenged by the revenue on the grounds that the Gift-tax Rules required a different method. The Tribunal noted that the law on this point was not settled and that the GTO had originally followed a recognized method of valuation. The Tribunal upheld the view that the GTO could not reopen the assessment merely to adopt a different method of valuation, especially when the original method was in line with the Board's instructions.

4. Impact of Revenue Audit Objections on Reopening Assessments:
The Tribunal emphasized that the revenue audit objection did not constitute "information" within the meaning of section 16(1)(b) to justify reopening the assessment. The Supreme Court's decision in Indian & Eastern Newspaper Society v. CIT clarified that audit objections based on interpretation of law do not provide a valid basis for reopening assessments. The Tribunal held that the GTO's action was not justified as it was based on the audit party's opinion rather than a judicial or legislative authority.

5. Consideration of Events Post the Date of the Gift in Valuation:
The Tribunal agreed with the assessee that the GTO was not justified in considering events that occurred after the date of the gift (29-3-1973) or after the relevant balance sheet date (31-3-1972). This was in line with the Mysore High Court's decision in CED v. J. Krishna Murthy, which held that valuation should be based on the facts and circumstances existing at the time of the gift.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s decision to annul the reassessment framed under section 15(3) read with section 16(1)(b) of the Gift-tax Act, 1958. The appeal by the revenue was dismissed, affirming that the GTO acted beyond his jurisdiction in reopening the assessment based on a change of opinion and subsequent circulars, and that the audit objections did not constitute valid information for reopening the assessment.

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