1983 (8) TMI 109 - AT - Wealth-tax

Summary

Issues Involved:
1. Applicability of Rule 2B(2) of the Wealth-tax Rules, 1957.
2. Determination of market value exceeding 20% of book value.
3. Onus of proof regarding market value.
4. Validity of WTO's valuation method.

Detailed Analysis:

1. Applicability of Rule 2B(2) of the Wealth-tax Rules, 1957:
The primary issue was whether Rule 2B(2) could be invoked for valuing the interest of partners in the firm Maliram Puranchand, Jaipur. Rule 2B(2) provides that if the market value of an asset exceeds the book value by more than 20%, the market value should be taken for wealth-tax assessment. The AAC initially ruled against the applicability of Rule 2B(2), but the Tribunal decided in favor of the revenue, stating that Rule 2B(2) could be invoked.

2. Determination of Market Value Exceeding 20% of Book Value:
The WTO determined that the gross profit rate of 25.20% indicated that the market value of the closing stock exceeded the book value by more than 20%. The WTO calculated the market value of the closing stock at Rs. 36,77,993 against the book value of Rs. 27,51,139, resulting in a 33.68% excess. The WTO allowed a deduction of 4% for commercial factors, finalizing the market value at Rs. 35,30,873 and the excess at Rs. 7,79,734. The AAC, however, disagreed, citing the peculiarities of the jewellery trade and the fluctuating profit margins, and deleted the addition.

3. Onus of Proof Regarding Market Value:
The Tribunal discussed the onus of proof concerning the market value exceeding 20% of the book value. The WTO initially bore the burden of proving that the market value exceeded the book value by more than 20%. The WTO's reliance on the gross profit rate was deemed sufficient to shift the burden to the assessee to disprove this prima facie evidence. The assessee failed to provide concrete evidence to counter the WTO's findings, relying instead on general and hypothetical statements about the nature of the jewellery trade and the variability of profit margins.

4. Validity of WTO's Valuation Method:
The WTO's method of using the gross profit rate to determine the market value was scrutinized. The WTO's approach was supported by the revenue but contested by the assessee, who argued that the gross profit rate alone was insufficient to establish market value. The Tribunal noted conflicting decisions from different Benches on this matter. The learned Accountant Member supported the WTO's method, while the Judicial Member and the Third Member disagreed, emphasizing the need for more concrete evidence beyond the gross profit rate to invoke Rule 2B(2).

Conclusion:
The Tribunal's final decision, influenced by the Third Member's opinion, sided with the Judicial Member, concluding that the gross profit rate alone did not constitute adequate material to invoke Rule 2B(2). The revenue's method of valuation was rejected, and the AAC's deletion of the addition was upheld. The appeals by the revenue were treated as allowed only for statistical purposes, emphasizing the need for more substantial evidence to determine market value exceeding the book value by more than 20%.