1983 (8) TMI 111 - AT - Wealth-tax

Summary

Issues Involved:

1. Whether the gross profit rate of 33.68% for the assessment year 1975-76 indicates that the difference in terms of Rule 2B(2) of the Wealth-tax Rules exceeds 20%.
2. Whether the burden shifts to the assessee to prove that the prima facie difference of 33.68% is not real by leading positive evidence.
3. Whether the market value of the closing stock has to be found as a fact, and if so, whether the value adopted by the WTO should be accepted in the absence of details furnished by the assessee.

Issue-wise Detailed Analysis:

1. Gross Profit Rate and Rule 2B(2) Compliance:

The primary issue was whether the gross profit (GP) rate of 33.68% for the assessment year 1975-76 indicated that the market value of the closing stock exceeded its book value by more than 20%, thereby invoking Rule 2B(2) of the Wealth-tax Rules. The WTO argued that the firm's GP rate suggested a higher market value of the closing stock, justifying the adjustment under Rule 2B(2). The firm had shown a GP rate of 25.2% on sales of Rs. 26,67,960, with the closing stock valued at Rs. 27,51,139. The WTO recalculated the closing stock's market value at Rs. 36,77,993, suggesting a significant discrepancy. However, the assessee contended that the GP rate alone did not justify invoking Rule 2B(2) and that the peculiarities of the jewellery trade, such as long holding periods and varying profit margins, should be considered. The AAC supported the assessee, ruling that the GP rate alone was insufficient to establish a market value exceeding 20% of the book value.

2. Burden of Proof:

The second issue examined whether, once the WTO established a prima facie case under Rule 2B(2), the burden shifted to the assessee to disprove the difference by providing positive evidence. The Accountant Member affirmed that the initial burden was on the WTO to show a prima facie difference exceeding 20%, which was discharged by the GP rate. Consequently, the burden shifted to the assessee to provide evidence countering this prima facie difference. The assessee failed to produce such evidence, leading to the conclusion that the onus was not discharged.

3. Determination of Market Value:

The third issue focused on whether the market value of the closing stock needed to be determined as a fact and whether the WTO's valuation should be accepted in the absence of details from the assessee. The Accountant Member upheld the WTO's valuation due to the lack of contrary evidence from the assessee. The Judicial Member, however, emphasized that the GP rate alone did not constitute adequate material to conclude that the market value exceeded the book value by more than 20%. He argued that the WTO should have provided additional evidence to support the market value claim. The Judicial Member's view was supported by several Tribunal orders, which held that the GP rate alone was insufficient for invoking Rule 2B(2).

Conclusion:

The third member agreed with the Judicial Member, concluding that the GP rate alone was inadequate to establish a market value exceeding 20% of the book value. The decision emphasized the need for the WTO to provide additional evidence beyond the GP rate to justify invoking Rule 2B(2). The file was sent back to the Jaipur Bench for further proceedings under the relevant sections of the Wealth-tax Act and the Income-tax Act.