1988 (4) TMI 124 - AT - Wealth-tax

Summary

Issues Involved:
1. Applicability of Section 7(1) or Section 7(2) of the Wealth-tax Act for reassessment proceedings.
2. Justification for allowing the deduction of Rs. 1,05,100 as bad debts.
3. Validity of reopening the assessment under Section 17(1)(b) of the Wealth-tax Act.

Detailed Analysis:

1. Applicability of Section 7(1) or Section 7(2) of the Wealth-tax Act for Reassessment Proceedings:

Department's Argument:
The department argued that Section 7(2) was applied both during the original and reassessment proceedings. Therefore, there was no change in the application or examination of the facts. The Commissioner of Wealth-tax (Appeals) [CWT(A)] was in error in holding that originally Section 7(1) was applied.

Assessee's Argument:
The assessee contended that each item of the debts was examined and allowed to a certain extent by the Wealth-tax Officer (WTO). The Appellate Assistant Commissioner (AAC) had given further relief on appeal. The reassessment proceedings could not withdraw the deduction already granted as the department had not appealed against the AAC's order.

Tribunal's Findings:
The Tribunal found that the WTO had considered each debt and allowed deductions as per the balance sheet. The AAC had enhanced the deduction for some debts. The department did not appeal against the AAC's order. The WTO's reassessment was merely an examination of the same items again under Section 36 of the IT Act, claiming the debts were not written off in the books. The department failed to provide material evidence that the debts were not bad or that the CWT(A) was wrong in concluding that the debts were valueless. Hence, the departmental appeal was dismissed.

Judicial Member's Dissent:
The Judicial Member disagreed, noting that the original assessment was not in accordance with Section 7(1) as the assessee did not file the return of net wealth per Section 7(1) principles. The debts were related to a business in which the assessee had invested, and the market value of all debts could not be recast for estimating the net wealth. The previous method of computing net wealth was irregular and the earlier assessment was bad.

Third Member's Decision:
The Third Member concluded that the original computation of net wealth was made under Section 7(1) and not Section 7(2) based on the assessment orders and the appellate order by the AAC, which had become final. The original proceedings did not involve valuing the business under Section 7(2).

2. Justification for Allowing the Deduction of Rs. 1,05,100 as Bad Debts:

Department's Argument:
The department contended that the deduction allowed was consequential and wrongly granted as the debts had not been written off in the books, and thus could not be reduced from the wealth.

Assessee's Argument:
The assessee argued that the debts were examined and allowed by the WTO and further relief was given by the AAC. The reassessment proceedings could not withdraw the deduction already granted as it was considered by the AAC and no appeal was preferred by the department.

Tribunal's Findings:
The Tribunal found no merit in the departmental appeal as the WTO had considered each debt and allowed deductions. The AAC's order had become final, and the reassessment proceedings could not withdraw the deduction already granted.

Judicial Member's Dissent:
The Judicial Member noted that the debts were related to a business in which the assessee had invested, and the market value of all debts could not be recast for estimating the net wealth. The previous method of computing net wealth was irregular and the earlier assessment was bad.

Third Member's Decision:
The Third Member upheld the view that the original computation of net wealth was made under Section 7(1), and thus the deduction of Rs. 1,05,100 as bad debts was justified.

3. Validity of Reopening the Assessment under Section 17(1)(b) of the Wealth-tax Act:

Department's Argument:
The department justified the reopening of the assessment under Section 17(1)(b) on the grounds that the deduction on account of the difference in book value and market value of debts had been wrongly allowed.

Assessee's Argument:
The assessee contended that the reopening could not be justified based on the audit report as per the Supreme Court decision in India & Eastern Newspaper Society v. CIT.

Tribunal's Findings:
The Tribunal found that the department did not bring any material evidence to support their claim that the debts were not bad or that the CWT(A) was wrong. The reassessment proceedings were merely an examination of the same items again.

Judicial Member's Dissent:
The Judicial Member noted that the earlier decision of the WTO was wholly contrary to the rules and the reopening of the assessments was in accordance with the law.

Third Member's Decision:
The Third Member concluded that the original computation was made under Section 7(1), and thus the reopening of the assessment under Section 17(1)(b) was not justified.

Conclusion:
The majority view held that the original computation of net wealth was made under Section 7(1) of the Wealth-tax Act, and the reassessment proceedings under Section 7(2) were not applicable. The deduction of Rs. 1,05,100 as bad debts was justified, and the reopening of the assessment under Section 17(1)(b) was not valid. The matter was referred back to the original Bench to pass an order in conformity with the majority view.