1984 (8) TMI 141 - AT - Wealth-tax

Issues Involved:
1. Application of Rule 2B(2) of the Wealth Tax Act, 1957 for valuation of closing stock.
2. Onus of proving the market value of assets exceeding the book value by more than 20%.
3. Claim of exemption under Section 5(1)(xxxii) for the business of manufacturing emeralds.
4. Deduction of tax liability arising from disclosure under the Voluntary Disclosure Scheme.
5. Legality of reopening assessments under Section 17(1)(b) of the Wealth Tax Act.

Issue-wise Detailed Analysis:

1. Application of Rule 2B(2) of the Wealth Tax Act, 1957 for Valuation of Closing Stock:
The main point at issue in all the appeals was the application of Rule 2B(2) for valuing the closing stock of firms in which the assessees were partners. The WTO increased the valuation of closing stock based on the gross profit rate exceeding 20%. The appellate authority accepted the contention that Rule 2B(2) could not be applied merely on the basis of the gross profit rate shown in the income-tax assessment. It was held that the valuation should be taken at cost price in accordance with settled commercial principles. The Tribunal's earlier orders also supported this view, stating that the application of Rule 2B(2) merely on the basis of a higher gross profit rate than 20% was unjustified.

2. Onus of Proving the Market Value of Assets Exceeding the Book Value by More Than 20%:
The Tribunal considered the onus of proving the market value of assets exceeding the book value by more than 20%. It was held that the onus lies on the revenue to prove that the market value of the closing stock exceeded the book value by more than 20%. The Rajasthan High Court ruling in the case of Man Industrial Corporation supported this view, stating that the value shown in the balance sheet should be considered as prima facie evidence, and the revenue must provide acceptable evidence to challenge it. The Tribunal concluded that merely on the basis of the gross profit rate, it could not be said that the market value of the closing stock exceeded the book value by more than 20%.

3. Claim of Exemption Under Section 5(1)(xxxii) for the Business of Manufacturing Emeralds:
In WTA No. 212/Jp/81, the issue pertained to the claim of exemption under Section 5(1)(xxxii) for the business of manufacturing emeralds. The Tribunal upheld the view that manufacturers of emeralds who import, cut, polish, and sell emeralds are entitled to exemption as an industrial undertaking. This was based on previous orders of the Tribunal, including the case of Smt. Manju Devi Kothari.

4. Deduction of Tax Liability Arising from Disclosure Under the Voluntary Disclosure Scheme:
In WTA No. 212/Jp/81, the issue also included the deduction of tax liability resulting from disclosure under the Voluntary Disclosure Scheme. The Supreme Court ruling in the case of CWT, Gujarat vs. Vadilal Lallubhai confirmed that the assessee is entitled to a deduction for tax liability arising from such disclosure. The Tribunal upheld the order of the AAC, allowing the deduction.

5. Legality of Reopening Assessments Under Section 17(1)(b) of the Wealth Tax Act:
In WTA Nos. 206, 208 & 209/Jp/81, besides the application of Rule 2B, the issue involved the legality of reopening assessments under Section 17(1)(b). The Tribunal did not find it necessary to address the validity of reopening since the appeals were decided in favor of the assessee on merits.

Conclusion:
The Tribunal upheld the appellate authority's decision that Rule 2B(2) could not be applied merely based on the gross profit rate. The onus of proving that the market value of the closing stock exceeded the book value by more than 20% lies on the revenue. The claims for exemption under Section 5(1)(xxxii) and deduction of tax liability under the Voluntary Disclosure Scheme were upheld. The appeals regarding the legality of reopening assessments were dismissed as the merits favored the assessee.

← Previous Next →