2005 (9) TMI 56 - HC - Wealth-tax

1. Whether, Tribunal is right in holding that the Commissioner of Wealth-tax (Appeals) was bound to get the matter of valuation of property referred to the Valuation Officer before enhancing the value of the same, while disposing of the appeal u/s 23(5), particularly when the matter of valuation of property was not referred to the Valuation Officer by the Assessing Officer? 2. Whether having upheld the orders of the Commissioner in quantum appeal, the ITAT is legally correct in holding that the assessee is not debarred from raising the plea of illegality of assessment for the limited purpose of penalty proceedings? 3. Whether, Tribunal was legally correct in allowing the appeals of the assessee against the imposition of penalties u/s 18(1)(c)? - Question No. 1 is answered in the affirmative, i.e., in favour of the assessee. Question No. 2 is answered in the negative, i.e., in favour of the Revenue - Question No. 3 is answered in the affirmative, i.e., in favour of the assessee

Summary

Issues Involved:
1. Requirement of referring property valuation to the Valuation Officer by the Commissioner of Wealth-tax (Appeals).
2. Legality of raising the plea of invalidity of assessment during penalty proceedings.
3. Justification of penalty imposition under section 18(1)(c) of the Wealth-tax Act.

Issue-wise Detailed Analysis:

1. Requirement of Referring Property Valuation to the Valuation Officer:
The primary issue was whether the Commissioner of Wealth-tax (Appeals) was bound to refer the matter of valuation of property to the Valuation Officer before enhancing the value, particularly when the Assessing Officer had not done so. The Tribunal held that the Commissioner of Wealth-tax (Appeals), having decided to enhance the valuation, was legally required to make a reference to the Valuation Officer under section 16A of the Wealth-tax Act. The Tribunal emphasized that the provisions of section 16A(1) and rule 3B of the Wealth-tax Rules mandate the Wealth-tax Officer to make such a reference when there is a significant difference between the value returned by the assessee and the estimated fair market value. The Tribunal cited the cases of Raj Paul Oswal v. CWT and Sharbati Devi Jhalani v. CWT to support this view. The High Court affirmed this, stating that the Commissioner of Wealth-tax (Appeals) should have referred the matter to the Valuation Cell as requested by the assessee, making section 16A mandatory in such circumstances. Thus, question No. 1 was answered in the affirmative, in favor of the assessee.

2. Legality of Raising the Plea of Invalidity of Assessment During Penalty Proceedings:
The second issue was whether the assessee could raise the plea of invalidity of assessment during penalty proceedings after the valuation by the Commissioner of Wealth-tax (Appeals) had been confirmed by the Tribunal and accepted by the assessee. The Tribunal had allowed this, but the High Court disagreed. The High Court noted that penalty proceedings are independent of assessment proceedings, and it is generally permissible for the assessee to adduce fresh evidence. However, since the valuation by the Commissioner of Wealth-tax (Appeals) had been confirmed by the Tribunal and accepted by the assessee without further challenge, it had become final. Therefore, it was not open to the assessee to challenge the valuation in penalty proceedings on procedural grounds. The High Court cited Bharat Rice Mill v. CIT to support its view that procedural non-compliance that is curable cannot be challenged in collateral proceedings. Consequently, question No. 2 was answered in the negative, in favor of the Revenue.

3. Justification of Penalty Imposition Under Section 18(1)(c) of the Wealth-tax Act:
The third issue was whether the Tribunal was correct in deleting the penalties imposed under section 18(1)(c) of the Wealth-tax Act. The High Court considered whether the difference in valuation could be deemed as concealment of wealth. It observed that the valuation disclosed by the assessee had been accepted by the Wealth-tax Officer, and the enhanced valuation by the Commissioner of Wealth-tax (Appeals) was contested by the assessee, who requested a reference to the Valuation Cell. The High Court noted that the valuation enhancement without such a reference was questionable, and the assessee's consistent challenge to the valuation indicated no intent to conceal wealth. The High Court referenced K.C. Builders v. Asst. CIT, emphasizing that concealment requires deliberate action. Since the enhanced valuation was in doubt and the assessee had not concealed any particulars, the Tribunal's decision to delete the penalty was upheld. Thus, question No. 3 was answered in the affirmative, in favor of the assessee.

Conclusion:
- Question No. 1: Affirmative, in favor of the assessee.
- Question No. 2: Negative, in favor of the Revenue.
- Question No. 3: Affirmative, in favor of the assessee.