2018 (10) TMI 750 - HC - Wealth-tax

Escapement of income chargeable to wealth tax - validity of reasons for issuing the notice - non filing of return under the Wealth Tax Act - Petitioner raised objections to the impugned notice mainly contending that the assessee has no net wealth and in fact, the balance-sheet shows negative capital balance - Held that - Section 17 of the Wealth Tax Act, 1957 enables the AO to assess or reassess the net wealth of the assessee by issuing notice if he has reason to believe that net wealth chargeable to tax in respect of such person had escaped assessment. In the present case, admittedly, the assessee had not filed his return under the Wealth Tax Act. The Assessing Officer, in all probabilities, from the return of income filed by the assessee under the Income Tax Act and the documents annexed therewith noticed that the assessee had sizeable investment in fixed asset valuation of which along with cash in hand showed by the assessee came to ₹ 2.30 crores (rounded off) after reducing the exemption wealth of ₹ 30 lacs. He prima facie believed that net taxable wealth of ₹ 2 crore had escaped assessment. After recording proper reasons, he issued the impugned notice/ We see no reason to interfere. The assessee s contention that the loans were raised to acquire such capital assets would require exemption and therefore assessment. While disposing of such an objection, the Assessing Officer correctly observed that the assessee had not showed co-relation between the borrowing and the acquisition of assets. He noticed that in the income tax return, the assessee had claimed interest expenditure in relation to income from other sources. - Decided against assessee.

Summary

Issues:
Challenge to notice under section 17 of the Wealth Tax Act, 1957 for escaped assessment of income chargeable to tax for the assessment year 2013-14.

Detailed Analysis:

Issue 1: Challenge to Notice under Section 17 of the Wealth Tax Act
The petitioner contested a notice issued by the Assessing Officer under section 17 of the Wealth Tax Act, 1957, stating that income chargeable to tax for the assessment year 2013-14 had escaped assessment. The notice required the assessee to file a return within thirty days. The petitioner was provided with reasons for the notice, detailing the assets held by the assessee and the wealth chargeable to tax. The petitioner objected to the notice, arguing a lack of net wealth as per the balance sheet, showing a negative capital balance. The objections were dismissed by the Assessing Officer, who noted a lack of explanation regarding the application of unsecured loans and liabilities in acquiring assets, along with discrepancies in interest expenses claimed in income computation for previous years.

Issue 2: Application of Section 17 of the Wealth Tax Act
Section 17 empowers the Assessing Officer to assess or reassess the net wealth of an assessee if there is reason to believe that taxable wealth has escaped assessment. In this case, the assessee had not filed a return under the Wealth Tax Act. The Assessing Officer, based on the income tax return and related documents, observed significant investments in fixed assets and cash holdings, totaling around ?2.30 crores after deducting exempt wealth. The Officer believed that taxable wealth of ?2 crores had escaped assessment. The Officer found a lack of correlation between borrowed funds and asset acquisition, especially noting interest expenses claimed against income from other sources in the income tax returns.

Conclusion
The High Court upheld the impugned notice, emphasizing the Assessing Officer's prima facie belief that taxable wealth had escaped assessment. The court agreed that the assessee's claims regarding loans for asset acquisition required further assessment due to the lack of evidence establishing a connection between borrowed funds and asset purchases. The dismissal of the petition affirmed the validity of the notice issued under section 17 of the Wealth Tax Act, 1957.