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TMI Blog1984 (2) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... Viresh for the assessment years 1975-76, 1976-77, 1977-78 and 1978-79 were completed on 31-1-1976, 30-12-1976, 30-8-1977 and 5-8-1978, respectively. All these were reopened under section 17 of the Wealth-tax Act, 1957 ('the Act') and reassessments were made on 28-11-1979. With regard to Jitendra, the original assessments for the assessment years mentioned above were completed on 31-1-1977, 31-1-1977, 31-1-1978 and 5-8-1978, respectively. They were also reopened and fresh assessments were made on 28-11-1979. With regard to Sailesh, no return had been filed with regard to the assessment year 1975-76. There was, therefore, no original assessment but only a reopening of the assessment and reassessment on 19-11-1979. The original assessment for 1976-77 was completed on 8-3-1977. This was reopened and reassessment made on 19-11-1979. As regards Sailesh, the appeals relate to the original assessments for the assessment years 1977-78 to 1979-80. Similarly with regard to Viresh and Jitendra the appeals relating to 1979-80 are against the original assessments. 4. The reassessments referred to above were cancelled by the AAC except the reassessment in the case of Sailesh for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 was Rs. 35,047, Rs. 59,633, Rs. 64,632, Rs. 72,287, Rs. 88,066, Rs. 1,73,594 and Rs. 1,93,413, respectively. As against this, the value of the godowns as per the balance sheet was the constant figure of Rs. 3,50,278 from 1975-76 to 1978-79 (both inclusive). 7. The assessees in their returns showed the value of their interest in the godowns on the basis of the value as entered in the balance sheet. This was accepted in the original assessments in the case of Viresh and Jitendra for the assessment years up to 1978-79. It was accepted also in the original assessment in the case of Sailesh for the assessment year 1976-77. These assessments were completed on or before 5-8-1978. On 13-9-1978 the ITO, dealing with the assessment of the firm, recorded the following in the order sheet : "13-9-1978 The properties belonging to the firm are let out for a gross rent of Rs. 2,46,000 and odd. The net assessable income under property alone is about Rs. 1,93,000. The value of asset as shown in the balance sheet is only Rs. 3,50,000 and only one-fifth of this will be assessed as wealth pertaining to this asset in the hands of each partner. Considering the large rent receipts there has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 1977-78 to 1979-80 in the case of Sailesh. In the reassessments so made he adopted the value of the one-fifth interest of each partner in the property belonging to the firm as Rs. 3,51,300 as against the value of Rs. 70,056 returned by the assessees on the basis of the balance sheet. As already stated, the AAC struck down the reassessments and also reduced substantially the value adopted by the WTO on the basis of the valuation report. 9. In the appeals filed by the department two questions arise for consideration, namely, (i) whether the reopening of the assessment was valid, and (ii) what is the proper value to be adopted, in case the same is not worked out on the basis of the value as given in the balance sheet. 10. We would first deal with the question relating to the validity of the reopening of the assessment. The grounds taken by the department with regard to this aspect are to the following effect : 1. The AAC ought to have held that the assessment was validly reopened on the basis of the information received subsequent to the completion of the original assessment in the form of the report of the Valuation Officer and that in consequence of this information the WTO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A could be made only in the case of pending assessments, that no such reference could have been made with regard to the assessments which are closed, that the reopening of the assessments was bad as the information relied upon for the purpose was obtained on the basis of invalid reference under section 16A, that at the time of the original assessments the WTO had with him all the facts pertaining to the income derived from the buildings, that in spite of the same he did not choose to proceed under rule 2 of the Wealth-tax Rules, 1957 ('the Rules'), and that he had no 'information' for reopening the assessments under section 17(1)(b). 13. The first contention advanced by the learned departmental representative was that it is not correct to say that the reopening of the assessment was made on the basis of the valuation report. It was argued that actually the reopening was on the basis of the information gathered at the time of the assessment of the firm. We have extracted in paragraph 7 the note recorded in the order sheet in the income-tax assessment of the firm for the assessment year 1978-79. This was on 13-9-1978. On 17-10-1978 the ITO addressed a letter to Sailesh as partner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to the Valuation Officer could have been made after the reopening of the assessment but the WTO did not choose to do so. A reading of the first ground taken by the department (numbered as ground No. 2 in the grounds of appeal) will indicate that the stand of the department is that the 'information' was the valuation report because the ground reads thus : "The Appellate Assistant Commissioner ought to have held that the assessment was validly reopened on the basis of information received subsequent to the completion of the original assessment in the form of the valuation report and that in consequence of this information the Wealth-tax Officer had reason to believe that net wealth chargeable to tax for the assessment year has escaped assessment." (Emphasis supplied) It is true that in the fifth ground (numbered as No. 6 in the memorandum) a reference is made to the information gathered earlier during the income-tax assessment of the firm. But this is mentioned in the ground itself as the basis for the reference to the valuation cell. Therefore, the argument as now put forward by the learned representative is an after-thought. 15. In this context, the learned departmental r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reopening of the assessment under section 17(1) as the report submitted by the Valuation Officer would be an invalid reference and the report must be treated as non est and void ab initio. In this connection, it was contended by the learned departmental representative that even if the report was made on an invalid reference it can still constitute 'information' for the purpose of reopening the assessment. Reference was made in this context to certain decisions. The Supreme Court had in the case of Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505 held that the materials gathered during an illegal search and seizure can be used by income-tax authorities against the person from whose custody they are seized. In Varghese Varghese v. CAIT [1976] 105 ITR 732 it was held by the Kerala High Court also that materials obtained by illegal search and seizure could be used by the Agricultural Income-tax authorities. In New Street Oil Mills v. State of Kerala [1978] 111 ITR 463 it was held by the Kerala High Court that documents seized during an illegal search could be used for the purpose of an assessment under the Kerala General Sales Tax Act. 18. As rightly pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer was in respect of only pending assessments and such valuations indicated an underassessment of the property in question for an earlier assessment year. It has also been contended by the revenue that the valuation reports for the subsequent assessment years which have also been obtained simultaneously by the Wealth-tax Officer would be a valid basis for reopening the assessment for this year. Reliance is placed in this regard again on the case of Jose T. Mooken and also on the decision of the Calcutta High Court in S.P. Agarwalla v. ITO [1983] 140 ITR 1010. As mentioned earlier in the case of Jose T. Mooken the reference was only for the subsequent assessment years and not for the assessment year that was under consideration. In the case of the assessee here we do not see how we can consider the valuations made for the subsequent assessment years as relevant for this assessment year in view of the recording of the specific material on the basis of which the Wealth-tax Officer has reopened this assessment. While issuing the notice under section 17(1)(b), the Wealth-tax Officer has only adverted to the receipt of audit note. In the reassessment order itself the Wealth-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to hold that the reopenings of the assessments completed earlier are not valid. But for the sake of completeness of record we may refer to some more arguments addressed by either side. 20. It was contended by the learned departmental representative that a notice of reopening need not specify the clause under which the reopening is proposed to be done and that once the reopening is validly done under a particular clause all the items which could be brought under both the clauses can be included in the reassessment. It is not necessary to refer to the authorities cited by the learned departmental representative because the proposition as set out above is not disputed. We may, however, state that the authorities cited include CWT v. Subakaran Gangabhishan [1980] 121 ITR 69 (AP) (FB) and Kantamani Venkata Narayana Sons v. First Addl. ITO [1967] 63 ITR 638 (SC). These are of no help to the department because they come into play only after a valid reopening of the assessment. In the present case our finding is that there has been no valid reopening. 21. It was also claimed by the learned departmental representative that the reopening of the assessment in the present case can be up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 7(1). Relying upon the decision of the Supreme High Court in the case of CIT v. Simon Carves Ltd. [1976] 105 ITR 212 it was contended by the learned representative that the assessment cannot be reopened merely because the tax liability happened to be lower under the method accepted in the original assessment and the adoption of a different method would have yielded higher tax. It is pointed out that as the adoption of the global method in the original assessment was not illegal and was not vitiated by any error, it cannot be claimed that the income had escaped assessment. The position is well settled that the reopening cannot be sustained if it was only a case of change of opinion on the part of the WTO. For this we need only refer to the decision of the Supreme Court in the case of Indian Eastern Newspaper Society v. CIT [1979] 119 ITR 996 which was relied upon by the learned representative for the assessee. In our opinion, the present case is not one where the WTO wanted to switch over from the global method contemplated by sub-section (2) of section 7 to the normal method contemplated by sub-section (1) of section 7. Even under the global method contemplated by sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of assessment under the Income-tax Act, as the case may be, by more than 20 per cent, the value of that asset can be taken to be its market value. It has also to be noted that the assessees have not come up in appeal against the value as determined by the AAC for the assessment years where reopening of assessments were not involved. 26. In the light of the decision of the Supreme Court referred to in the preceding paragraph, the validity of the action of the WTO in referring, under section 16A, the valuation of the godowns to a Valuation Officer for the purpose of determining the interest of the partners in the firm is also valid and justified. 27. We are, therefore, concerned only with the appeal by the department against the reduction in the value by the AAC. The grounds taken by the department with regard to this aspect are to the following effect : 1. The AAC erred in reducing the value of the property blindly believing the submissions made on behalf of the assessee and based purely upon conjectures and surmises and not on the basis of any relevant material; 2. Having found that there were galloping inflation, the AAC erred in holding that there was any depressin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO to calculate the value for the two portions as indicated by him in paragraph 16 of his order. Under the same he directed that the value for the vacant portion shall be 1/10th of the value determined for the rented out portion. The department questions the correctness of the same. The Valuation Officer had calculated the value for the entire area on the basis of the rent fetched. After hearing both sides we find no justification in adopting a lower value for the portion not let out. The basic question is whether the rent capitalisation method will be appropriate. The AAC has sustained the rent capitalisation method and has only reduced the value by allowing more deductions from the gross rent. The assessee has not filed any appeal or cross-objection with regard to the adoption of the rent capitalisation method. Once the rent capitalisation method is adopted we find no justification for adopting a lower value for the portion not let out. The topic whether a self-occupied house is to be valued differently had been discussed at page 955 of Sampath Iyengar's The Three New Taxes, 5th edn. The case law referred to therein would show that generally the department had sought to give a hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here are only a few tenants, that they will be well to do parties and that 2 per cent was, therefore, sufficient. As against this it was pointed out by the learned representative for the assessee that even the Income-tax Act allows 6 per cent as collection charges and that there is no justification to reduce it to 2 per cent in the present case. There are six godowns and there was also occasional change in the tenants. On a consideration of these aspects we are not inclined to interfere with the collection charges determined by the AAC. 32. The next aspect relates to the payments on account of insurance policies with regard to the godowns. The Valuation Officer has not allowed any deduction under this head, apparently, because the necessary particulars were not furnished. The AAC has directed the WTO to ascertain the insurance charges actually paid by the firm for each year and to deduct the same. The direction is a reasonable one and we are not inclined to interfere with the same. 33. The next item relates to the deduction on account of repairs and maintenance. While the Valuation Officer allowed 10 per cent for repairs and maintenance, the AAC increased the same to 16 2/3 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee also brought to the notice of the AAC two instances of sales of godown buildings in the Willingdon Island. In one such case 7,200 sq. ft. of constructed buildings on 35 cents of land was sold on 25-9-1975 for Rs. 2,25,000. This, according to the AAC, shows that the actual value was nowhere near the high value arrived at by the Valuation Officer by capitalisation of the rent. The Valuation Officer himself had allowed a 20 per cent reduction. The AAC enhanced the same to 25 per cent. Before us it was contended by the Valuation Officer that a reduction of 20 per cent was given only because of the fact that the assessee had only a lease of right and not on account of any other depressing factors. He contended that 25 per cent allowed by the AAC is excessive. On the other hand, the learned representative for the assessee relied upon the general features relating to the lease and the demand for godowns, which have been set out by us in paragraph 29 above. Considering these general features and also the fact that the rent is disproportionately high when compared to the construction we confirm the deduction of 25 per cent allowed by the AAC. 36. The learned representative for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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