9911796707
TMI Blog1987 (9) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of rule 2B (2) was considered by Rajasthan High Court in the case of CWT v. Smt. S. K. Bader [1986] 29 Taxman 343 had vide their order dated 4th September, 1985 in the abovementioned case had come to the conclusion that rule 2B (2) cannot be invoked on the basis of the gross profit rate does not indicate the difference in the value of the stock as shown by the assessee and its fair market value. He field the copy of the order of the High Court and submitted that is purely a question of fact that the adding the gross profit rate to the closing stock value it does not represent the market value and, therefore, invoking of rule 2B (2) is improper. He also placed reliance on B. Damodar Co. v. Addl. CIT v. [1974] 97 ITR 70 (Mys.). 4. We have heard the parties. The question that were considered by their lordships of the Rajasthan High Court in the case of Smt S. K. Bader dated 4th September, 1985, copy field by the assessee, are as under : (1) Whether on the facts and in the circumstances of the case the Appellate Tribunal is justified in holding that in order to ascertain the actual market value of the closing stock of the firm for purpose of Rule 2B (2) of WT Rules, the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir market value within the meaning of rule 2B (2) and, therefore, the Third Member ruled that the rule 2B (2) cannot be invoked. By a majority decision. Therefore, it was concluded that rule 2B (2) cannot be invoked by applying the g. p. rate shown by the assessee in its trading accounts. 6. What we have now to examine is to what extent the present case compares will with the decisions of the Rajasthan High Court. In the case before Rajasthan High Court, the closing stock was valued at 48 per cent than the Export Value shown. In that case the Export Invoice Value was mentioned to be anything between 20 to 30 per cent of the market value. In that case also the gross profit was much more than 20 per cent. In the instant case the gross profit shown is 25.2 per cent of its value shown in the balance sheet. The assessee before the WTO had submitted that it was prepared to sale to anyone the entire closing stock for a margin of 18 per cent. This has been so observed by the WTO in para 4 of his order. In para 5, he considered the arguments of the assessee and gave a margin of 4 per cent for the reason that some of the stock had not moved for many years and that the profit of 25 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions of the year and under no circumstances it could able by an assessee as G. P. is only the result of an event and does not lead to an event. The sale price is dependent on several market conditions and the gross profit is only the result arising the an assessee on account of such a sale. Every assessee would like to maximise his profits and merely for the reason that his expected or the profit realised in a particular year is 25 per cent. It does not conclude that the stocks in hand have to be valued at 25 per cent more than the book value has been held to be a mere quotation which at most of the times could be the sale price realised subsequently also than the gross profit realised can never even be held to be an indicative of the expected sale price. When a reduction of 35 per cent from the export invoice value for arriving at the vale of closing stocks for trading account purposes has been held to be proper and that Rule 2B (2) cannot be invoked on that basis and it is purely a finding of fact. The natural corollary that follows is that the gross profit is not an indicating factor at all for invoking the provisions of Rule 2B (2). As per the WTO, the value of the stocks is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, whatever be the ultimate view, the question involved in this case is a clear-cut referable question of law. According, I am of the opinion that the present references should be submitted to the Hon'ble High Court. Per Shri H. S. Ahluwalia, Judicial Member - Personally speaking I am of the opinion that in relation to the main dispute, the contrary view of the matter would be more appropriate and in accordance with the language and spirit of law. It is well established that so far as computation of total income is concerned, an assessee can value its closing stock on cost or market price whichever is less. It was not seriously disputed before us that the firm in which the assessees are partners had actually taken the value of the closing at the lesser figure, i.e. the cost. In fact, it was never disputed that the closing stock itself had been valued by the firms by deducting a certain percentage (which was less than the G. P. disclosed by the said firms) from the market price on the relevant accounting date. Consequently, the gross profit would ordinarily be less than the margin between the cost and the market. It was also not disputed that the rate of gross profit d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1984] 146 ITR 552. 3. How can the WTO possibly find out the market value of each item of closing stock held by the firm on the relevant accounting year ? Even the detailed particulars of the closing stock of the firm may not be available with the Wealth-tax Officer, assessing the present assessees. The Wealth-tax Officer, therefore, would have to raise some kind of presumption from the available facts. have to raise some kind of presumption from the available facts. The fact of the G. P. being more than 20 per cent would prima facie discharge the burden relaying upon the Department and justify the WTO in raising the presumption. The actual market price of each item of closing stock was a fact within the special knowledge of the assessees because they are partners of the firms who owned the closing stocks. A assessment under the IT Act, but a partner is an agent of the firm for all dealings with the third parties and is expected to know all facts relating to the conduct of the business by the firm so that it were the assessees who knew as to what was the actual market value of the items forming part of the closing stock. My learned brethren have accepted the proposition that for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that the WTO should have called upon the assessees to produce before him particular material and details relating to the value of the closing stock, but the Wealth-tax Officer himself did not know as to what facts should be ascertained for establishing the margin and, therefore, had not put any specific enquiries or asked the assessees to produce any specific facts. However, he had asked them to show cause as to why the closing stock should be revalued. In reply the assessees only gave general explanation and asked the Wealth-tax Officer that he should give them the basis for coming to the conclusion that the margin exceeded 20 per cent. The prima facie basis was already there in the form of the G. P. earned by the firm. Nothing more was known to the WTO, but every thing was known to the assessees. They could give all the relevant facts to enable the WTO to ascertain the actual position. As I have pointed out above, the basis burden on the WTO was not as has been presumed by may learned brethren, because the WTO did not know the items of closing stocks held by the firms and the market price of each one of them. He only knew two facts, namely, that the value of the closing st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question said to be a question of law arise out of the order of the Tribunal in WTA Nos. 61, 60 62/JP/81 : "Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the provisions of Rule 2B (2) of WT Rules are not applicable in determining the net wealth of the firm M/s. Maliram Puranmal and consequently in sustaining the order of the AAC deleting the addition in the assessee's hands ?" 2. The learned Members of the Jaipur Bench who heard the reference application could not agree as to whether order of the Tribunal referred to above gave rise to a question of law or not. The learned Accountant Member who wrote the leading order held that the Tribunal was concluded by pure finding of fact. On those finding of fact it did not give rise to any question of law. But the learned Judicial member held that the interpretation of Rule 2B (2) of the WT Rules, was involved and whether the interpretation placed by the Tribunal on the applicability of that rule was correct or not gave rise to a question of law because it is now a well settled law that any interpretation of any section of an Act or Rule or a document would always be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and could not agree with the conclusion. The difference was quite acute, because the learned Accountant Member had framed the following three questions as his view of difference of opinion : "(i) Whether on the facts and in the circumstances of the case, the gross profit rate in the case of the firm in which the assessee is a partner at 33.68 per cent with reference to the cost price for the asstt. year 1975-76 will not prima facie show that the difference in terms of Rule 2B (2) of the WT Rules is more than 20 per cent and whether the WTO has discharged the initial burden cast on him ? (ii) If the answer to question No. (i) is in the affirmative whether the burden shifts to the assessee to prove that the prima facie difference of 38.88 per cent is not real by leading positive evidence and whether any evidence has been adduced by the assessee to discharge its onus ? (iii) Whether the market value of the closing stock has to be found as a fact, and whether and in the absence of any details having been furnished by the assessee, the value adopted by the WTO has to be accepted or not ?" as against which the learned Judicial Member framed the point of difference of opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emeralds, rubies, saphires, etc. The rates would differ from person to person and even from place to place. If such large quantity of goods as the firm carries are to be sold on the valuation date, the buyer would in all probability be a dealer and he would certainly not any the price which the assessee can get from sales to different parties over a period of 12 months. I have thus no hesitation in coming to the conclusion that on the basis of the mere gross profit of 25.2 per cent shown in this year, the value of the closing stock cannot be considered to be more than 20 per cent of the value shown in the books of the firm." As I have mentioned earlier, the learned Third Member took support for his use from the orders passed by the Tribunal in various other cases which were mentioned in para 12 of his order. He also noticed that there was a differing opinion also expressed by another Bench of the Tribunal at Calcutta camping at Jaipur but he overcame that decision by pointing out that the matter there was remitted back to the AAC for fixing the exact market value of the closing stock. Thus he eventually agreed with the view of the learned Judicial Member. Thereafter the matter we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce found and vice versa, and which in either case gave rise to a question of law. The re-framed question by the Special Bench is as under : "Whether on the facts and circumstances of the case the Tribunal was right in holding that for the purpose of applying rule 2B (2) of the WT Rules the onus was on the Revenue to prove that the market value of the closing stock of M/s. Maliram Puranmal exceeded the value as shown in the firm's account by more than 20 per-cent ?" The learned Advocate for the assessee Mr. N. M. Ranka on the other hand contended, that the issue involved before the Special Bench was totally different, namely, on whom does the onus lie to apply the provisions of rule 2B (2). The issue before the Bench in these cases was not about the burden but about the adequacy of evidence. By taking me through the orders of the Bench of Third Member case, Particularly the portion extracted above and the High Court decision given by the Rajasthan High Court contended that the adequacy and otherwise of the material before the Tribunal to enable it to come to a conclusion is always a question of fact. A finding of fact was given by the Tribunal on the appraisal of evidence befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the closing stock, namely, whether at cost or at market value which ever is lower. If the market value of the closing stock was arrived at and was included in the trading account and when that has accepted as the market value on valuation for the purpose of assessment, then that would mean that that was the market value. No further adjustment would then be called for merely because the gross profit rate was more than 20 per cent the measure referred to in rule 2B (2). The reason is simple because the value put up on the closing stock was the market value and it was as a consequence of putting that market value on the closing stock the rate of gross profit worked out to more than 20 per cent. If the closing stock had been called at cost and that happens to be lower than market value then the margin of gross profit would be far lower. But if the market value happens to be lower than the cost then no further adjustment as I have mentioned earlier would be called for still to arrive at a higher market value. Because the market value either for the purpose of income-tax or for the purpose of wealth-tax would conceptually and contextual be the same and further if the closing stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as I have mentioned earlier that rate of profit is only an indication but not a conclusive proof. 7. Secondly rule 2B (2) was no doubt applied in the sense that the question whether the provisions of rule 2B (2) were attracted or not was considered. Rule 2B (2) as it is worded is only an enabling provision empowering the WTO to disturb the valuation of the assets shown in the balance sheet subject to the satisfaction of the condition laid down in that rule. The condition is that the market value of a particular asset must exceed the book value by more than 20 per cent. The question would, therefore, arise whether the market value of the particular asset, namely, the closing stock in this case exceeded the book value by 20 per cent or not. This is essentially a question of fact, matter of appreciation of evidence. The evidence relied upon by the department to invoke this rule was the rate of gross profit shown by the books while the ITAT held that it could into be conclusive evidence, highly unsatisfactory and more unsafe. This is, therefore, a conclusion arrived at on the appreciation of the evidence that was brought on record to adjudge whether the rule 2B (2) could be invoked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to enable the WTO to disturb the valuation of the closing stock. But the Special Bench there proceeded on a particular condition, namely, whether on whom does the onus to prove that the market value exceeded the book value by 20 per cent lay. The Special Bench held that the onus lay upon the Department. It is now a very well settled law that the question as to on whom the onus of proof lays is a question of law but whether that onus has been discharged or not is a question of fact. Since the Special Bench was considering about the placement of onus and held that the onus lay on the Department, Special Bench felt that that being a question of law, should be referred to the High Court for its opinion. That was the question that the Special Bench re-framed as against the questions raised by the CIT in the reference applications filed before it. But in the case before me this Bench did not proceed on the issue of onus. The case proceeded on the assumptions that the onus always was on the Department to show that the market value exceeded the book value by 20 per cent and, therefore, the Tribunal had no occasion to consider as to on whom the onus lay. The Tribunal considered whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
