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TMI Blog2005 (10) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... and 1976-77 on the valuation date in respect of each partner who are the assessees. The values as declared and assessed will be clear from the following Table: ------------------------------------------------------------ Assessment Value of 1/5th Value of 1/5th Value of 1/5th year share as share as per share as per declared WTO "A" ------------------------------------------------------------ (Rs.) (Rs.) (Rs.) ------------------------------------------------------------ 1975-76 91,000 7,27,460 3,37,000 (3,91,248 + 3,36,220) 1976-77 2,90,700 6,23,628 20,000 (3,94,900 + 3,18,720) ---- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner observed that the profit for 1976-77 was Rs. 1,68,340 and so the average profit for 1974-75 to 1976-77 came to Rs. 1,50,000 and the valuation for 1976-77 (Dewali 1975) was taken at Rs. 1,50,000." All the five assessees as well as the Department preferred separate appeals before the Tribunal. The Department contended that the income capitalization method adopted by the Appellate Assistant Commissioner was not the correct method to arrive at the net wealth of the firm in which the assessees were the partners. However, this plea was rejected by the Tribunal and it was held that the income capitalization method based on the preceding three years average profit, as adopted by the Appellate Assistant Commissioner of Income-tax was correct. But the Tribunal further held that in determining the average profit of these three years on the basis of the assessed income, admissible expenditure of the assessee, the book value of the assets should be taken into consideration and the capital in the firm should not be added back separately. Heard Shri Shambhu Chopra and Sri R.K. Upadhyay, learned counsel for the Department in support of the reference and other connected matters. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1C talks about the market value of unquoted shares and rule 1D is with regard to the market value of the unquoted shares of the companies other than investment companies and managing agency companies. Thus, none of these rules throws any light on the question of valuation of business assets. However, sub-section (2) of section 7 is in two parts and it provides the method for determination of the net value of the assets of the business as a whole where the assessee is carrying on the same for which accounts are maintained by him regularly. Under clause (a) of sub-section (2) of section 7 the method of determining the net value of the assets of the business as a whole is with regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as may be prescribed. Clause (b) of section 7(2) is not relevant for the purposes of the controversy in hand. Rules 2B to 2G of the Wealth-tax Rules provide for the various adjustments in the value of asset disclosed in the balance-sheet, asset not disclosed in the balance-sheet, value of certain assets and certain liabilities not to be taken into account, liabilities not disclosed in the balance-sheet and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 that there can be no doubt that under section 7(2)(a) of the Act contemplates that the book value in the balance-sheet should be taken as the primary basis of valuation and if any adjustment is required, it is open to the Wealth-tax Officer to make an adjustment in the valuation as given in the balance-sheet as may be necessary in the circumstances of the case. The balance-sheet gives a true and fair figure of the state of affairs as at the end of the financial year, if the assessee has shown the net value of the assets at a certain figure in the balance-sheet, the Wealth-tax Officer would be entitled to accept it on the footing that the assessee knew best what the valuation of the assets was. It was however, open to the assessee to satisfy the authorities that the said figure has been enhanced or increased or inflated "for acceptable reasons". Meaning thereby the apex court has held that the figures mentioned in the balance-sheet should normally be taken on their face value and if the assessee wants to dispute the same the burden lay upon him to prove that the figures mentioned in the balance-sheet are not correct on the basis of "acceptable reasons". In Sahu Dharmata Saran v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. As laid down by the Supreme Court in the aforementioned cases, the figures mentioned in the balance-sheet should be taken on their face value. However, it is open to the Wealth-tax Officer to make such adjustments therein "for acceptable reasons". At this juncture, it is also apt to notice the amendment made in section 7(2)(a) of the Act by Act No. 46 of 1964. By this amendment the words "the circumstances of the case may require" have been substituted by the words "may be prescribed". The aforesaid amendment was not under consideration before the Supreme Court in the above cases. However, by introducing the above amendment it appears that the intention of the Legislature is clear to remove the uncertainty and confusion in the matter. The words "as may be prescribed" obviously mean prescribed by rules made under the Act, vide clause (n) of section 2 of the Act. The authorities have framed the necessary Rules by incorporating rules 2A to 2G in the Wealth-tax Rules. The above case law has been discussed as in the case in hand the question of valuation of cold storage is involved. We are of the opinion that unfortunately all the authorities below have failed to take into accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther certain expenditure incurred towards replacement of transformer-and service line in taking greater load is revenue expenditure or capital expenditure. To decide the said controversy, the High Court was of the view that the replacement of worn out parts does not by itself bring in a new asset. The productive unit to the assessee remains the same and the replacement of the existing line with a new line did not result in creation of new assets of enduring nature. In Smt Pratipal Kaur v. IAC of I.T. [1984] 145 ITR 19, it has been held by this court that the method of land and building to find out the valuation of house is a well recognised one and has been accepted for the purpose of finding out the correct value of the property. It has quoted a passage from the book Principle and Practice of Valuations IV edition page 54 by Parks. The Supreme Court in the case of Special Land Acquisition Officer v. P. Veerabhadarappa [1985] 154 ITR 190, in a case under the Land Acquisition Act, has held that the following are the methods of valuation to ascertain the market value of the land at the date of the notification under section 4(1) of the Land Acquisition Act; (i) information of exper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arn) it has been held that it is usual to value the property by more than one method so as to cross check and adopt an average. This is resorted to when there is yet disparity between the valuation arrived at by the different methods. We find that the Tribunal has not adopted any recognized method of valuation. The first appellate authority has held that while valuing the cold storage the following factors should be taken into account: (i) Valuation of the cold storage had to be done by income capitalization method, (ii) The average profit in three immediately preceding years should be taken into account, (iii) Only expenditure to the extent allowed by the Income-tax Officer should be allowed, (iv) Deduction for depreciation should be allowed, (v) Plant and machinery could not be separately valued as the land, building and machinery are part and parcel of the plant. This order was modified by the Tribunal. The Tribunal has further granted relief to the assessee that the average profit of three years and book value of the assets should be taken into account and the capital in the firm is not to be added back separately. Since we are of the opinion that the land and building m ..... 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