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TMI Blog1994 (11) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1961, in determining the market value of unquoted equity shares ? We may at once state the second question stands concluded against the assessee by the recent decision of the Supreme Court in Bharat Hari Singhania v. CWT [1994] 207 ITR 1. But that does not absolve us from considering the first question on the merits, for the reason that the assessments in question are all reopened ones under section 17(1)(a) of the Act, and the validity of the reopening is in question and forms the subject-matter of the first question. The assessment years concerned in these cases are 1969-70 to 1972-73 corresponding to the valuation dates March 31 of 1969, 1970, 1971 and 1972, respectively. There are three other assessments made on the assessee on similar facts for the years 1968-69, 1973-74 and 1974-75 which form the subject-matter of the references in Income-tax References Nos. 17, 18 and 19 of 1990. The assessee held some shares in two private limited companies, namely, Neroth Oil Mills Co. Pvt. Ltd. and N. C. John and Sons Pvt. Ltd. He filed returns disclosing the value of the shares, by adopting the break up value thereof computed with reference to the balance-sheets, Subsequently, he wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The assessments were completed accordingly and they were con firmed in appeal and second appeal. The assessee had challenged both the validity of the reopening as also the mode of valuation adopted by the Wealth-tax Officer, but he did not succeed on either of these points before any of the authorities. The assessee had claimed that he had filed the balance-sheets of these companies before the Wealth-tax Officer even at the time of the original assessments, which were thus completed after adverting to them. This was disputed by the Department. The Tribunal, therefore, called for the miscellaneous records of assessment to verify whether the balance-sheets of the private limited companies had, as a matter of fact, been produced at the time of the original assessments. After scrutiny, the Tribunal found that the balance-sheets of these companies relevant for the assessment years 1968-69 and 1969-70 had been filed by the assessee, N. C. J. Rajan, as also by two other related assessees, N. C. John and N. J. Joseph, whose cases were also before the Tribunal and were disposed of by their common order along with those of some other related assessees. The Tribunal also found that in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 17(1)(a). It is now well-established that the reasons for the belief entertained by the assessing authority for the reopening of an assessment must be based on the materials before him, which can reasonably lead to the belief that wealth had escaped assessment. Section 17(1)(a) also requires that the escape of assessment was by reason of the failure of the assessee to disclose truly and fully the materials necessary for the assessment. There should be a nexus between the non-disclosure and the escape of wealth from assessment. The assessee before us had originally filed returns disclosing a higher value based on the balance-sheets of the private limited companies, but changed it to a lower figure by producing an approved valuer's report. Counsel for the assessee was at great pains to point out that the form of return prescribed by rule 3 of the Rules does not oblige the assessee to produce the balance-sheets of the companies, the only occasion where a balance-sheet is required to be produced being where the assessee himself is carrying on business, in which event a copy of his own balance-sheet is required to be produced along with the return. It was also pointed out that va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bombay High Court relied on by the assessee is not on point, but it does lay down that there is no provision in the Act requiring the assessee to produce his evidence along with the return. The other two decisions cited by the assessee are more relevant. In Sohan Singh Basi v. Union of India [1991] 192 ITR 431 (Delhi), a case of valuation of unquoted shares in a private company governed by rule 1D, the assessee disclosed the value of the shares at their face value and the assessment was completed on that basis. The assessment was sought to be reopened on the ground that the break-up value of the shares was much more, leading to escape of assessment. A Division Bench of the Delhi High Court held that as far as the value of shares is concerned, for including in the net wealth, all that is relevant is for the assessee to show the company whose shares are held, and the number of shares held by the assessee. The assessee is also required to value the shares. All these three things had been done by the assessee and, therefore, there was no ground for reopening the assessment under section 17(1)(a). Smt. Rajeshwari Birla v. WTO [1979] 119 ITR 629 (Cal) was also a case of unquoted shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for reopening under section 17(1)(a), but while considering whether it is obligatory to follow rule 1D when the date of the balance-sheet of a company is earlier to the valuation date of the assessee. While the balance-sheet constitutes valid material for making an assessment under rule 1D, it could not be said that failure to produce the same attracts section 17(1)(a). The balance-sheet constitutes at best an item of evidence in relation to the fixation of the value of unquoted shares, but the law does not oblige the assessee to produce an item of evidence before the Wealth-tax Officer, unless called upon to do so. It was for the Wealth-tax Officer in this case with two conflicting versions of value before him, to call for the balance-sheets, if he entertained any doubts about the valuation effected by the approved valuer, and verify the matter himself. His failure to do, so cannot be treated as an omission on the part of the assessee to disclose material facts fully and truly. The decision in Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638 (SC), turned on the provisions of the Explanation to section 34(1)(a) of the Indian Income-tax Act, 1922, when t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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