Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessments for the asst. yrs. 1971-72, 1972-73 and 1973-74 were rightly reopened by the WTO under s. 17(1)(b) of the WT Act, 1957 ?

Counsel Appeared

Chaphekar with R.P.C. Sanghi, for the Assessee : R.C. Mukati, for the Revenue

G. SOHANI, J.:

By this reference under s. 27(i) of the WT. Act, 1957 (hereinafter referred to as “the Act”), the Tribunal, Indore Bench, has referred the following question of law to this Court for its opinion:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessments for the asst. yrs. 1971-72, 1972-73 and 1973-74 were rightly reopened by the WTO under s. 17(1)(b) of the WT Act, 1957 ?”

2. The material facts giving rise to this reference briefly are as follows: The assessments of the assessee under the Act for the asst. yrs. 1971-72, 1972-73 and 1973-74 were completed by the WTO. The assessments were, however, reopened under s. 17(1)(b) of the Act by the WTO on 26th March, 1975. The reasons for reopening the assessments as recorded by the WTO are as follows : “The assessee in his wealth-tax statements has shown the value of Shiv Niwas Kothi at Tukoganj, Indore, as exempt being below Rs. 1 lakh. However, it is found that the value of this Kothi was being taken at Rs. 67,500 in the order, 57-58 WT. Now, vide D.P. para. 205 for 1970-71, the Board has accepted that this Kothi is not exempt. Hence, the value of this Kothi is to be included in the net wealth of the assessee. Therefore, to bring to tax the escaped value of the above property, action under s. 17(1)(b) is necessary.” Thereafter, the WTO proceeded to assess the assessee afresh for the assessment years in question. Aggrieved by the orders passed by the WTO, the assessee preferred appeals before the AAC. The AAC held that the WTO had initiated reassessment proceedings on account of change of opinion as a result of reappraisal of the material already considered by the WTO at the time of the original assessment. The AAC, therefore, allowed the appeals. Aggrieved by the order passed by the AAC, the Revenue preferred appeals before the Tribunal. The Tribunal allowed those appeals. Hence, at the instance of the assessee, the aforesaid question of law has been referred to this Court for its opinion.

Having heard learned counsel for the parties, we have come to the conclusion that the reference has to be answered in the negative and in favour of the assessee. The only reason recorded by the WTO for reopening the assessment was that the CBDT was of the view that the value of Shriniwas Kothi was not exempt from wealth-tax. It is now well settled as a result of the decision of the Supreme Court in Indian & Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190 : (1979) 119 ITR 996 (SC) : TC51R.1371, that when s. 147(b) of the IT Act, analogous to s. 17(1)(b) of the Act, is read as referring to “information” as to law, what is contemplated is information as to the law created by a formal source. It seems that as a result of the objection of the audit party which was approved by the CBDT, the WTO changed his opinion on the question as to whether the value of Shriniwas Kothi was chargeable to tax under the Act or not. In this connection, it would be useful to refer to the following observations of the AAC: ” It may be appreciated that while making the original assessment, the WTO had examined the applicability of s. 5(1)(iv) to the facts of the case. He had exempted this property on the ground that it was exclusively used for residential purposes and was not put to any other use. It is quite obvious that while taking this decision, he considered the fact of the assessee actually living in Lal Bagh Palace as irrelevant. That palace did not belong to him. He was allowed to reside there merely as a result of an administrative arrangement arrived at by the Government with the real owner of the palace. Later on, the ITO changed his opinion as regards the applicability of s. 5(1) (iv) as a result of the audit objection. His action in reopening the assessments is directly in contravention of the law laid down by the Supreme Court in the case of Indian & Eastern Newspaper Society vs. CIT (supra).”

The Tribunal, however, held the action of the WTO justified on the ground that the valuation report submitted before the WTO could afford sufficient reasons for reopening the assessments, it was, however, not disputed before us that the valuation report is dt. 4th Oct., 1975, while reasons for reopening the assessments were recorded by the WTO on 26th March, 1975. The, Tribunal was not justified in supplanting the reasons recorded by the WTO and, moreover, the reason so supplied by the Tribunal could not have been in existence on the date when the assessments were reopened. The Tribunal, therefore, was not justified in holding that the WTO was right in reopening the assessments in question.

For all these reasons, our answer to the question referred to this Court is in the negative and in favour of the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.

[Citation : 169 ITR 496]