IN THE ITAT COCHIN BENCH

C.K. Govindankutty Nair

v.

Wealth-tax Officer, Ward-2(3), Trichur

N.BARATHWAJA SANKAR, ACCOUNTANT MEMBER

AND RIYAZ S. PADVEKAR, JUDICIAL MEMBER

WT APPEAL NOS. 1,2 AND 3 (Coch.) OF 2004

[ASSESSMENT YEARS 1989-90 TO 1991-92]

MAY 31, 2006

Section 17 of the Wealth-tax Act, 1957 - Wealth escaping assessment - General - Assessment years 1989-90 to 1991-92 - On dissolution of a firm, in which assessee was a partner, property in question, i.e., 40.84 cents of land devolved to assessee - In original assessment, valuation of said land with building appurtenant thereto was adopted by assessee as per Schedule III which was accepted by Assessing Officer by passing assessment order under section 16(3) - Subsequently, Assessing Officer noticed that said 40.84 cents of land included 10.580 cents of land with a building purchased by firm through a single document which was distinctly identifiable and, therefore, valuation of entire plot of 40 and odd cents and building as one unit under Schedule III resulted in escapement of net wealth - Accordingly, Assessing Officer reopened assessments and made additions to net wealth of assessee - Whether since assessment order under section 16(3) was passed after Assessing Officer had already examined issue of valuation of property in question and assessee had disclosed truly and fully all material facts which were necessary for Assessing Officer to complete his assessments, assessee was protected by proviso to section 17 and, therefore, reopening of assessment after four years could not be sustained - Held, yes

FACTS

The assessee was partner in a firm which had the property in question, i.e., 40.84 cents of land. Upon dissolution of the firm, the said properties devolved to the assessee. In the original returns filed by the assessee, value of said land with a building was taken by the assessee at Rs.16 lakhs for the purpose of computation of interest in said firm and net value of interest in the firm was declared at Rs.6,81,851. Subsequently, in order to avail of the benefit of valuation under Schedule III as envisaged in section 7(2), the assessee filed a revised return declaring the value of said piece of land as Rs.1,68,500. The Assessing Officer completed the assessment by accepting the valuation declared by the assessee. Later on, the Assessing Officer noticed that 10.58 cents of land with a building, purchased by firm as per one document, was distinctly identifiable and, therefore, valuation of entire plot of 40.84 cents and building as one unit under Schedule III resulted in escapement of net wealth. Consequently, he reopened assessments under section 17 and made additions to the net wealth of the assessee. The Commissioner (Appeals) upheld the reopening of assessments as well as the Assessing Officer’s action in taxing said 40.84 cents of land.

On appeal:

HELD

Section 17 vests power or jurisdiction on the Assessing Officer if the wealth liable to tax has been escaped. At the same time, the proviso is added to section 17 which restricts the power or jurisdiction of the Assessing Officer to take action under section 17. It is clear from the language used by the Legislature in the provisos that the protection is given to the assessee in case his assessments are completed by the Assessing Officer under section 16(3) and no action can be taken after the expiry of four years from the end of the assessment year and only in the following situations, the Assessing Officer can initiate the proceedings under section 17 :

(i) If there is a failure on the part of the assessee to make a return under section 14 or section 15 or in response to a notice under section 16(4) or section 17(1)

(ii) If the assessee fails to disclose fully and truly all material facts necessary for his assessment. [Para 8]

The Explanation added to sub-section (1) creates certain legal presumptions that production before the Assessing Officer of the account books or other evidence will not necessarily amount to disclosure and certainly this Explanation relates to situation No.(ii), i.e., failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. [Para ]

In the instant case, on perusal of the assessment order passed under section 16(3), it was clear that the Assessing Officer had already examined the issue of valuation of the said property. Hence, there was substance in the argument of the assessee that the proviso to section 17(1) was applicable as there was no failure on the part of the assessee to disclose fully and truly all material facts. It was clear that the assessee had given all the facts which were necessary for completion of his assessments. [Para 11]

As regards the argument of the department that though by virtue of proviso to section 17(1), the powers of the Assessing Officer are restricted wherein the original assessments are made under section 16(3) but at the same time, by virtue of Explanation to the proviso, merely because the books of accounts are produced and documents are produced that will not be sufficient on the part of the assessee and the assessee has to make conscious disclosure of all the material facts, was having no substance. The legislative intent in putting the bar on the powers of the Assessing Officer vide the proviso where the Assessing Officer has already exercised his powers to determine the correct assessable wealth and during that process, the assessee has also appeared before the Assessing Officer and disclosed all the facts, is very clear that again and again under the pretext of determining the assessable wealth, the assessee should not be put to hardships. [Para 13]

In the instant case, on perusal of the facts as noted by the Assessing Officer in the assessment order, it was clear that there was no omission on the part of the assessee to disclose the material facts in respect of the issue which was again made the subject matter for re-assessments. The assessee had disclosed all the material facts, which were also examined by the Assessing Officer as far as the issue in respect of the said property was concerned. The assessee was protected by the proviso as admittedly, the reassessment proceedings were initiated after four years from the end of the respective assessment years and original assessments were also under section 16(3). Therefore, the Assessing Officer was not justified in reopening the assessments in respect of the assessment years under appeal, by invoking the provisions of section 17. Therefore, the reassessment proceedings initiated by the Assessing Officer under section 17 for the assessment years under appeal were to be cancelled and the order of the Commissioner (Appeals) was also to be set aside. [Para 14]