COMMISSIONER OF WEALTH TAX vs LATE SMT. KANCHAN BAI BADER, THROUGH LRS. and Others

INDER SEN ISRANI, J. :

In all the abovementioned WT Reference Applications, filed under s. 27(3) of the Wealth-tax Act, 1957 (for brevity, the Act), common questions have been raised by the Revenue, with a prayer that the same may be referred for making reference to this Court, for its opinion. Therefore, they are decided by a common order.

In reference Application No. 108/88, the following questions have been referred :

"Whether on the facts and in the circumstances of the case, the Tribunal is justified :

(i) in holding that in order to ascertain the actual market value of the closing stock of the firm for the purposes of r. 2B(2) of WT Rules, the Export Invoice value has to be reduced by 35%;

(ii) in holding that the Export Invoice value is not the market price but merely a quotation notwithstanding the provisions of s. 18 of Foreign Exchange Regulation Act;

(iii) in holding that the difference between the market value and the cost price of the closing stock of the firm is less than 20% and, therefore, no addition on account of increased value could be made in the assessees net wealth under r. 2B(2) of the WT Rules."

In reference Application No. 110/88, the following questions have been referred :

"Whether on the facts and in the circumstances the case, the Tribunal is justified :

(i) in holding that in order to ascertain the actual market value of the closing stock of the firm for the purposes of r. 2B(2) of WT Rules, the Export Invoice value has to be reduced by 35%;

(ii) in holding that the export invoice value is not the market price but merely a quotation notwithstanding the provisions of s. 18 of Foreign Exchange Regulation Act;

(iii) in holding that the difference between the market value and the cost price of the closing stock of the firm is less than 20% and, therefore, no addition on account of increased value could be made in the assessed net wealth under r. 2B(2) of WT Rules."

In reference Application No. 158/88, the following question have been referred :

"(i) Whether on the facts and in the circumstances of the case, does the gross profit rate taken in the case of the firm constitute adequate material to come to the conclusion that market value of he closing stock of the firm exceeds the cost price as adopted by the firm more than 20% and whether on that basis the r. 2B(2) of WT Rules, 1957, could be invoked ?

(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of r. 2B(2) were not applicable to the assessees case and consequently in deleting the addition made by the WTO ?"

In reference Application No. 17/89, the following questions have been referred :

"(1) Whether on the facts and in the circumstances of the case the assessee could be treated to have discharged the onus to prove that r. 2B(2) of WT Rules was not applicable in his case.

(2) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of r. 2B(2) of WT Rules were not applicable to the assessees case and consequently in deleting the addition made by the WTO ?"

In reference Application No. 18/89, the following questions have been referred :

"(1) Whether on the facts and in the circumstances of the case, does the gross profit rate taken in the case of the firm constitute adequate material to come to the conclusion that market value of the closing stock of the firm exceeds the cost price as adopted by the firm more than 20% and whether on the basis, r. 2B(2) of WT Rules, 1957, could be invoked ?

(2) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the provisions of r. 2B(2) were not applicable to the assessees case and consequently in deleting the addition made by the WTO ?"

In Reference Application No. 41/89, the following question has been referred :

"Whether on the facts and in circumstances of the case the Tribunal was justified in upholding that gross profit rate is not the indicator for invoking r. 2B(2) and consequently upholding the order of the AAC deleting the additions ?"

In Reference Application No. 42/89, the following question has been referred :

"Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding that gross profit rate is not the indicator for invoking r. 2B(2) and consequently upholding the order of the AAC deleting the additions ?"

In Reference Application No. 14/91, the following question has been referred :

"Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that r. 2B(2) of the WT Rules, 1957 is not applicable in this case while determining the interest of the assessee in the firm ?"

In Reference Application No. 29/91, the following question has been referred :

"Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that r. 2B(2) of the WT Rules, 1957 is not applicable in this case while determining the interest of the assessee in the firm ?"

In Reference Application No. 31/91, the following questions has been referred :

"Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that r. 2B(2) of the WT Rules, 1957 is not applicable in this case while determining the interest of the assessee in the firm ?"

In all these references, the main question is regarding application of r. 2B(2) of the Wealth-tax Rules, 1957 (for brevity, WT Rules), for ascertaining the market value of the closing stock and thereby reducing the export invoice value by 35%. Other questions in some of the references also relate to the main question, stated above. The assessees declared their closing stock of Jewellery Accounts/Precious and Semi-Precious Stones Accounts and submitted their wealth-tax returns, on the basis of the aforesaid value of the closing stock. The WTO did not accept the value of closing stock and invoked r. 2B(2) and determined the market value on the basis of gross profit rate exceeding 20%. The assessee went in appeal before the AAC, who held that there was no definite material for holding that the market value exceeded by more than 20% than the value disclosed in the balance sheet. He, therefore, held that r. 2B(2) of the WT Rules was not attracted. The Tribunal upheld the view taken by the AAC. We have heard both the learned counsel for the parties and gone through the relevant orders. This matter is squarely covered by COMMISSIONER OF WEALTH-TAX Vs. S. K. BADER AND OTHERS., in which, it was held by a Division Bench of this Court that the Tribunal rightly held that the export invoice value could not be the basis for determining the market value of the the closing stock, because the goods did not fetch the export invoice value in the foreign markets. The Tribunal, therefore, rightly held that it would be reasonable if the fair market value of the closing stock was arrived at by making a deduction of 35% from the export invoice value. It further found that if the deduction of 35% was made from the export invoice value and the fair market value is determined on that basis, then the said fair market value was less than 20% as contemplated in r. 2B(2) of the WT Rules, 1957. Therefore, no addition on account of enhanced market value of the closing stock could be made under r. 2B(2). It was, therefore, held by this Court that the Tribunal, on a consideration of facts and circumstances, had estimated the fair market value of the closing stock. It was further held that this was purely a finding of fact and no question of law arises therefrom. SLP filed against this decision was also dismissed, as is pointed out by Mr. Ranka. A similar view was taken by this Court in the matter of COMMISSIONER OF WEALTH-TAX Vs. MOTI CHAND DAGA., wherein, it was held that the burden was on the Revenue to prove that the valuation of the closing stock given in the balance sheet was not the true value and that the market value of the closing stock exceeded the valuation disclosed by more than 20%. This burden, evidently, has not been discharged by the WTO, who applied r. 2B(2), without any foundation.

Consequently, all the references are answered in the affirmative, against the Revenue and in favour of the assessees, by holding that the Tribunals view is justified.

The References are answered, accordingly.