COMMISSIONER OF WEALTH TAX VS KANCHAN BAI BADER, 1995 PTD-RAJASTHAN-HIGH-COURT-INDIA 960 (1992)

Wealth tax---

----Reference---Valuation of stock---Burden of proof---Burden on Revenue to prove that market value of closing stocks exceeded value disclosed by more than 20 per cent.---Export invoice value could not be the basis for determining market value of stocks---Tribunal justified in holding that fair market value of closing stock could be arrived at by making deduction of 35 per cent. from export invoice value---If so difference between declared value and fair market value was less than 20 per cent.---Tribunal justified in holding that R.2-B(2) was not applicable---No question of law arose---Indian Wealth Tax Act, 1957, S.27---Indian Wealth Tax Rules, 1957, R.2-B(2).

The burden is on the Revenue to prove that the valuation of the closing stock given in the balance-sheet was not the true value and the market value of the closing stock exceeded the valuation disclosed by more than 20 per cent.

The export invoice value cannot be the basis for determining the market value of the closing stock, because the goods do not fetch the export invoice value in foreign markets.

Held, that the Tribunal 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 per cent. from the export invoice value. It further found that if the deduction of 35 per cent. was made from the export invoice value and the fair market value is determined on that basis, then the difference between the declared value and the said fair market value was less than 20 per cent. as contemplated in rule 2-B(2) of the Wealth Tax Rules, 1957. This was purely a finding of fact and no question of law arose from the order of the Tribunal.

CWT v. Bader (S.K.) (Smt.) (1987) 167 ITR 890 (Raj.) fol.

CWT v. Moti Chand Daga (1988) 174 ITR 379 (Raj.) ref.

Virendra Dangi for the Commissioner.

N.M. Ranka for the Assessee.

JUDGMENT

INDER SEN ISRANI, J.---In all the abovementioned wealth tax reference applications, filed under section 27(3) of the Wealth Tax Act, 1957 (for brevity, "the Act, 1957"), 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 of 1988, the following questions have been referred:

"Whether, on the facts and in the circumstances of the case, the Appellate 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 rule 2-B(2) of the Wealth Tax Rules, 1957, the export invoice value has to be reduced by 35 per cent.?;

(ii) in holding that the export invoice value is not the market price but merely a quotation notwithstanding the provisions of section 18 of the 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 per cent and, therefore, no addition on account of increased value could be made in' the assessee's net wealth under rule 2-B(2) of the Wealth Tax Rules?"

In Reference Application No.110 of 1988, the following questions have been referred:

"Whether, on the facts and in the circumstances of the case, the Appellate 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 rule 2-B (2) of the Wealth Tax Rules, the export invoice value has to be reduced by 35 per cent?

(ii) In holding that the export invoice value is not the market price but merely a quotation notwithstanding the provisions of section 18 of the 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 per cent and, therefore, no addition on account of increased value could be made in the assessee's net wealth under rule 2-B(2) of the Wealth Tax Rules?"

In Reference Application No.158 of 1988, the following questions have been referred:

"(i) Whether, on the facts and in the circumstances of the case, the gross profit rate taken in the case of the firm constitutes 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 by more than 20 per cent and whether on that basis rule 2-B(2) of the. Wealth Tax 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 rule 2-B(2) were not applicable to the assessee case and consequently in deleting the addition made by the Wealth Tax Officer?"

In Reference Application No.17 of 1989, 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 rule 2-B (2) of the Wealth Tax 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 rule 2-B (2) of the Wealth Tax Rules were not applicable to the assessee's case and consequently in deleting the addition made by the Wealth Tax Officer?"

In Reference Application No.18 of 1989, the following questions have been referred:

"(1) Whether, on the facts and in the circumstances of the case, the gross profit rate taken in the case of the firm constitutes 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 per cent and whether on that basis rule 2-B (2) of the Wealth Tax 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 rule 2-B (2) were not applicable to the assessee's case and consequently in deleting the addition made by the Wealth Tax Officer?"

In Reference Application No.41 of 1989, the following question has been referred:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the gross profit rate is not the indicator for invoking rule 2-B(2) and consequently upholding the order of the Appellate Assistant Commissioner deleting the additions?"

In Reference Application No.42 of 1989, the following question has been referred:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the gross profit rate is not the indicator for invoking rule 2-B(2) and consequently upholding the order of the Appellate Assistant Commissioner deleting the additions?"

In Reference Application No. 14 of 1991, 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 rule 2-B (2) of the Wealth Tax Rules, 1957, is not applicable in this case while determining the interest of the assessee in the firm?"

In Reference Application No.29 of 1991, 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 rule 2-B (2) of the Wealth Tax Rules, 1957, is not applicable in this case while determining the interest of the assessee in the firm?"

In Reference Application No. 31 of 1991, 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 rule 2-B (2) of the Wealth Tax 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 rule 2-B(2) of the Wealth Tax Rules, 1957 (for brevity, "the W.T. Rules"), for ascertaining the market value of the closing stock and thereby reducing the export invoice value by 35 per cent. Other questions in some of the references also relate to the main question, stated above. The assessee 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 Wealth Tax Officer did not accept the*value of the closing stock and invoked rule 2-B (2) and determined the market value on the basis of gross profit rate exceeding 20 per cent. The assessees went in appeal before the Appellate Assistant Commissioner, who held that there was no definite material for holding that the market value exceeded by more than 20 per cent. the value disclosed in the balance-sheet. He, therefore, held that rule 2-B (2) of the Wealth Tax Rules was not attracted. The Tribunal upheld the view taken by the Appellate Assistant Commissioner. We have heard both learned counsel for the parties and gone through the relevant orders. This matter is squarely covered by CIT v. Smt. S.K. Bader (1987) 167 ITR 890 (Raj.), 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 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 per cent. from the export invoice value. It further found that, if the deduction of 35 per cent. 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 per cent. as contemplated in rule 2-B(2) of the Wealth Tax Rules, 1957. Therefore, no addition on account of enhanced market value of the closing stock could be made under rule 2-B(2). It was, therefore, held by this Court that the Tribunal, on a consideration of the 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 that no question of law arose therefrom. The special leave petition filed against his decision was also dismissed, as pointed out by Mr. Ranka. A similar view was taken by this Court in the matter of CWT v. Mod Chand Daga (1988) 174 ITR 379 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 per cent. This burden evidently has not been discharged by the Wealth Tax Officer who applied rule 2-B(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 Tribunal's view is justified.

The references are answered accordingly.

M.BA./422/T.F.?????????????????????????????????????????????????????????????????????????????????? References answered.