Deputy Commissioner Of ... vs L. R. Talwar.
1995 Latest Caselaw 722 Del

JUDGMENT

Per J. K. Verma, AM - All these three appeals filed by the revenue involve common issues and hence they are being disposed of by a common order for the sake of convenience.

2. Brief facts giving rise to these appeals are that the assessee is the owner of shares of two Private Limited Companies known as M/s. Talwar & Khullar Pvt. Ltd. and M/s Talwar Silver Brass Co. Pvt. Ltd., Moradabad. The assessee had disclosed the value of these shares for these three assessment years as under :

Assessment year

Value of shares as returned

Value of shares as assessed

1983-84

Rs. 1,02,500

Rs. 59,24,849

1986-87

Rs. 1,03,000

Rs. 34,49,461

1987-88

Rs. 1,03,000

Rs. 39,41,246

3. During the course of assessment proceedings the assessee had explained to the Assessing Officer that the valuation of the shares had been done according to the report of M/s B. L. Khandelwal & Co., Chartered Accountants, New Delhi, who had valued the shares of M/s Talwar & Khullar Pvt. Ltd. on yield basis by relying upon the decision of the Honble Supreme Court in the case of CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38 and also in the case CWT v. Mahadeo Jalan [1972] 86 ITR 621. But the Assessing Officer, on the other hand, relying on the decision of the Honble Allahabad High court in the cases of CWT. v. Padampat Singhania [1979] 117 ITR 443 and Bharat Hari Singhania v. CWT [1979] 119 ITR 258 took the view that the provisions of section 7 of the Wealth-tax Act are subject to any rules made in this behalf. Accordingly, so long as the rules were not framed, it was open to the Wealth-tax Officer to apply any method to determine the value of the concerned assets but after the rules were framed they would have to be followed. Further, as rule 1D had laid down the method of determining the value of unquoted equity shares, this rule shall have to be followed. The Assessing Officer further mentioned that in the case of Smt. Saroj Talwar the wife of the assessee the "B" Bench of Delhi Tribunal had held vide its orders dated 30-1-1987 that rule 1D was mandatory in view of the decision of the jurisdictional High Court, namely, Allahabad High Court since the assessee fell in the jurisdiction of that High Court. Following these decisions the Assessing Officer had computed the value of these shares according to the provisions of rule 1D of the Wealth-tax Rules. The Assessing Officer had also initiated penalty proceedings under section 18(1) (c) of the Wealth-tax Act.

4. In response to the show-cause notice issued by the Assessing Officer the assessee had filed written submissions in which he had submitted as under :-

"I had correctly shown my all shares and other assets and I had valued the same correctly but your Honour has wrongly valued the equity shares at a very high figure like last year. Assessee further stated that his case was covered by proviso to Explanation 2 of section 18 of Wealth-tax Act."

The Assessing Officer observed in his order under section 18(1) (c) that the valuation of the shares done by him was correct and had been confirmed by the Tribunal for assessment years 1979-80 and 1980-81 in the case of Smt. Saroj Talwar wife of the assessee, who is also Director in both the abovementioned companies. He further observed that the valuation of the shares for the assessment years 1983-84 to 1987-88 had been confirmed by the learned C.W.T. (Appeals), Bareilly. He, therefore, imposed minimum penalties imposable for all these three years under section 18(1) (c) of the Wealth-tax Act.

5. When the assessee went in appeal the learned C.W.T. (Appeals) cancelled the penalties for all these three years with the observation that Explanation 4 referred to by the Assessing Officer was not relevant as the difference in the returned value and assessed value of the shares had arisen because of the disputed method of valuation, which is a legal issue rather than based on any concealment of wealth or submission of inaccurate particulars of wealth.

6. It is against this combined order of the learned C.W.T. (Appeals) that the Revenue has come in appeal before us.

7. It has been vehemently argued by the learned Departmental Representative that rule 1D of the Wealth-tax Rules prescribed a specific method of valuation of shares and hence there was no justification for the assessee to have got the shares valued on any other basis than what has been prescribed under rule 1D. According to her, such an interpretation would mean that the rule framed in accordance with the Wealth-tax Act were superfluous and irrelevant. According to her, such a view would be unreasonable and cannot be taken. She further pointed out that the Honble Supreme Court had recently held in the case of Bharat Hari Singhania v. CWT [1994] 207 ITR 1 that rule 1D was mandatory and the valuation of shares had to be done according to that rule. She further pointed out that it was not only as per the Supreme Court decision but also as per the three decisions of the Honble Allahabad High Court, which is the jurisdictional High Court For the assessee, namely, in the cases of CWT v. Shripat Singhania [1978] 112 ITR 363 (All.), Padampat Singhania (supra) and Bharat Hari Singhania (supra), which has now been affirmed by the Honble Supreme Court as in Bharat Hari Singhanias case (supra) that the assessee was required to value his shares in accordance with provisions of rule 1D of the Wealth-tax Rules. She argued that in case the assessee had ignored the Income-tax Rules as well as the three judgments of the jurisdictional High Court, he had done it at his own peril and he was bound to suffer the consequences. She further pointed out that in all the three assessment years it was obvious that there was a huge difference between the value of these shares as returned by the assessee and as assessed and, according to her, the provisions of Explanation 4 to section 18(1) (c) were clearly applicable to all the three assessment years because, far from there being a difference of only 30 per cent between the assessed value and the returned value, in his case for all the three years the assessed value was around 34 times to 60 time of the returned value and it could not be said to be bona fide. She referred to the decision of the Jaipur Bench of the Income-tax Appellate Tribunal in the case of WTO v. S. Kehar Singh [1987] 29 TTJ (Jp.) 372 where the Tribunal had held that where the difference between assessed value and returned value of assets was more than 30 per cent, the provisions of Explanation 4 to section 18(1) (c) of the Wealth-tax Act were applicable and the imposition of penalty was justified. In these circumstances, she submitted, the order passed by the learned CWT (Appeals) was contrary to the provisions of law and ratio of various Tribunal, High Court and Supreme Court decisions and hence deserved to be reversed.

8. The learned counsel for the assessee, on the other hand, argued that in the case of assessees wife Smt. Saroj Talwar penalties had been imposed for assessment years 1979-80 and 1980-81 but had been cancelled by the Tribunal vide its orders dated 30th August, 1990, a copy of which has been filed before us. Therefore, according to the learned counsel, the ground taken by the revenue that the penalties in the case of Smt. Saroj Talwar for the assessment years 1979-80 and 1980-81 had been confirmed, is not correct.

9. The learned counsel for the assessee submitted that the assessee has got the shares valued by a Chartered Accountant, who had valued them on the basis of two Supreme Court decisions, namely, those of Mahadeo Jalan (supra) and that of Smt. Kusum D. Mahadevia (supra) and hence the valuation returned by the assessee was bona fide and on a reasonable basis. According to him, merely because the Assessing Officer had taken the view that the valuation done on the basis of the law laid down by the Honble Supreme Court was not applicable in this case could not lead him to impose penalties on the assessee under section 18(1) (c) of the Wealth-tax Act. The learned Counsel heavily emphasised the provisions of Explanation 2 to section 18(1) (c) of the Wealth-tax Act and pointed out that as per that Explanation the penalty could be imposed only when the assessee failed to offer any explanation or if the explanation offered by him was false or if he was not able to substantiate and failed to prove that such explanation was bona fide and that all the facts relating to the same had not been disclosed. The learned counsel went on to argue that the provisions of Explanation 4 to section 18(1) (c) had to be read together with those of Explanation 2 and in case the assessee could prove that assessees basis of valuing his assets was bona fide and noting has been concealed, no penalty could be imposed even by invoking provisions of Explanation 4 to section 18(1) (c) of the Wealth-tax Act.

10. The learned counsel urged that in the instant case it was important to take note of the following dates :

Assessment year

Date of filing return

Date of assessment

Date of imposition of

Date of order penalty CIT(A)

1983-84

29-6-1983

18-3-1988

13-3-1989

29-11-1989

1986-87

14-8-1986

27-5-1988

13-3-1989

29-11-1989

1987-88

31-7-1987

27-5-1988

13-3-1989

29-11-1989

11. He argued that the decision of the Honble Supreme Court in the case of Bharat Hari Singhania (supra) is dated 16th February, 1994 and hence it can be said that the position in this regard crystallised only on that date because prior to that the decision of the Honble Allahabad High Court was pending appeal before the Supreme Court. He also referred to the Central Board of Direct Taxes Circular No. 8, dated 15-11-1968, Volume III, Taxman page 3051, according to which also, no penalty should have been imposed in the circumstances of this case. Shri Sampath referred to the decision of the Jaipur Bench of Tribunal in the case of Manna Lal Nirmal Kumar Soorana v. WTO [1989] 46 Taxman (4) (JPR) 47 in which case in spite of the fact that there was substantial difference between the value of property as returned by the assessee and as assessed, the penalty under section 18(1) (c) was cancelled by the Tribunal. Learned counsel also drew our attention to the decision in Sankaranarayan Bhattathiripad v. ITO [1985] 153 ITR 562 (Ker.) in the case of CWT v. Suraj Parkash Modi [1983] 144 ITR 259 (Punj. & Har.) according to which the harmonious construction of various provisions of Income-tax Act has to be made. Since in the instant case the assessee had declared the valuation of shares on the basis of advice of a Chartered Accountant, it should be taken to be a bona fide basis and hence no penalty could be imposed, according to the provisions of Explanation 2 to section 18(1) (c) of the Wealth-tax Act. The learned counsel argued that on the same analogy no penalty could be imposed on the basis of Explanation 4 to that section.

12. We have carefully considered the rival submissions, the facts and circumstances of the case, material on record so also the provisions of law. Since the learned counsel for the assessee has vehemently relied on the provisions of Explanation 2 and Explanation 4 of section 18(1) (c) of the Wealth-tax Act, we consider it only reasonable to reproduce those provisions :

Section 18 and the relevant Explanations read as under in the relevant assessment years :

"18. (1) If the Wealth-tax Officer, Appellate Assistant Commissioner, Commissioner (Appeals), Commissioner or Appellate Tribunal in the course of any proceedings under this Act is satisfied that any person -

(a) ** ** ** (b) ** ** **

(c) has concealed the particulars of any assets or furnished inaccurate particulars of any assets or debts;

he or it may by order in writing, direct that such person shall pay by way of penalty -

(i) ** ** ** (ii) ** ** ** (iii) ** ** **

(iii) in the cases referred to in clause (c), in addition to any wealth-tax payable by him, a sum which shall not be less than, but which shall not exceed five times, the amount of tax sought to be evaded by reason of the concealment of particulars of any assets or the furnishing of inaccurate particulars in respect of any assets or debts.

Explanation 1 : 		**	 		** 			**
 

Explanation 2 : Where in respect of any facts material to the computation of the net wealth of any person under this Act, -
 

(A) such person fails to offer an explanation or offers an explanation which is found by the Wealth-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) to be false, or
 

(B) such person offers an explanation which he is not able to substantiate, then, the amount added or disallowed in computing the net wealth of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the value of the assets in respect of which particulars have been concealed :

Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his net wealth have been disclosed by him.

Explanation 3 : ** ** **

Explanation 4 : Where the value of any asset returned by any person is less than seventy per cent of the value of such asset as determined in an assessment under section 16 or section 17, such person shall be deemed to have furnished inaccurate particulars of such asset within the meaning of clause (c) of this sub-section, unless he proves that the value of the asset as returned by him is the correct value."

13. A reading of these provisions would clearly indicate that the provisions of Explanation 4 are separate and in addition to the provisions of Explanation 2 to section 18(1) (c). Thus, according to Explanation 2 an assessee is deemed to have concealed the particulars of assets if it is found that in respect of any facts material to the computation of his net wealth the assessee had failed to offer an explanation or offers an explanation which is found to be false or offers an explanation which he is not able to substantiate and certain amounts are added or disallowed in computing his net wealth. However, as per the proviso to Explanation 2 he shall be exonerated if his explanation is bona fide and all facts relating to the same and material to the computation of his net wealth have been disclosed by him. Moreover, in this Explanation nothing is mentioned about the percentage of difference between the value of the assets returned and the value assessed. On the other hand, the provisions of Explanation 4 are very specific. In the first instance, they do not deal with concealment of particulars of assets but they deal with "shall be deemed to have furnished inaccurate particulars of such asset". Secondly, Explanation 4 can be invoked in only specific circumstances, namely, where the value of any asset returned by an assessee is less than 70 per cent of the value of such asset as determined in assessment under section 16 or 17. Thirdly, there is no provision regarding any bona fide explanation or regarding having disclosed all facts relating to the assets and material to the computation of assessees net wealth. The only-circumstances in which the assessee can be exonerated is if he proves that the value of the asset as returned by him is the correct value.

14. This specific difference between the two Explanations mentioned above and the basic principle of interpretation of statutes to the effect that nothing in a statute can be construed to be superfluous, would lead us to reject the arguments of the learned counsel to the effect that the provisions of Explanation 4 can be applied only after reading it along with the provisions of Explanation 2 and that if an assessee has offered a bona fide explanation as envisaged in Explanation 2, no penalty under section 18(1) (c) can be imposed on him by invoking the provisions of Explanation 4 to section 18(1) (c). In our opinion, therefore, Explanation 4 has to be read along with the provisions of section 18(1) (c) and in case it is found that the returned value of an asset is less than 70 per cent of the assessed value of that asset, the assessee is deemed to have furnished inaccurate particulars of such asset within the meaning of section 18(1) (c) and thereafter the assessee is required to prove that the value of the asset as returned by him is the correct value and in case he fails to prove this, he shall be liable to penalty under section 18(1) (c) irrespective of the fact that the returned value was on a bona fide basis, because no words like "bona fide" have been incorporated in Explanation 4 as they have been incorporated in proviso to Explanation 2 and that would indicate that the Legislature did not intend to exonerate a person who falls within the mischief of Explanation 4 even if his act was bona fide, although the Legislature considered it reasonable to exonerate him if his act was bona fide and he fell within the purview of Explanation 2 to section 18(1) (c) of the Wealth-tax Act.

15. Now coming to the facts and circumstances of the case before us, we find substance in the arguments of the learned Departmental Representative to the effect that in this case the conduct of the assessee can also not be said to be bona fide. In the first instance, we agree that if an assessee deliberately and flagrantly ignores the Wealth-tax Rules which have been framed according to the provisions of the Wealth-tax Act and fall in the category of subordinate legislation, it cannot be said that his act was bona fide unless he can prove that such a subordinate legislation had been specifically struck down by a competent court. In the instant case that is not the situation. In fact, a reading of the decision of the Honble Supreme Court in the case of Smt. Kusumben D. Mahadevia (supra) makes it clear that in the first instance it was a case under the Gift-tax Act. Secondly, even in the summary of the judgment it has been mentioned that the question whether the valuation of shares should have been made for the purposes of gift-tax on the basis of the break-up method by reason of Rule 10(2) of the Gift-tax Rules, 1958, did not arise out of the order of the Tribunal, since that question was neither raised before the Tribunal nor decided by it. In these circumstances, it cannot be said to be a bona fide interpretation on the part of the assessee that on the basis of this judgment of the Supreme Court he could ignore the specific provisions of rule 1D of the Wealth-tax Rules. Again a reading of the judgment in the case of Mahadeo Jalan (supra) also indicates that their Lordships had not considered the applicability or otherwise of the Wealth-tax Rules. These facts when examined in the tight of the fact that the Honble Allahabad High Court, which was the jurisdictional High Court for the assessee, had held in three separate judgments one after the other that the valuation of shares had to be done in accordance with the rule 1D of the Wealth-tax Rules and all those three judgments were available and had been reported when the assessee filed his returns for all the three years under consideration, it cannot be said to be a bona fide act on the part of the assessee to ignore the High Court judgments and the Wealth-tax Rules and to file returns of wealth-tax on the basis of advice of a Chartered Accountant, the correctness of which fact is not evidenced before us but for the statement of the assessee, as mentioned above, in assessment order.

16. So far as the various dates mentioned by the learned counsel for the assessee are concerned, which have been reproduced in this order, in our view they are also not helpful to the assessee because all these three returns have been filed long after the three decisions of the Honble Allahabad High Court had been reported and hence it cannot be said that only when the decision of the Honble Supreme Court in the case of Bharat Hari Singhania (supra) was pronounced on 16-2-1994, it could be said that the position regarding valuation of shares had crystallised. It is well established legal maxim having its support in the Constitution of India that the view expressed by a High Court has to be followed within its jurisdiction and merely because an appeal or an S.L.P. has been filed, the decision of the High Court cannot be ignored or defied.

17. Taking all these facts and circumstances into account, we hold that in the first instance if an assessee falls within the provisions of Explanation 4 to section 18(1) (c) of the Wealth-tax Act, he cannot be saved from penalty even if he explains that he had disclosed all the material facts and that his explanation was bona fide because these factors are relevant only for Explanation 2 to section 18(1) (c). In order to be exonerated from the liability cast upon an assessee under Explanation 4 to section 18(1) (c), the assessee has to prove that the value of the asset as returned by him is the correct value. In the instant case, the value assessed by the Revenue is on the basis of rule 1D of Wealth-tax Rules which method had been upheld by the Honble Allahabad High Court, which is the jurisdictional High Court, much before the assessee filed his return and which has since been approved by the Honble Supreme Court in the case of Bharat Hari Singhania (supra) and hence that value is deemed to be the correct value and hence the assessee has failed to prove that the value of the shares as returned by him was the correct value. Hence he is liable to penalty under section 18(1) (c) of the Wealth-tax Act. We further hold that in the instant case the conduct of the assessee inasmuch as he ignored the provisions of the Wealth-tax Rules and the decision of the jurisdictional High Court on the pretext that his valuation of shares was based on the decisions of the Honble Supreme Court in two cases, is not bona fide. In our view, no conduct can be said to be bona fide it is in deliberate defiance of law and rules and decisions of jurisdictional High Court. We, therefore, hold that the assessee was squarely covered by the provisions of section 18(1) (c) read with Explanation 4 to that section and hence was liable to penalty which was imposed on him for these three years. We Further hold that the learned CWT (Appeals) erred in deleting the penalties. The order passed by the learned CWT (Appeals) are, therefore, cancelled.

18. We do not find the ratio of decision of Tribunal in the case of Mannalal Nirmal Kumar Soorana (supra) relied upon by Shri Sampath, relevant because in that case the assessee had valued his house property according to provisions of the Wealth-tax Act but which claim was not allowed.

19. At this stage we would like to mention that the claim of the learned counsel for the assessee to the effect that the penalties imposed on Smt. Saroj Talwar for the assessment years 1979-80 and 1980-81 had been cancelled by the Tribunal is not relevant for our purpose. We agree with the learned Departmental Representative that since those penalties had been cancelled on the ground that they were barred by limitation and since the Tribunal specifically observed that the decision was not being given on merits, the decision of the Tribunal in Smt. Saroj Talwars penalty cases, is not relevant so far as the present appeals are concerned.

20. Accordingly, all the three appeals filed by the revenue are allowed.