SETH SATISH KUMAR MODI Vs. WEALTH TAX OFFICER

JUDGEMENT

(1.) THE petitioner, who was a partner in the firm, M/s. Synfibre Sales Corporation, filed his wealth-tax return for the assessment year 1970-71, disclosing his net wealth at Rs. 2,21,653.58. THE net wealth shown included an amount of Rs. 42,209.26, deposited in current account with M/s. Synfibre Sales Corporation, and an amount of Rs. 4,500, which represented the investment of the petitioner in the firm. THE WTO assessed the petitioner in a net wealth of Rs. 2,38,227. In doing so, he added an amount of Rs. 16,573 to the returned wealth on account of the difference between the value of certain shares as returned and as calculated by him. THE value of the petitioner's interest in the firm of M/s. Synfibre Sales Corporation appears to have been accepted by the WTO. Subsequently, a notice was issued under Section 17 of the Act stating that the WTO had reason to believe that the net wealth of the assessee for the assessment year in question had escaped assessment, and calling upon the assessee to file a return within five days of the receipt of the notice. THE petitioner sent a reply to this notice objecting to the reopening of the assessment and requesting that the material on the basis of which the proceedings under Section 17 of the Act were being started be supplied. It is alleged that no reply was received to this letter, and, subsequently, the present petition was filed challenging the notice under Section 17, and a prayer has been made for the issue of a writ of prohibition, restraining the WTO from taking further proceedings consequent to the notice.

(2.) THE assessment file of the petitioner was produced in court, as there was a dispute as to whether action has been taken under Section 17(1)(a) or Section 17(1)(b) and also in regard to the reasons for initiating the proceedings. We have looked into the file, and it is clear that on November 22, 1974, the WTO, Central Circle III, Meerut, passed two orders stating the reasons for initiating proceedings under Section 17. THE first order purports to have been passed under Section 17(1)(a). THE second order, which has been filed as annex. 1 to the supplementary affidavit filed by Sri S. C. Jain, ITO, Central Circle II, Meerut, does not mention any specific clause of Section 17 and relates to the assessment years 1970-71, 1971-72 and 1972-73. It is necessary to mention here that the order purporting to have been passed under Section 17(1)(a), was not a composite order for all the three years, but the reason has been recorded separately for each year. Considerable argument was advanced before us on the jurisdiction of the WTO to convert the proceedings started under Section 17(1)(a) into proceedings under Section 17(1)(b) and our attention was also drawn to the genuineness of the second order stating the reason for initiating proceedings under Section 17 of the Act. On the view we propose to take, it is not necessary to resolve this controversy. THE order on which the Department relied, and which records the reason for initiating proceedings under Section 17 of the Act, runs as under :

(3.) SRI R. K. Gulati, appearing on behalf of the Department, has urged that the shares held by M/s Synfibre Sales Corporation in M/s. Indofil Chemicals Ltd. had to be evaluated in accordance with Rule 1D and as the shares had been valued according to the cost price, the returns filed by the assessee, as regards the interest in M/s. Synfibre Sales Corporation, was incorrect, and as a result thereof a part of the net wealth of the assessee had escaped assessment. He also contended that the balance-sheet of the firm was a primary document which should have been filed by the assessee along with his returns, in order that the WTO may be in a position to decide the correct evaluation of the assessee's interest in the firm, and, in the absence of the balance-sheet, the assessee could be said to have failed to disclose all material facts necessary for assessment. The case, according to him, was clearly covered by Section 17(1)(a). In any event, it was argued that it will fall under Section 17(1)(b), for, the WTO came to know of the fact that M/s. Synfibre Sales Corporation owned 17,000 shares in M/s. Indofil Chemicals Ltd., and that these shares were valued at their cost price, and not in accordance with Rule 1D, only on an enquiry made from M/s. Synfibre Sales Corporation, and a perusal of the balance-sheet of these two concerns.