IT: Where in response to notice issued under section 17(1) assessee did not file any return and Assessing Officer without giving proper notice affording opportunity of being heard proceeded to pass best judgment assessment order, assessment framed by Assessing Officer was null and void
IT: Agricultural land, being part of stock-in-trade of assessee would not be treated as 'asset' within meaning of section 2(ea)
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[2013] 37 taxmann.com 126 (Pune - Trib.)
IN THE ITAT PUNE BENCH 'B'
Assistant Commissioner of Income-tax, Circle-3(1), Dhule
v.
Vasantrao Sudam Pingle*
R.S. PADVEKAR, JUDICIAL MEMBER
AND R.K. PANDA, ACCOUNTANT MEMBER
AND R.K. PANDA, ACCOUNTANT MEMBER
W.T. APPEAL NOS. 51 TO 54 (PUNE) OF 2012
[ASSESSMENT YEARS 2003-04 TO 2006-07]
[ASSESSMENT YEARS 2003-04 TO 2006-07]
MARCH 26, 2013
I. Section 16 of the Wealth-tax Act, 1957 - Assessment [Opportunity of hearing] - Assessment years 2003-04 to 2006-07 - Whether where in response to notice issued under section 17(1), assessee did not file any return and Assessing Officer without giving proper notice affording opportunity of being heard proceeded to pass best judgment assessment order, assessment framed by Assessing Officer was null and void as it was completed in gross violation of mandatory provisions of second proviso to section 16(5) - Held, yes [Para 8] [In favour of assessee]
II. Section 2(ea) of the Wealth-tax Act, 1957 - Asset [Agricultural land] - Assessment years 2003-04 to 2006-07 - Assessee was in business of land development, buying agricultural lands and developing them into plots after obtaining non-agricultural permission and approval from local authority - It claimed that land in question constituted stock-in-trade, therefore, said land was not covered within definition of 'asset' under section 2(ea) - Assessing Officer objected claim of assessee by stating that there was no evidence to show that said land was held as stock-in-trade - Commissioner (Appeals) accepted that said land was a part of stock-in-trade - He also alternatively held that said land was a agricultural land and there was no conversion for non-agricultural use, hence, otherwise also said land was not 'asset' within meaning of section 2(ea) - Whether there was no reason to interfere with order of Commissioner (Appeals) - Held, yes [Para 11] [In favour of assessee]
FACTS
| ■ | The Assessing Officer issued notice to the assessee under section 17 calling for the return of the wealth. | |
| ■ | The assessee did not file any return in compliance with the notice but only filed a letter that he was not liable for wealth-tax. | |
| ■ | Thereafter, the Assessing Officer proceeded to pass the order to the best of his judgment under section 16(5). | |
| ■ | The Commissioner (Appeals) held that there was no proper notice to the assessee affording opportunity of being heard, therefore, the assessment framed by the Assessing Officer was null and void as it was completed in gross violation of mandatory provisions of second proviso to section 16(5). |
HELD
| ■ | Admittedly, all the assessments are completed ex-parte under section 16(5). The Assessing Officer issued the first notice under section 17(1) but the assessee did not file any return of wealth but only filed a letter that he is not liable for wealth tax. The Assessing Officer issued the second notice under section 16(4) requesting the assessee to file his return of wealth. There is no other notice issued to the assessee. [Para 6] | |
| ■ | The stand taken by the Assessing Officer is that the assessee was issued notice under section 16(4) and hence, there is no requirement to give further opportunity to the assessee in view of second proviso to sub-section (5) of section 16. Said stand of the Assessing Officer is not as per the provisions of law. | |
| ■ | In fact, once the Assessing Officer issues notice under section 17(1) then there is no further requirement to issue the notice under section 16(4) directing the assessee to file the return of income as said sub-section is applicable in a situation where the assessee did not file return of income under section 14(1) within the time allowed. | |
| ■ | Section 17 operates when there is escapement of the income and the requirement of filing the return is incorporated in the said sub-section itself and once the notice is issued by the Assessing Officer under section 17(1) requiring the assessee to file the return of wealth and then section 16(4) does not apply when notice under section 17(1) is issued. | |
| ■ | In view of the first proviso to section 16(5), the Assessing Officer is bound to give opportunity to the assessee before passing the assessment order, which is not the case here. | |
| ■ | Therefore, the findings of the Commissioner (Appeals) that the assessment order passed by the Assessing Officer is not with conformity of law is to be concurred with. [Para 8] |
CASE REVIEW-II
Radheshyam R. Jhunjhunwala (HUF) [WT Appeal Nos. 44 to 88 (Pune) of 2011, dated 20-3-2013] (para 11) followed.
CASES REFERRED TO
Radheshyam R. Jhunjhunwala (HUF) [WT Appeal Nos. 44 to 88 (Pune) of 2011, dated 20-3-2013].
Pramod Shinghate for the Appellant. S.C. Sarangi for the Respondent.
ORDER
R.S. Padvekar, Judicial Member - This batch of 4 appeals are filed by the revenue challenging the respective impugned orders of the Learned Commissioner of Wealth Tax(A)-I, Nashik (in short CWT(A)) dated 16-12-2011 for the A.Ys. 2003-04, 2004-05, 2005-06 & 2006-07. The revenue has taken the following grounds which are common in all the appeals:
| "1. | The learned C.W.T.(A) erred in facts and in law in annulling the assessment orders passed by the A.O. held that the assessment orders were null and void. | |
| 2. | The learned C.W.T. (A) erred in facts and in law in holding that the land at S.No. 148/1 and properties at S.No.510/A/1 (Part) did not fall in the definition of "assets" as given in Section 2(ea) of the W.T. Act, 1957 and is not an asset and therefore not includible in net wealth. | |
| 3. | The learned C.W.T.(A) erred in facts and in law in adopting the rate of valuation as well as area for plots at S.No.101 rate and area claimed by appellant, S.No. 510/A/1 as against the rate adopted/ascertained by the A.O. as claimed by appellant". |
2. The controversy is in respect of the net wealth determined by the Assessing Officer in all the 4 assessment years in respect of plots of land within the limits of the Municipal Council of Dhule. The Assessing Officer determined the net wealth for all the assessments are as under:
| A.Y. | Gross Wealth | Less Debt | Net Wealth |
| 2003-04 | 1,28,80,600/- | 17,25,000/- | 1,11,55,600/- |
| 2004-05 | 1,53,13,420/- | 17,25,000/- | 1,35,88,420/- |
| 2005-06 | 1,54,51,800/- | 17,25,000/- | 1,37,26,800/- |
2006-07 | 1,73,72,690/- | 17,25,000/- | 1,56,74,690/- |
3. The Assessing Officer has noted that as per the record of the Sub-Divisional Office, Dhule, the assessee owns the open plots in the geographical limit of the Municipal Council of Dhule as well as within the 8 Kms from the said limit. The description of Survey No. given by the Assessing Officer is as under:
| S. No. 148/1 | :Plot No. 1 to 147 |
| S. No. 101/1, 101/2A, 101/2A2 & 101/2B | :Plot Nos. 67, 68, 79, 80, 98, 99, 99, 151, 184, 211, 218, 220, 221, 229, 269, 270, 286, 286, 287, 305, 348, 368, 369 & 370 |
| S. No. 510-A-1/2 | :Classified as non-Agriculture. |
4. The Assessing Officer issued notices to the assessee u/s.17 of the Wealth Tax Act on 15-05-2007 calling for the return of wealth from the assessee for all the 4 assessment years i.e. 2003-04, 2004-05, 2005-06 & 2006-07. As noted by the Assessing Officer the assessee did not file any return of wealth in compliance with the notices issued u/s.17(1) of the Wealth Tax Act. Hence, Assessing Officer proceeded to pass the order to the best of his judgment u/s.16(5) of the Wealth Tax Act as observed by the Assessing Officer. He obtained the fair market value from the Sub-Registrar, Dhule and accordingly worked out the fair market value and completed the assessments. The Assessing Officer also allowed the liabilities as per the record to the extent of Rs.17,25,000/- which was in respect of Maharashtra Financial Corporation (MFC) on plot bearing Survey Nos. 211, 218 and 220. The Assessing Officer completed the assessment which was challenged by the assessee before the Ld.CIT(A).
5. So far as the Ground No. 1 is concerned the assessee challenged the legality of the ex parte assessment completed u/s.16(5) r.w.s. 17(1) of the Wealth Tax Act by taking the contention that no notice u/s.16(4) of the Act was issued by the Assessing Officer to the assessee and opportunity of hearing was not given to the assessee. The assessee also contended that the assessee was served with only two notices. The first notice was u/s.17(1) of the Act dated 15-05-2007 and another notice u/s.16(4) dated 28-11-2008. The second notice was issued for calling the return of net wealth as noted by the Assessing Officer in para 3 of the assessment order. The assessee contended there was clear violation of the mandatory provisions of Section 16(5) of the Act which specifically provided that the assessment u/s.16(5) is to be completed only after giving the assessee an opportunity of being heard. The assessee also contended that as per the provisions of Section 16(4) the assessee should have been given an opportunity before passing the best judgment assessment.
5.1 The Ld.CIT(A) called for report of the Assessing Officer on the contention taken by the assessee and also called for the reply to the report furnished by the Assessing Officer for the assessee. After considering the facts of the case and the statutory provisions the Ld.CIT(A) held that the notice issued u/s.16(4) of the Act dated 28-11-2008 calling once again the return of wealth was not the legal notice. The Ld.CIT(A) has observed that notice u/s.16(4) can be issued either to call the return of wealth or to produce accounts etc. He has also noted that the notice issued to the assessee u/s.16(4) of the Act was specifically issued only to call for return of wealth. The Ld.CIT(A) finally held that as there was no proper notice to the assessee affording opportunity of being heard, the assessment framed by the Assessing Officer was null and void as it was completed in gross violation of mandatory provisions of second proviso to Section 16(5) of the Wealth Tax Act.
6. We have heard the parties on legal issue. Admittedly all the assessments are completed ex-parte u/s.16(5) of the Act. We find that Assessing Officer issued the first notice u/s.17(1) of the Wealth Tax Act but the assessee did not file any return of wealth but only filed a letter that he is not liable for Wealth Tax. The Assessing Officer issued the second notice u/s.16(4) of the Act on 20-11-2008 requesting the assessee to file his return of wealth on or before 05-12-2008. There is no other notice issued to the assessee save above mentioned.
7. Now we have to examine the provisions of Section 16(5) of the Act the relevant provision reads as under:
| "(1) to (4)** | ** | ** |
(5) If any person. —
| (a) | fails to make the return required under sub-section (1) of section 14 and has not made a return or a revised return under section 15, or | |
| (b) | fails to comply with all the terms of a notice issued under sub-section (2) or sub-section (4), |
the Assessing Officer, after taking into account, all relevant material which he has gathered, shall, after giving such person an opportunity of being heard, estimate the net wealth to the best of his judgment and determine the sum payable by the person on the basis of such assessment:
Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the person to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment:
Provide further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (4) has been issued prior to the making of the assessment under this sub-section."
8. As per Sub-sec. (5) to Section 16, if the assessee has not filed any return of net wealth or fails to comply with all the terms of notice issued u/s.16(4) of the Act, the Assessing Officer can pass best judgment assessment as per the first proviso. It is one of the mandate or requirement that the Assessing Officer has to give an opportunity to the assessee before passing best judgment assessment order. The stand taken by the Assessing Officer is that the assessee was issued notice u/s.16(4) of the Act and hence, there is no requirement to give further opportunity to the assessee in view of second proviso to Sub-sec. (5) of Section 16. In our opinion, said stand of the Assessing Officer is not as per the provisions of law. In the assessment order, he has noted that the assessee was issued notice u/s.16 (4) of the Wealth Tax Act requesting him to file return of wealth. In fact, in our opinion, once the Assessing Officer issues notice u/s.17(1) then there is no further requirement to issue the notice u/s.16(4) directing the assessee to file the return of income as said Sub-section is applicable in a situation where the assessee did not file return of income u/s.14(1) of the Wealth Tax Act within the time allowed. As we understand Section 17 operates when there is a escapement of the income and the requirement of filing the return is incorporated in the said Sub-section itself and once the notice is issued by the Assessing Officer u/s.17(1) of the Wealth Tax Act requiring the assessee to filing the return of wealth and then Section 16(4) does not apply when notice u/s.17(1) is issued. In our opinion, in view of the proviso one below Section 16(5) of the Wealth Tax Act, the Assessing Officer is bound to give opportunity to the assessee before passing the assessment order, which is not the case here. We, therefore, concur with the findings of the Ld.CIT(A) that the assessment order passed by the Assessing Officer is not with conformity of law. Accordingly, Ground No. 1 is dismissed.
9. Now we take up the Ground No. 2 which is more particularly in respect of the plot of land bearing Survey No. 148/1 and Survey No. 510/A/1 (part) and the Ld.CIT(A) has held that the said land is not covered in the definition of the "asset" as given in Section 2 (ea) of the Wealth Tax Act. The facts which are revealed as per the record are as under.
10. It is stated that the assessee is in the business of land development, buying the agricultural lands and developing them into plots after obtaining non-agricultural permission and approval from the local authority. It was claimed by the assessee that the land at Survey No. 148/1 constitute stock-in-trade since the land was acquired on 17-05-1999 which was not held for more than 10 years as on the valuation date. It was, therefore, claimed that the said land does not cover within the definition of the asset given u/s.2(ea) of the Act. The Assessing Officer objected the claim of the assessee by stating that there is no evidence to show that the said land was held as stock-in-trade. The Ld.CIT(A) accepted the plea of the assessee that the assessee is dealing in the land developments as he was indulged in purchase of various lands and developing them into smaller plots. He also alternatively held that as the land at Survey No. 148/1 is a agricultural land and there is no conversion for non-agricultural use, hence otherwise also the said land is not "asset" within the meaning of Section 2(ea) of the Act.
11. So far as the finding of the Ld.CIT(A) that in respect of land being bearing Survey No. 148/1 is a part of stock-in-trade of the assessee and hence is not covered within the definition of the asset given u/s.2(ea) of the Act, the revenue did not bring on record any material to controvert said finding given by the Ld.CIT(A). So far as the alternate finding of the Ld.CIT(A) that the said land being agricultural land and hence, not covered within the definition of the asset, we find that the finding of the Ld.CIT(A) is well supported by the decision of the ITAT, Pune Benches, Pune in the case of Radheshyam R. Jhunjhunwala (HUF) vide WT Appeal Nos. 44 to 88 (Pune) of 2011, order dated 20-3-2013 the Tribunal has held as under:
"8. We have carefully considered the rival submissions. Section 3 of the Act is the charging section which contemplates that subject to the provisions of the Act, there shall be charged for every assessment year prescribed therein, the tax in respect of net wealth on the corresponding valuation date as specified in schedule I to the Act. Section 2(ea) of the Act defines the expression "asset" and in so far as the present controversy is concerned, the relevant asset is "urban land" which is included in the expression "asset" in terms of section 2(ea)(v) of the Act. Further clause (b) to Explanation 1 to sec. 2(ea) of the Act explains the meaning of expression "urban land". The said clause (b) refers to certain exclusions from the purview of urban land and we are dealing with said prescription in terms of which "urban land" does not include a land on which construction of a building is not permissible under any law for the time being in force. In the present case, the plea of the assessee is that the land at Tisgaon, though falling within the jurisdiction of Aurangabad Municipal Corporation, is an agricultural land under cultivation on which no construction is permissible, and therefore, the same is excludible from the purview of "urban land" contained in sec. 2(ea)(v) of the Act. The assessee furnished copies of 7/12 extracts of the impugned land before the Assessing Officer as well as before the CWT(A). The CWT(A) has upheld the plea of the assessee.
9. The plea of the Revenue, as contained in the assessment order is to the effect that the land was in an area which was witnessing fast development of residential and commercial complexes and therefore, the same was includible as 'urban land' as per section 2(ea)(v) of the Act. The question before us is as to whether the CWT(A) is right in holding that the value of land at Tisgaon situated within the jurisdiction of Aurangabad Municipal Corporation is exempt from wealth-tax as agricultural land based on the provisions of sec. 2(ea) and Explanation 1(b) of the Act or not. In a somewhat similar situation, the issue came up before the Hon'ble Madras High court in the case of C.W.T. Vs. e. Udaykumar (2006) 284 ITR 511 (Mad). In the case before the Hon'ble High court, the assessee claimed exemption on the ground that the lands were agricultural lands and construction of building thereon was not permissible. The Assessing Officer found that the land had potential to be used for non-agricultural purposes subject to prior permission from the concerned authorities, and that a hospital building had been constructed on the adjacent land. The action of the Assessing Officer did not find favour either with the CWT(A) or the Tribunal in that case. The Hon'ble Madras High Court also negated the stand of the Assessing Officer by observing that the fact of there being a hospital in the adjacent land was totally irrelevant and for the reason that the assessee had not put up any construction, the assessee was entitled to claim exemption from the wealth-tax. The Hon'ble Madras High court observed that the assessee therein owned agricultural lands within the limits of the Municipal Corporation and had not put up any construction thereon and thus, the assessee was entitled to claim exemption from the wealth-tax.
10. In the present case too, the CWT(A) has referred to 7/12 extracts of the land to point out that the same was agricultural land under cultivation and it is also not the case of the Revenue that any construction on such land has been made on the valuation date and therefore, following parity of reasoning in the case of E. Udaykumar (supra), the CWT(A) made no mistake in directing the Assessing Officer to exclude the value of Tisgaon land from chargeability to wealth-tax. Accordingly the order of CWT(A) is hereby affirmed.
11. Before parting, we may refer to Ground of Appeal No. 3 raised by the Revenue in terms of which it is stated that the land at Tisgaon was urban land since 1986 as is evident from the order dated 19-3-1986 of Tehsildar Aurangabad permitting conversion of the land into non-agricultural land. At the time of hearing, the learned DR was asked to substantiate the aforesaid Ground and in response, it was stated that there is no such averment emerging from the assessment order. There is no other material put-forth by the Revenue in support of the aforesaid Ground of Appeal No. 3. Thus, on this aspect also, we find that the ground is unsubstantiated, misconceived and is liable to be dismissed. Be that as it may, even if the plea of the Revenue to the effect that the land in question has been permitted conversion into non-agricultural land, is considered, even then, the factum of such permission would not distract from the ultimate conclusion of the CWT(A). We say so for the reason that there is no plea raised by the Revenue at any stage that any permission/approval has been granted by the appropriate authority to the assessee to raise or construct a building. In other words, there is no material much less the averment made by the Revenue that on the land in question any construction was permitted and/or authorities concerned have granted the approval for construction on the said land. Pertinently, having regard to the judgment of the Hon'ble Delhi High court in the case of C.W.T. Vs. D.C.M. Ltd (2007) 290 ITR 615 (Del) in either of the aforesaid two situations, the land in question stands excluded from the definition of 'urban land' chargeable to wealth-tax, as per Explanation 1(b) to section 2(ea) of the Act. Therefore, considered in the aforesaid light, we find no reasons to interfere with the ultimate conclusion of the CWT(A) in directing that the value of Tisgaon land be excluded for the purposes of computing wealth-tax.
12. In the result, the appeal of the Revenue for A.Y. 2002-03 is dismissed.
13. Now, coming to the appeals of the Revenue in WTA No. 39 to 44/PN/2011 pertaining to A.Ys. 2003-04 to 2008-09, the facts and circumstances are in pari materia with those for A.Y. 2002-03. So, the decision rendered by us while dealing with the appeal for A.Y. 2002-03, will apply mutatis mutandis to the appeals for A.Ys. 2003-04 to 2008-09 as well.
14. In the result, all the appeals of the Revenue are dismissed."
We therefore do not find any reason to interfere with the order of the Ld.CIT(A) so far as the findings in respect of the land bearing Survey No. 148/1 of the Act.
12. So far as the land bearing Survey No. 510/A/1 (Part) the grievance of the revenue is that the finding given by the Ld.CIT(A) that the said land does not fall in the definition of the "asset" as given in Section 2(ea) of the Wealth Tax Act, we find that the said finding is also well supported by the decision of the Tribunal cited (supra) in the case of Radheshyam R. Jhunjhunwala (HUF) (supra) as the said land is also agricultural land. We, therefore, dismiss the Ground No. 2.
13. Now we take up the Ground No. 3 which is in respect of the valuation of plot of land bearing Survey No. 101 and Survey No. 510/A/1. We find that the Ld.CIT(A) accepted the rate of Rs.107/- and Rs.91 per Sq.Mtrs. for the land bearing Survey No. 101 and Survey No. 510/A/1 respectively on the fact that the assessee has already sold out the land prior to the date of the valuation and the assessee could produce the evidence in the form of the actual sale transaction supporting his claim. The Ld.CIT(A) after considering the evidence placed allowed the claim of the assessee that the correct valuation should be Rs.107/- per Sq.Mtrs. in respect of the land bearing Survey No. 101 as against Rs.400/- adopted by the Assessing Officer and Rs.91/- per Sq. Mtrs. in respect of land bearing Survey No. 510/A/1. Nothing has been placed before us to controvert the findings of the Ld.CIT(A) on said facts. We find no reason to interfere with the order of the Ld.CIT(A) and accordingly the same is confirmed. Ground No. 3 is dismissed.
14. In the result, the revenue's appeal is dismissed.
Regards
Prarthana Jalan
__._,_.___
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