A.K.SENGUPTA,SHYAMAL KUMAR SEN - (1.) This is a reference under s. 27 (3) of the WT Act,1957 ('the Act') for the asst. yrs. 1982 -83 to 1984 -85. For all the three years the assessee was owning unquoted equity shares of several companies. The shares are valued according to r. 1D of the WT Rules, 1957, by the AO while completing the assessment . Later, the CWT found that the valuation made was not strictly in accordance with the provisions of the said rules. He issued a notice under s. 25 (2) of the said Act proposing to revise the order of the AO as the same was erroneous insofar as it was prejudicial to the interests of the Revenue. The assessee contested the revision proceeding before the CWT contending that there was no error committed by the officer in applying r. 1D. It was further submitted before the CWT that the figures of under valuation given in the show -cause notice were not supported by any details, with the result that the assessee was not enabled by the notice to meet the case against the assessee. The contentions were, however, rejected and the assessments set aside. Being aggrieved, the assessee carried the matter to the Tribunal in appeal. The Tribunal upon hearing the rival contentions and going through the papers made the following observations: - - "As observed cited above, in the notice issued by the CWT three grounds have been set out by him for assuming jurisdiction under s. 25 (2) . The first ground would render the order passed by the WTO erroneous but no prejudice to the Revenue has been done as contended by the CWT in his order. We have to remember in this connection that it is not that every erroneous order can be revised under s. 25 (2) . The order has not only to be erroneous but has also to be prejudicial to the interests of the Revenue. It is an admitted fact that in some cases the proposed dividends were not treated as liability but as has been rightly contended by the assessee, these mistakes go to cancel out the earlier mistake of the assessee in relation to the advance tax paid as an asset. At the time of appeal hearing the assessee was required to file a chart of the correct valuation of the sharers held by the assessee in the various companies. On a perusal of the chart we find that the values adopted by the WTO in the wealth -tax assessments are more than the value as per r. ID method. To illustrate, in the case of the Oberoi Hotels (India) (P) Ltd. the value of these shares taken in the wealth -tax assessment was Rs. 1,0002.43 whereas as per the correct working it should be only Rs. 921. There has no doubt been an under -valuation in the valuation of shares of Oberoi Holdinsgs (P) Ltd., Oberoi Investments (P) Ltd., Oberoi (Properties) (P) Ltd. and Oberoi Buildings and Investments (P) Ltd. But the overall effect as per the statements filed before us in the course of hearing to which the Departmental Representative had also access was that the cumulative value of the shares of various companies determined by the WTO was in excess of their value as per the break -up value method. In these circumstances, we are of the view that the assumption of jurisdiction by the CWT is not correct. Though the CWT has only set aside the order, the exercise of making a fresh assessment order is not likely to result in any advantage to the Revenue. We might in this connection like to mention that the provisions of s. 25 (2) of the WT Act are not to be regarded as revenue -raising provisions. These powers have to be exercised by the CWT in the circumstances where the orders passed by the WTO is to be erroneous being prejudicial to the interests of the Revenue. As observed earlier, in the notice issued by the CWT three alleged lapses were pointed out. The first, as stated earlier, has not resulted in any loss to the Revenue at all. As regards the second, the non -deduction of proposed dividend as liability has resulted in passing of an erroneous order prejudicial to the interests of the Revenue. Gain resulting from this rectification would be cancelled by the Revenue loss that would result in if the advance tax paid by the assessee is excluded from the aggregate value of the assets. Not even a prima facie case has been made out by the CWT to show that provision for taxation was in excess of the tax payable on the book profits. Powers of the CWT under s. 25 (2) are quasi -judicial powers and not administrative. The assessee in reply to the notice issued by the CWT requested him to give details of the figures of under valuation given by him in the notice and no such details were furnished to the assessee. The orders were passed without in any way considering the objections of the assessee or without proper discussion as to why the orders passed by the WTO were considered to be erroneous being prejudicial to the interests of the Revenue. Since the orders have been passed in a routine way, we are of the view that the same cannot be upheld. The exercise of jurisdiction under s. 25 (2) is regarded as without jurisdiction and the orders passed by the CWT are vacated."
(2.) IN this background, the following questions have been referred for our opinion: - - "1. Whether, on the facts and in the circumstances of the case, the orders passed by the CWT under s. 25 (2) of the WT Act,1957, are valid and legal? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding on the basis of the Statement filed by the assessee that cumulative value of the shares of various companies determined by the WTO was in excess of their value as per break -up value method when details contained in the said statement are not discussed by the Tribunal in its order - The parties reiterated the contentions they had urged before the Tribunal. Dr. Pal appearing for the assessee submitted that the show -cause notice under s. 25 (2) contained three grounds as follows: - - "1. Advance -tax and prepaid expenses were treated as asset. 2. Items -like amount set apart for payment of dividend where such dividends were not declared before the valuation date at the general meeting of the company were taken as liabilities. 3. Provisions for taxation in excess of tax computed with reference to the above profits were treated as liabilities.
(3.) THEREFORE , the entire issue turns on the question whether the contentions made on behalf of the assessee that the break -up value arrived at by the AO was more than the value to be correctly ascertainable by application of r. 1D. Without, however, pronouncing on the soundness of this approach we first proceed to examine the very basic premise in the assessee's arguments. First, we do not agree that there was any ultimate error in taking the advance tax as an asset on the one hand and taking the provision for taxation in full as the liability. Even if advance tax is not to be taken as an asset, the gross tax payable before adjustment of the advance tax against the tax payable with reference to the book profits cannot also be taken as liability. In this regard, we take the view that while advance tax is is not to be taken as asset, the provision for gross tax payable with reference to book profits without adjustment of the advance tax is not also to be reckoned as a liability. The rule, of course, requires advance tax not to be taken as an asset, but exclusion of advance tax as an asset necessarily postulates that the tax liability computable as deduction from the net worth of the company should be the net tax liability remaining payable after adjustment of the advance tax against it. The principles of accountancy cannot admit of the proposition that advance tax should be excluded from assets and at once the gross tax liability on the book profit before adjustment of the advance tax should also be included as liability. Therefore, we do not agree with the learned counsel's contention that there was any error on the part of the AO in taking the advance tax as an asset insofar as he allowed the gross tax liability as provided for in the Balance Sheet as liability. Again, it cannot be said that prepaid expenses do not represent any asset. Rule 1D contemplates exclusion of only the fictitious asset, but prepaid expenses cannot be said to be fictitious asset. It is a tangible asset in the sense that the party who was prepaid is a debtor to the company which he is to satisfy either by rendering service or delivering goods. It is a real debt receivable. An asset could be fictitious only where it does not represent any quid pro quo. That is not the case in the case of pre -paid expenses. In fact, the claim arising from pre -paid expenses is an actionable claim. So, in our view, pre -paid expenses represent an asset to be taken into account for the purpose of computing the net worth of the company under r. 1D.;