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

Headnote:
WEALTH TAX - Rule 2B(2) of the Wealth-tax Rules, 1957 - Export invoice value - Reduction by 35% - Market value of closing stock - Determination - Gross profit rate - Applicability.
Fact of the Case:

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 2B(2) and determined the market value on the basis of gross profit rate exceeding 20 per cent.
Finding of the Court:

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.
Issues: Whether the Tribunal was justified 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?
Ratio Decidendi: 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 2B(2) without any foundation.
Final Decision: 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.

JUDGMENT

1. - 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.

2. 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 2B(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 2B(2) of the Wealth-tax Rules ?"

3. 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 2B(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 ?

4. 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 2B(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 2B(2) were not applicable to the assessee case and consequently in deleting the addition made by the Wealth-tax Officer ?"

5. 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 2B(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 2B(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 ?"

6. 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 2B(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 2B(2) were not appl

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1992 Supreme(Raj) 715

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

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