1412. Cases where tolerance margin of 25 per cent is exceeded because of disallowance of disputed tax liability - Whether penalty imposable for concealment of wealth
Circular No. 18 was issued by the Central Board of Direct Taxes on 12 June 1969. Its subject is 1412. Cases where tolerance margin of 25 per cent is exceeded because of disallowance of disputed tax liability - Whether penalty imposable for concealment of wealth.
Directs that no penalty under section 18(1)(c) of the Wealth-tax Act be levied where the returned wealth falls short of the assessed wealth by more than the twenty-five per cent tolerance margin only because a disputed income-tax or wealth-tax demand outstanding on the valuation date has been disallowed as a debt. The Board accepts that under section 2(m) such disputed demands are not deductible in computing net wealth, but notes that section 35(2) requires the Wealth-tax Officer to rectify the assessment and allow the deduction where the disputed tax is paid within six months of the appellate decision; to keep their rectification claims alive, assessees commonly claim the whole outstanding demand, including the disputed part, in their returns. That prevalent practice cannot be put down to fraudulent motives or gross or wilful neglect, so such assessees are to be treated as having discharged the onus of showing that the failure to declare the correct net wealth was not due to fraud or gross or wilful neglect.
Representations had been received that some Wealth-tax Officers were levying penalty in exactly these cases, where the shortfall arose only from disallowance of the disputed tax demands.
1412. Cases where tolerance margin of 25 per cent is exceeded because of disallowance of disputed tax liability - Whether penalty imposable for concealment of wealth
1. The Board have received representations that even in cases where the disputed income-tax and wealth-tax demands, outstanding on the valuation date, are disallowed and such disallowances account for the shortfall of the returned wealth by more than 25 per cent of the assessed wealth, some Wealth-tax Officers have been levying penalty under section 18(1)(c).
2. No doubt, under section 2( m), such disputed tax demands are not to be considered as "debt" deductible for computing the net wealth. But section 35(2) provides that where the disputed tax is paid within 6 months of the decision by the appellate authority, the Wealth-tax Officer shall rectify the assessment for allowing deductions to that extent. For facilitating their claims for rectification under section 35(2), assessees usually claim in their returns deduction for the entire outstanding (including the disputed tax). This is a fairly prevalent practice, which cannot be ascribed to fraudulent motives or gross or wilful neglect on the part of assessees.
3. The Board have carefully considered the matter and they are of the view that in the cases of the type mentioned in para 1, the assessees should be considered to have discharged the onus of proving that the failure to declare the correct net wealth was not due to any fraud or gross or wilful neglect on their part. No penalty under section 18(1)(c) should be levied in such cases.
4. Other instructions of the Board on the scope of the Explanation to section 18(1) may be seen in Circular No. 8-WT, dated 15-11-1968.
Circular: No. 18 [F.No. 17/25/69-WT], dated 12-6-1969.
In a wealth-tax penalty proceeding under section 18(1)(c) where the only reason for the shortfall is the disallowed disputed tax demand.
Source: the Income Tax Department’s own published text — its page for this instrument.
