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.

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