By Advs.sri.harisankar v. Menon Sri.mahesh V.menon

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR THURSDAY, THE 1ST DAY OF JUNE 2017/11TH JYAISHTA, 1939 WP(C).No. 24958 of 2015 (T) ---------------------------- PETITIONER(S): ------------- OUSEPH JOY, S/O INASU, KOZHUKULLIKAREN HOUSE, PUTHUR P.O., PIN:680 014, THRISSUR. BY ADVS.SRI.HARISANKAR V. MENON SRI.MAHESH V.MENON RESPONDENT(S): -------------- 1. AGRICULTURAL INCOME TAX, ALATHUR-678 541. ALATHUR-678 541. 2. DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, SALES TAX COMPLEX, PALAKKAD-678 001. BY GOVERNMENT PLEADER SMT.M.M.JASMINE THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 01-06-2017, ALONG WITH WPC. 33522/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: msv/ WP(C).No. 24958 of 2015 (T) ---------------------------- APPENDIX PETITIONER(S)' EXHIBITS ----------------------- EXHIBIT P1: COPY OF INVOICE NO.521 OF M/S. SJS GOLD PVT. LTD., THRISSUR DATED 11.12.2013. THRISSUR DATED 11.12.2013. EXHIBIT P1(A): COPY OF INVOICE NO.545 OF M/S. SJS GOLD PVT. LTD., THRISSUR DATED 21.12.2013. THRISSUR DATED 21.12.2013. EXHIBIT P2: COPY OF REQUEST SUBMITTED BY THE PETITIONER BEFORE THE IST RESPONDENT DATED 16.5.2014. THE IST RESPONDENT DATED 16.5.2014. EXHIBIT P3: COPY OF NOTICE ISSUED BY THE IST RESPONDENT DATED 16.6.2015. DATED 16.6.2015. EXHIBIT P3(A): COPY OF NOTICE ISSUED BY THE IST RESPONDENT DATED 16.6.2015. DATED 16.6.2015. EXHIBIT P4: COPY OF OBJECTION FILED BY THE PETITIONER BEFORE THE IST RESPONDENT DATED 8.7.2015. IST RESPONDENT DATED 8.7.2015. EXHIBIT P5: COPY OF THE ORDER ISSUED BY THE IST RESPONDENT DATED 30.7.2015. DATED 30.7.2015. EXHIBIT P5(A): COPY OF ORDER ISSUED BY THE IST RESPONDENT. RESPONDENT(S)' EXHIBITS ----------------------- NIL //TRUE COPY// Msv/ P.S.TO JUDGE A.K.JAYASANKARAN NAMBIAR, J. ............................................................. W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 .............................................................Dated this the 1[st] day of June, 2017 J U D G M E N T As both these writ petitions involve a common issue, they aretaken up together for consideration and disposed by this commonjudgment. 2. The petitioner in W.P.(C).No.24958 of 2015, who initiallycommenced business in gold jewellery in his individual capacity,subsequently carried on the business under a partnership firm thatwas constituted along with his wife. The said partnership firm isthe petitioner in W.P.(C).No.33522 of 2016. The petitioner in W.P.(C).No.24958 of 2015 obtained registration under the Kerala ValueAdded Tax Act (hereinafter referred to as the 'KVAT Act) as aproprietor for doing business in jewellery. The registration wasobtained in October, 2013. Since the petitioner did not have anybusiness in the opening months, he filed nil returns with the W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 2. The petitioner in W.P.(C).No.24958 of 2015, who initiallycommenced business in gold jewellery in his individual capacity,subsequently carried on the business under a partnership firm thatwas constituted along with his wife. The said partnership firm isthe petitioner in W.P.(C).No.33522 of 2016. The petitioner in W.P.(C).No.24958 of 2015 obtained registration under the Kerala ValueAdded Tax Act (hereinafter referred to as the 'KVAT Act) as aproprietor for doing business in jewellery. The registration wasobtained in October, 2013. Since the petitioner did not have anybusiness in the opening months, he filed nil returns with the W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 respondents during the said period. It would appear that, inDecember 2013, he purchased gold bullion under cover of Exts.P1and P1(a) invoices but omitted to declare the same in the returnsfiled for December, 2013. Subsequently, inasmuch as he intendedto pursue another business in iron and steel in his individualcapacity, he cancelled the registration of the jewellery businesswith effect from 31.03.2014, and intimated the Department of thesaid stoppage of business. It was, thereafter, that he started thejewellery business in the name of the partnership firm. Thepartnership firm commenced business activities with effect from14.03.2014. At the time of constituting the partnership firm withhis wife, the petitioner brought the stock of gold bullion that wascovered by Exts.P1 and P1(a) invoices, as his capital contributionto the partnership firm and also entered the said purchases as theopening stock of goods of goods of the partnership firm.Immediately thereafter, by Ext.P2 application dated 16.05.2014,he declared the discrepancy with regard to non-inclusion of thepurchased gold bullion in the return filed in respect of the W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 proprietorship concern for December 2013, to the notice of the 1[st]respondent. The 1[st] respondent instead of permitting thepetitioner to revise the returns that had been filed for the month ofDecember 2013, based on the declaration made by the petitioner,issued Ext.P3 pre-assessment notice to the petitioner proposing tocomplete the assessment for the year 2013-2014 on theproprietorship concern, by including the value of purchased goldbullion as suppressed purchase turnover, and making anestimation with regard to the sales effected for the year on thebasis of the alleged purchase suppression detected. By a separatenotice (Ext.P3(a)), a penalty was also proposed on the petitioner,for the reasons stated in the notice issued in connection with theassessee. Although the petitioner submitted a common reply,through Exts.P5 and P5(a) orders, the assessment and penaltyproceedings were completed against the petitioner by bringing totax an exorbitant turnover attributable to the alleged suppressedpurchase turnover of gold bullion, and also by imposing a penaltycommensurate with the escaped turnover that was assessed. In W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 W.P.(C).Nos.24958 of 2015, the petitioner impugns Exts.P5assessment order and Ext.P5(a) penalty order, inter alia, on theground that, there was no justification for the respondents tocompete the assessment against the petitioner undercircumstances where the petitioner had suo motu, and before anyproceedings were initiated against him by the Assessing Officer,declared the omission that was occasioned while filing the returnsfor the month of December 2013. W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 W.P.(C).Nos.24958 of 2015, the petitioner impugns Exts.P5assessment order and Ext.P5(a) penalty order, inter alia, on theground that, there was no justification for the respondents tocompete the assessment against the petitioner undercircumstances where the petitioner had suo motu, and before anyproceedings were initiated against him by the Assessing Officer,declared the omission that was occasioned while filing the returnsfor the month of December 2013. 3. In W.P.(C).Nos.33522 of 2016, the petitioner impugnsExts.P6 and P6(a) orders of assessment and penalty that werepassed against the partnership firm for the assessment year 2014-2015. The facts in the said writ petition would indicate that,immediately after the constitution of the partnership firm, andcommencing business through the said firm, although thepetitioner brought the undeclared purchases through Ext.P1 andP1(a) invoices into the books of accounts, and included the saidpurchases as part of the opening stock of the partnership firm, he W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 once again omitted to indicate the said stock in the returns thatwere filed by the partnership firm for the immediately ensuingperiod. By Ext.P1 notice dated 24.08.2015, issued more than oneyear after the commencement of the business by the partnershipfirm, the Assessing Officer required the petitioner firm to produceits books of account for verification on 08.09.2015. On receipt ofthe said notice, the petitioner firm submitted Ext.P2 letter dated14.10.2015 bringing to the notice of the assessing authority, thefact that, it had omitted to enter the details of the purchasesevidenced by Exts.P1 and P1(a) in W.P.(C).No.24958 of 2015, inthe returns filed on behalf of the partnership firm,and soughtpermission to revise the returns accordingly. The said request wasdenied by the Assessing authority by Ext.P3 communication dated14.10.2015. Immediately thereafter, the assessing authority issuedExts.P4 and P4(a) notices proposing the completion of assessmentand the imposition of a penalty on the petitioner for the alleged actof suppression of purchase turnover. Although the petitionerpreferred a detailed reply to the said notices, the assessment was W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 completed against the petitioner by making an estimation on thebasis of the purchase turnover suppressed and demanding adifferential tax from the petitioner. By Ext.P6 (a) order, a penaltywas also imposed on the petitioner, equal to double the amount oftax that was confirmed against the petitioner in Ext.P6 order. InW.P.(C).No.33522 of 2016, the petitioner firm impugns Ext.P6order of assessment and P6(a) order of penalty. 4.. I have heard Sri.Harisankar V.Menon, the learnedcounsel appearing for the petitioners in both these writ petitionsas also the learned Government Pleader appearing for therespondents. 5. On a consideration of the facts and circumstances of thecase and the submissions made across the bar, I find that, asregards the case of the petitioner in W.P.(C).No.24958 of 2015,although it is a fact that he did not declare the purchasesevidenced by Exts.P1 and P1(a) invoices in the return submitted W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 4.. I have heard Sri.Harisankar V.Menon, the learnedcounsel appearing for the petitioners in both these writ petitionsas also the learned Government Pleader appearing for therespondents. 5. On a consideration of the facts and circumstances of thecase and the submissions made across the bar, I find that, asregards the case of the petitioner in W.P.(C).No.24958 of 2015,although it is a fact that he did not declare the purchasesevidenced by Exts.P1 and P1(a) invoices in the return submitted W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 for the month of December 2013, the Department also had nottaken any steps for investigating the matter or completing theassessment by May 2014 when, by Ext.P2 application dated16.05.2014, the petitioner himself brought to the notice of theassessing authority, the fact that he had not declared thepurchases aforementioned in the return for December 2013.Inasmuch as the petitioner had himself brought the discrepanciesto the notice of the assessing authority, I am of the view that, theassessing authority ought to have given the petitioner anopportunity for revising the returns accordingly so as to includethe purchase turnover that was allegedly suppressed in the returnsfrom December 2013. The assessing authority, however,proceeded to issue pre-assessment notices, and thereafter, confirmthe assessment against the petitioner solely on the ground that,the opportunity to revise the returns could not have been extendedto an assessee, who had cancelled his registration with regard tothe business concern before making the application for revising ofthe returns. In my view, the said finding of the Assessing Officer is W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 legally untenable since, notwithstanding the cancellation of theregistration of the petitioner, the petitioner was under anobligation to file the necessary returns for the period during whichhe carried on business, and the KVAT Act also contemplates anassessment of the petitioner during the period when he wascarrying on business. Inasmuch as the revision in the return thatwas sought for by the petitioner pertained to the period when hewas admittedly carrying on business, the reasons stated by theassessing authority for completing the assessment on bestjudgment basis, and after resorting to an estimation, is in myopinion legally flawed. For the said reason, I quash Ext.P5assessment order, and consequently Ext.P5 (a) penalty order, anddirect the 1[st] respondent to complete the assessment of thepetitioner in W.P.(C).No.24958 of 2015 for the assessment year2013-2014 afresh, by permitting the petitioner to revise the returnfor the month of December 2013 so as to include the turnover ofgold bullion purchased under cover of Exts.P1 and P1(a) invoices,and then determining the tax liability of the petitioner for the said W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 assessment year. The 1[st] respondent assessing authority shallcomplete the assessment of the petitioner in W.P.(C).No.24958 of2015 for the assessment year 2013-2014 under the KVAT Act andwithin a period of six weeks from the date of receipt of a copy ofthis judgment, after hearing the petitioner. For the reasons thatled to the quashing of Ext.P5 assessment order, I am of the viewthat, there is no justification for the imposition of any penalty onthe petitioner for the said assessment year since, as already notedabove, it was the petitioner, who brought the discrepancy withregard to non-inclusion of the purchase turnover in the return forthe month of December 2013 to the notice of the assessingauthority, and hence, there was no deliberate suppression ormisrepresentation by the assesse necessitating the imposition of apenalty for the said assessment year. I, therefore quash P5 (a)penalty order that is impugned in the writ petition. 6. As regards W.P.(C).No.33522 of 2016, I find that, thepartnership firm, which is the assesse in the said writ petition, W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 comprised of the petitioner in W.P.(C).No.24958 of 2015 and hiswife. The petitioner in W.P.(C).No.24958 of 2015, who realisedthe discrepancy with regard to the non-inclusion of the purchaseturnover in December 2013, and subsequently brought forth thesaid purchase turnover as the opening stock of the business of thepartnership firm, did not seek to include the said purchaseturnover in the returns for the opening months after thecommencement of business by the partnership firm. It is relevantto note in this connection that, by Ext.P1 notice dated 24.08.2016,the assessing authority had already initiated steps in connectionwith the completion of an assessment by requiring the petitionerfirm to produce its books of account for verification. Although it isthe case of the petitioner firm that it was only thereafter, and atthe time of auditing the books of accounts of the firm, that it wasnoticed that the purchase turnover of gold bullion referred abovewas not included in the return filed by the partnership firm, I amof the view that, inasmuch as the realisation by the petitioner firm,of the omission, was only after the issuance of Ext.P1 notice to W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 -11- them, it is a case where the petitioner could not have beenpermitted to revise the return so as to cure the defects that werenoticed by the assessing authority. The petitioner, therefore, hadto suffer the consequences of any omission in the only valid returnthat was filed before the assessing authority. When so viewed, I donot find any illegality in the estimation that is done by theassessing authority while finding against the petitioner in Ext.P6order that is impugned in W.P.(C).No.33522 of 2016. Thechallenge in the writ petition against the said order, therefore,fails and is therefore rejected. As regards Ext.P6(a) order ofpenalty, I find force in the contention of the learned counsel for thepetitioner based on the judgment of the Supreme Court in SreeKrishna Electricals v. State of Tamil Nadu and Another([2009] 23 VST 249 (SC)),where the items that were allegedlysuppressed were found incorporated in the books of accounts ofthe assessee, the mere fact that the assessee had not includedthem in the turnover declared in the return, cannot be a groundfor imposition of a penalty. In the instant case also, it is not in W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 dispute that the purchase turnover of the bullion aforementionedhad been included in the books of accounts of the petitioner firmand in fact it was shown as forming part of the original stock of thepetitioner firm. The irregularity occasioned by the petitioner firm,was in not declaring the purchase turnover in the returns thatwere filed for the purposes of assessment. In Ext.P6(a) order, thepenalty that is imposed on the petitioner is double the tax levied.As already noted above, the tax levied on the petitioner is on aturnover that is arrived at by estimation. Further, I am of the viewthat, the decision of the Supreme Court referred above, wouldinsulate the petitioner from the imposition of a penalty to an extentgreater than Rs.1,00,000/-. Accordingly, I modify Ext.P6(a) orderby reducing the penalty imposed from Rs.23,61,076/- to an amountof Rs.1,00,000/-. Save for this modification, Exts.P6(a) order isotherwise sustained. Resultantly, W.P.(C).No.24958 of 2015 is allowed byquashing Ext.P5 and P5(a) orders and directing the assessing W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 Resultantly, W.P.(C).No.24958 of 2015 is allowed byquashing Ext.P5 and P5(a) orders and directing the assessing W.P.(C).No.24958 of 2015 &W.P.(C).No.33522 of 2016 authority to redo the assessment in respect of the proprietorshipconcern for the assessment year 2013-2014 within the timegranted in this judgment, and W.P.(C).No.33522 of 2016 isdisposed by rejecting the challenge against Ext.P6 assessmentorder and allowing the challenge against Ext.P6(a) penalty orderto the extent of reducing the penalty amount of Rs.1,00,000/-. Thepetitioner firm in W.P.(C).No.33522 of 2016 shall effect thepayment of tax and penalty as confirmed in this judgment to theDepartment within 45 days from the date of receipt of a copy ofthis judgment. Sd/- A.K.JAYASANKARAN NAMBIAR JUDGE mns/01.06.17