OUSEPH JOY V. AGRICULTURAL INCOME TAX

WP(C)/24958/2015

AI Insights

The case involves two writ petitions filed by Ouseph Joy, first as an individual and later through a partnership firm with his wife, against the assessment and penalty orders issued by the tax authorities under the Kerala Value Added Tax Act (KVAT Act). The disputes arose from the non-declaration of gold bullion purchases in tax returns. The court found that the petitioner had proactively disclosed the omissions to the tax authorities and directed a re-assessment for the proprietorship concern while upholding the assessment for the partnership firm but reducing the penalty based on legal precedents.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 755435 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 01-06-2017
• Assessment Year: misc
• Other Referred Cases: Sree Krishna Electricals v. State of Tamil Nadu and Another ([2009] 23 VST 249 (SC))
• Laws Referred To: Kerala Value Added Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: M M JASMINE
• Assessee Lawyers: HARISANKAR MENON; MAHESH MENON
• Keywords: Assessment; Gold bullion; KVAT Act; Penalty; Suppressed purchase turnover
• Section: 143(3)

Judgement Text

"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. 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. EXHIBIT P1(A): COPY OF INVOICE NO.545 OF M/S. SJS GOLD PVT. LTD., THRISSUR DATED 21.12.2013. EXHIBIT P2: COPY OF REQUEST SUBMITTED BY THE PETITIONER BEFORE THE IST RESPONDENT DATED 16.5.2014. EXHIBIT P3: COPY OF NOTICE ISSUED BY THE IST RESPONDENT DATED 16.6.2015. EXHIBIT P3(A): COPY OF NOTICE ISSUED BY THE IST RESPONDENT DATED 16.6.2015. EXHIBIT P4: COPY OF OBJECTION FILED BY THE PETITIONER BEFORE THE IST RESPONDENT DATED 8.7.2015. EXHIBIT P5: COPY OF THE ORDER ISSUED BY THE IST RESPONDENT DATED 30.7.2015. EXHIBIT P5(A): COPY OF ORDER ISSUED BY THE IST RESPONDENT. RESPONDENT(S)' EXHIBITS ----------------------- NIL //TRUE COPY// P.S.TO JUDGE Msv/ A.K.JAYASANKARAN NAMBIAR, J. ............................................................. W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 ............................................................. Dated this the 1st day of June, 2017 J U D G M E N T As both these writ petitions involve a common issue, they are taken up together for consideration and disposed by this common judgment. 2. The petitioner in W.P.(C).No.24958 of 2015, who initially commenced business in gold jewellery in his individual capacity, subsequently carried on the business under a partnership firm that was constituted along with his wife. The said partnership firm is the petitioner in W.P.(C).No.33522 of 2016. The petitioner in W.P. (C).No.24958 of 2015 obtained registration under the Kerala Value Added Tax Act (hereinafter referred to as the 'KVAT Act) as a proprietor for doing business in jewellery. The registration was obtained in October, 2013. Since the petitioner did not have any business in the opening months, he filed nil returns with the -2- W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 respondents during the said period. It would appear that, in December 2013, he purchased gold bullion under cover of Exts.P1 and P1(a) invoices but omitted to declare the same in the returns filed for December, 2013. Subsequently, inasmuch as he intended to pursue another business in iron and steel in his individual capacity, he cancelled the registration of the jewellery business with effect from 31.03.2014, and intimated the Department of the said stoppage of business. It was, thereafter, that he started the jewellery business in the name of the partnership firm. The partnership firm commenced business activities with effect from 14.03.2014. At the time of constituting the partnership firm with his wife, the petitioner brought the stock of gold bullion that was covered by Exts.P1 and P1(a) invoices, as his capital contribution to the partnership firm and also entered the said purchases as the opening 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 the purchased gold bullion in the return filed in respect of the -3- W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 proprietorship concern for December 2013, to the notice of the 1st respondent. The 1st respondent instead of permitting the petitioner to revise the returns that had been filed for the month of December 2013, based on the declaration made by the petitioner, issued Ext.P3 pre-assessment notice to the petitioner proposing to complete the assessment for the year 2013-2014 on the proprietorship concern, by including the value of purchased gold bullion as suppressed purchase turnover, and making an estimation with regard to the sales effected for the year on the basis of the alleged purchase suppression detected. By a separate notice (Ext.P3(a)), a penalty was also proposed on the petitioner, for the reasons stated in the notice issued in connection with the assessee. Although the petitioner submitted a common reply, through Exts.P5 and P5(a) orders, the assessment and penalty proceedings were completed against the petitioner by bringing to tax an exorbitant turnover attributable to the alleged suppressed purchase turnover of gold bullion, and also by imposing a penalty commensurate with the escaped turnover that was assessed. In -4- 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.P5 assessment order and Ext.P5(a) penalty order, inter alia, on the ground that, there was no justification for the respondents to compete the assessment against the petitioner under circumstances where the petitioner had suo motu, and before any proceedings were initiated against him by the Assessing Officer, declared the omission that was occasioned while filing the returns for the month of December 2013. 3. In W.P.(C).Nos.33522 of 2016, the petitioner impugns Exts.P6 and P6(a) orders of assessment and penalty that were passed 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, and commencing business through the said firm, although the petitioner brought the undeclared purchases through Ext.P1 and P1(a) invoices into the books of accounts, and included the said purchases as part of the opening stock of the partnership firm, he -5- 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 that were filed by the partnership firm for the immediately ensuing period. By Ext.P1 notice dated 24.08.2015, issued more than one year after the commencement of the business by the partnership firm, the Assessing Officer required the petitioner firm to produce its books of account for verification on 08.09.2015. On receipt of the said notice, the petitioner firm submitted Ext.P2 letter dated 14.10.2015 bringing to the notice of the assessing authority, the fact that, it had omitted to enter the details of the purchases evidenced by Exts.P1 and P1(a) in W.P.(C).No.24958 of 2015, in the returns filed on behalf of the partnership firm, and sought permission to revise the returns accordingly. The said request was denied by the Assessing authority by Ext.P3 communication dated 14.10.2015. Immediately thereafter, the assessing authority issued Exts.P4 and P4(a) notices proposing the completion of assessment and the imposition of a penalty on the petitioner for the alleged act of suppression of purchase turnover. Although the petitioner preferred a detailed reply to the said notices, the assessment was -6- W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 completed against the petitioner by making an estimation on the basis of the purchase turnover suppressed and demanding a differential tax from the petitioner. By Ext.P6 (a) order, a penalty was also imposed on the petitioner, equal to double the amount of tax that was confirmed against the petitioner in Ext.P6 order. In W.P.(C).No.33522 of 2016, the petitioner firm impugns Ext.P6 order of assessment and P6(a) order of penalty. 4.. I have heard Sri.Harisankar V.Menon, the learned counsel appearing for the petitioners in both these writ petitions as also the learned Government Pleader appearing for the respondents. 5. On a consideration of the facts and circumstances of the case and the submissions made across the bar, I find that, as regards the case of the petitioner in W.P.(C).No.24958 of 2015, although it is a fact that he did not declare the purchases evidenced by Exts.P1 and P1(a) invoices in the return submitted -7- W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 for the month of December 2013, the Department also had not taken any steps for investigating the matter or completing the assessment by May 2014 when, by Ext.P2 application dated 16.05.2014, the petitioner himself brought to the notice of the assessing authority, the fact that he had not declared the purchases aforementioned in the return for December 2013. Inasmuch as the petitioner had himself brought the discrepancies to the notice of the assessing authority, I am of the view that, the assessing authority ought to have given the petitioner an opportunity for revising the returns accordingly so as to include the purchase turnover that was allegedly suppressed in the returns from December 2013. The assessing authority, however, proceeded to issue pre-assessment notices, and thereafter, confirm the assessment against the petitioner solely on the ground that, the opportunity to revise the returns could not have been extended to an assessee, who had cancelled his registration with regard to the business concern before making the application for revising of the returns. In my view, the said finding of the Assessing Officer is -8- W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 legally untenable since, notwithstanding the cancellation of the registration of the petitioner, the petitioner was under an obligation to file the necessary returns for the period during which he carried on business, and the KVAT Act also contemplates an assessment of the petitioner during the period when he was carrying on business. Inasmuch as the revision in the return that was sought for by the petitioner pertained to the period when he was admittedly carrying on business, the reasons stated by the assessing authority for completing the assessment on best judgment basis, and after resorting to an estimation, is in my opinion legally flawed. For the said reason, I quash Ext.P5 assessment order, and consequently Ext.P5 (a) penalty order, and direct the 1st respondent to complete the assessment of the petitioner in W.P.(C).No.24958 of 2015 for the assessment year 2013-2014 afresh, by permitting the petitioner to revise the return for the month of December 2013 so as to include the turnover of gold bullion purchased under cover of Exts.P1 and P1(a) invoices, and then determining the tax liability of the petitioner for the said -9- W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 assessment year. The 1st respondent assessing authority shall complete the assessment of the petitioner in W.P.(C).No.24958 of 2015 for the assessment year 2013-2014 under the KVAT Act and within a period of six weeks from the date of receipt of a copy of this judgment, after hearing the petitioner. For the reasons that led to the quashing of Ext.P5 assessment order, I am of the view that, there is no justification for the imposition of any penalty on the petitioner for the said assessment year since, as already noted above, it was the petitioner, who brought the discrepancy with regard to non-inclusion of the purchase turnover in the return for the month of December 2013 to the notice of the assessing authority, and hence, there was no deliberate suppression or misrepresentation by the assesse necessitating the imposition of a penalty 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, the partnership firm, which is the assesse in the said writ petition, -10- 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 his wife. The petitioner in W.P.(C).No.24958 of 2015, who realised the discrepancy with regard to the non-inclusion of the purchase turnover in December 2013, and subsequently brought forth the said purchase turnover as the opening stock of the business of the partnership firm, did not seek to include the said purchase turnover in the returns for the opening months after the commencement of business by the partnership firm. It is relevant to note in this connection that, by Ext.P1 notice dated 24.08.2016, the assessing authority had already initiated steps in connection with the completion of an assessment by requiring the petitioner firm to produce its books of account for verification. Although it is the case of the petitioner firm that it was only thereafter, and at the time of auditing the books of accounts of the firm, that it was noticed that the purchase turnover of gold bullion referred above was not included in the return filed by the partnership firm, I am of the view that, inasmuch as the realisation by the petitioner firm, of the omission, was only after the issuance of Ext.P1 notice to -11- W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 them, it is a case where the petitioner could not have been permitted to revise the return so as to cure the defects that were noticed by the assessing authority. The petitioner, therefore, had to suffer the consequences of any omission in the only valid return that was filed before the assessing authority. When so viewed, I do not find any illegality in the estimation that is done by the assessing authority while finding against the petitioner in Ext.P6 order that is impugned in W.P.(C).No.33522 of 2016. The challenge in the writ petition against the said order, therefore, fails and is therefore rejected. As regards Ext.P6(a) order of penalty, I find force in the contention of the learned counsel for the petitioner based on the judgment of the Supreme Court in Sree Krishna Electricals v. State of Tamil Nadu and Another ([2009] 23 VST 249 (SC)), where the items that were allegedly suppressed were found incorporated in the books of accounts of the assessee, the mere fact that the assessee had not included them in the turnover declared in the return, cannot be a ground for imposition of a penalty. In the instant case also, it is not in -12- W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 dispute that the purchase turnover of the bullion aforementioned had been included in the books of accounts of the petitioner firm and in fact it was shown as forming part of the original stock of the petitioner firm. The irregularity occasioned by the petitioner firm, was in not declaring the purchase turnover in the returns that were filed for the purposes of assessment. In Ext.P6(a) order, the penalty that is imposed on the petitioner is double the tax levied. As already noted above, the tax levied on the petitioner is on a turnover that is arrived at by estimation. Further, I am of the view that, the decision of the Supreme Court referred above, would insulate the petitioner from the imposition of a penalty to an extent greater than Rs.1,00,000/-. Accordingly, I modify Ext.P6(a) order by reducing the penalty imposed from Rs.23,61,076/- to an amount of Rs.1,00,000/-. Save for this modification, Exts.P6(a) order is otherwise sustained. Resultantly, W.P.(C).No.24958 of 2015 is allowed by quashing Ext.P5 and P5(a) orders and directing the assessing -13- W.P.(C).No.24958 of 2015 & W.P.(C).No.33522 of 2016 authority to redo the assessment in respect of the proprietorship concern for the assessment year 2013-2014 within the time granted in this judgment, and W.P.(C).No.33522 of 2016 is disposed by rejecting the challenge against Ext.P6 assessment order and allowing the challenge against Ext.P6(a) penalty order to the extent of reducing the penalty amount of Rs.1,00,000/-. The petitioner firm in W.P.(C).No.33522 of 2016 shall effect the payment of tax and penalty as confirmed in this judgment to the Department within 45 days from the date of receipt of a copy of this judgment. Sd/- A.K.JAYASANKARAN NAMBIAR JUDGE mns/01.06.17 "