IN THE HIGH COURT OF KERALA AT ERNAKULAM
ST.Rev..No. 133 of 2006()
1. M/S.ALUKKAS JEWELLERY,
... Petitioner
Vs
1. THE STATE OF KERALA.
... Respondent
For Petitioner :SRI.JOSE JOSEPH
For Respondent :GOVERNMENT PLEADER
The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice A.K.BASHEER
Dated :07/10/2008
O R D E R
H.L. DATTU, C.J.&
C .N. RAMACHANDRAN NAIR &
A.K. BASHEER, JJ.
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S.T.R.V. NOS. 133/06 & 480/ 2004
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Dated this the 7th day of October, 2008
JUDGMENT
Ramachandran Nair,J.
The question raised in the connected Sales Tax Revision Cases,
one filed by the assessee and the other filed by the State, is whether the
Deputy Commissioner of Sales Tax has jurisdiction under Section 35
(2A) of the Kerala General Sales Tax, hereinafter called the “KGST
Act”, to order reopening and revision of a best judgment assessment
based on subsequent information that pursuant to raid by income tax
department the assessee conceded unaccounted sales and business
income based on which revised income tax assessment was concluded
by orders of Settlement Commission. Revisions happened to be filed
on the same issue by both sides because of the conflicting views taken
by two Benches of the Sales Tax Appellate Tribunal which heard the
cases pertaining to two assessment years. A Division Bench of this
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Court, which heard the cases, felt that the order of the Tribunal in
favour of the assessee for one year is based on the decision of this
Court which was rendered without referring to earlier decisions
expressing contrary view. Therefore the Division Bench referred the
matter to Full Bench and hence these cases are before us. We have
heard Special Government Pleader appearing for the State and counsel
appearing for the assessee.
2. Since facts are similar, it is enough we refer to the facts of
one case and therefore we refer to the facts which led to STRV No. 133
of 2006 filed by the assessee which pertains to the assessment year
1994-95. The assessee is engaged in jewellery business. In the
accounts produced in support of returns the assessee though conceded
substantial sales and gross profit, the result was net loss of Rs.
4,66,906/-. However, the total loss disclosed before the Income tax
Department was Rs. 1,02,069/- . In the course of regular assessment,
the assessing officer noticed that having regard to the stock-in-trade,
and business name of the assesse, the sales turnover returned did not
appear to be correct and further inspection of business places by the
Intelligence Squad on 1.9.1994 revealed stock difference.
Consequently assessment was completed by making addition of 25% to
3
the declared turnover. Though the addition was sustained in first
appeal, the Tribunal on second appeal cancelled the addition to the
turnover. Even though original assessment got confirmed through
Tribunal’s order, the Deputy Commissioner collected information
pertaining to income tax assessment of the assessee, finalised through
orders of the Settlement Commission, wherein the assessee conceded
additional income of Rs. 15 lakhs in jewellery business. The
concession made by the assessee and recorded in the order of the
Settlement Commission based on which the Deputy Commissioner
initiated proceeding under Section 35(2A) of the KGST Act, are in the
following words:
“The books of accounts maintained did not reflect the full
and correct volume of purchases and sales. The applicant
has explained that the customers were insisting on purchase
without bills to avoid payment of sales tax. In order to
survive in the business in the face of stiff competition, the
applicant had to accede to the request of the customers in
this regard and, therefore, a certain portion of purchases
and sales had to be omitted to be recorded in the relevant
books of account. It is claimed that the applicant was
offering the undisclosed income in the return.”
3. Based on the assessee’s admission accepted in the Settlement
Commission’s order that the assessee had practised unaccounted
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purchases and sales and earned profit in jewellery business, the Deputy
Commissioner issued orders under Section 35(2A) of the KGST Act
for revision of assessment originally completed and finalised in
appeals. This was resisted by the assessee on the ground that since the
very same issue, namely, estimation and addition to the turnover was
subject matter of appeal, the same cannot be the basis for revision of
assessment under Section 35(2)(b) read with Section 35(2A) of the
KGST Act. Even though the assessee’s contention was rejected by the
Tribunal holding that the basis of reopening of assessment under
Section 35(2A) is new information received by the Deputy
Commissioner, which was not subject matter of appeal, another Bench
of the Tribunal allowed the assessee’s case following earlier order of
the Tribunal in the assessee’s own case, which again was based on
decision of this Court. The question, therefore to be considered, is
whether based on facts above stated, the Deputy Commissioner was
justified in ordering revision of assessment once completed and got
finalised in one round of appeals. In order to appreciate the contention,
we have to refer to the relevant Section which is extracted hereinbelow:
35.- Powers of revision of the Deputy Commissioner suo
motu:-(1) The Deputy Commissioner may, of his own motion,
call for and examine any order passed or proceedings recorded
under this Act by any officer or authority subordinate to him5
other than an Appellate Assistant Commissioner which in his
opinion is prejudicial to revenue and may make such enquiry or
cause such enquiry to be made and, subject to the provisions of
this Act, may pass such orders thereon as he thinks fit.
(2) The Deputy Commissioner shall not pass any
order under sub-section (1) if,-
(a) the time for appeal against the order has not
expired;
(b) the order has been made the subject of an appeal
to the Appellate Assistant Commissioner or the
Appellate Tribunal or of a revision in the High Court;
or
(c) more than four years have expired after the
passing of the order referred to therein.
(2A) Notwithstanding anything contained in sub-
section (2), the Deputy Commissioner may pass an order
under sub-section (1) on any point which has not been
decided in an appeal or revision referred to in clause (b) of
sub-section (2), before the expiry of a period of one year
from the date of the order in such appeal or revision or
before the expiry of the period of four years referred to in
clause (2) of the sub-section whichever is later.
(3) No order under this Section adversely affecting a
person shall be passed unless that person has had a
reasonable opportunity of being heard.
Counsel for the assessee has relied on the decision of this Court in
ALUKKAS JEWELLERIES V. STATE OF KERALA, (2001) 3
K.L.T. 917 and the decision in S. UNNIKRISHNAN V. STATE OF
KERALA, (2000) 120 STC 530, and contended that revision of
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assessment is not permissible under Section 35(2)(b) read with Section
35(2A) of the KGST Act based on declaration of income for
assessment under the Income-tax Act.
4. The main question to be considered is whether the Deputy
Commissioner is barred from exercising jurisdiction under Section 35
(2)(b) read with sub-section (2A) because the estimation and addition
of turnover in the original assessment was subject matter of appeal. Of
course, the Deputy Commissioner under Section 35(2)(b) is barred
from exercising revisional jurisdiction when assessment order was
subject matter of appeal. However, sub-section (2A) of Section 35
entitles the Deputy Commissioner to exercise jurisdiction on any point
that has not been decided in appeal. The question therefore to be
considered is whether the issue decided in appeal in this case is the one
on which revision is exercised by the Deputy Commissioner. It is clear
from the facts that in the original assessment, addition was made
merely because of some stock variation noticed in the course of
inspection and the officer’s doubt about genuineness of accounts
because the turnover returned did not appear to him to be realistic
compared to value of stock in trade. Apart from these, the Officer had
no specific material for making addition to the returned turnover. As
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the reasons for addition did not appear to be tenable, the Tribunal in
second appeal cancelled the addition also. However, the Deputy
Commissioner exercised jurisdiction under Section 35(1) read with
Section 35(2A) based on specific information of admission of
unaccounted sales by the assessee before the Income tax Authorities
which was accepted by the Settlement Commission. It is seen that
specific income of Rs. 15 lakhs was offered by the assessee for
assessment before Income Tax Settlement Commission after declaring
that the same represents income from unaccounted sale of jewellery.
Estimation of turnover after rejection of books of accounts has to be
based on materials. In fact in appeal reasonableness of estimation or
addition of the turnover is tested based on materials on which such
estimation is made. Estimation of turnover therefore has two aspects,
one is the material based on which it was done, and the other is
reasonableness of estimation made based on such materials.. A point
could be said to have been decided in appeal, only when it arises from
the order of assessment which was the subject matter of appeal. In fact
the information that the assessee offered specific income from
unaccounted sales before income tax authorities was not available
before the Sales Tax officer and he had not considered this information
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for making estimation of turnover in the original assessment.
Admittedly, the turnover estimated by him is based on other materials
whether tenable or not. Therefore the question decided in appeal,
though pertaining to addition, is not the one based on which the Deputy
exercised jurisdiction under Section 35(2A) of the KGST Act. So long
as the material based on which estimation is made in the original
assessment which was subject matter of appeal is not the same based on
which Deputy Commissioner has initiated proceedings under Section
35(1), it cannot be said that the Deputy Commissioner is barred from
exercising jurisdiction under Section 35(2)(b) merely because
estimation of turnover was an issue decided in appeal. If the principle
canvassed by counsel for the assessee is accepted, then addition of even
one rupee to the turnover by the assessing officer and decision in
appeal on the issue will bar the Deputy Commissioner to order revision
of assessment to bring to tax escaped turnover even if he gets specific
information about quantum of suppression. Therefore we are of the
view that in order to bar jurisdiction of the Deputy Commissioner
under Section 35(2)(b) read with Section 35(2A), the basis for revision
adopted by him should be exactly the same decided in appeal and not
anything in relation to it. In other words, if the point raised by him
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was not the issue decided in appeal, the Deputy Commissioner is free
to invoke jurisdiction.
5. The next contention raised by counsel for the assessee is that
order of assessment cannot be said to be prejudicial to the interest of
revenue and so much so the Deputy Commissioner has no jurisdiction
to invoke his power. Counsel has relied on the above referred
decisions of this Court wherein this Court has taken the view that in
order to exercise jurisdiction under Section 35(1) the order should be
erroneous and should be prejudicial to the revenue administration.
This Court has further proceeded to observe that mere loss of revenue
should not be the sole consideration for invoking power of revision.
Special Government Pleader on the other hand cited the decisions of
the Supreme Court in MALABAR INDUSTRIAL CO. LTD. V. CIT,
(2000) 243 ITR 83(SC) and MASTER CABLES PVT. LTD. V.
STATE OF KERALA, (2007) 7 VST 355(SC) and contended that
when the assessment leads to loss of tax, such order will be prejudicial
to the interest of the revenue. The Supreme Court in the decision first
above referred held that order involving loss of tax is an order
prejudicial to the revenue because the purpose of revenue is to collect
tax. Of course the words “prejudicial to the interest of revenue” are not
10
always confined to the loss of tax. We notice that first above decision
is rendered in the context of Section 263 of the Income Tax Act
wherein suo moto revisional power is conferred on the Commissioner,
only if the order involved is not only prejudicial to the interest of the
revenue, but should be erroneous. However, under Section 35(1) of the
KGST Act, the Deputy Commissioner is authorised to exercise suo
motu revision if the order is prejudicial to revenue. Since the order
involved is an order of assessment and which is nothing but
determination of tax liability due to the State, such order will be
prejudicial, if but for it’s correction in revisional proceedings, it leads
to loss of tax. Whatever else may be orders prejudicial to the revenue,
we are inclined to hold that assessment leading to loss of tax is an order
prejudicial to the interest of the revenue which should be rectified
under Section 35(1) of the KGST Act. In our view, one test that can
be safely applied to find out whether assessment is prejudicial to the
interest of revenue is to see whether there will be loss of tax to the State
if the order is not revised in proceedings under Section 35(1) of the
KGST Act. If the answer is in the affirmative, then revisional authority
has jurisdiction to order revision of assessment under Section 35(1)
subject to the limitations contained in sub-section (2) read with sub-
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section (2A) of Section 35. We are constrained to observe that it is
high time that assessing officers test the correctness of accounts
produced by the assessees in a realistic manner. The doubt about the
correctness of turnover returned expressed by the assessing officer in
the original assessment is proved to be true later when the assessee was
found to have admitted unaccounted sales, and conceded additional
income for assessment in the income tax assessment proceedings. But
for the revisional jurisdiction exercised by the Deputy Commissioner
based on information available from the income tax records, the
assessee would have evaded payment of substantial amount of sales
tax. We feel if the accounts are critically examined with reference to
business realities, evasion of tax could be avoided to large extent.
Normal presumption is that business is carried on for profit and the
presumption gets strengthened if the assessee is in same business for
long period. If result of accounts produced is no gain or loss for the
assessee, then it is a case for critical examination of accounts by
reckoning investment, recurring business expenditure and genuineness
of sources of fund. Once accounts are rejected, the assessing officer is
free to assume that the business is viable and profitable. Thereafter he
should estimate the income which can keep the business going with
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reasonable profit and then project turnover based on it. We feel if this
principle is followed, subsequent revision of assessment and
controversy of this nature could be avoided.
We therefore dismiss STRV 133/2006 filed by the assessee
upholding the order of the Tribunal and restoring that of the Deputy
Commissioner and allow STRV 480 of 2004 by quashing the order of
the Tribunal and restoring that of the Deputy Commissioner issued
under Section 35(1) of the KGST Act.
(H.L. DATTU)
Chief Justice
(C.N.RAMACHANDRAN NAIR)
Judge.
(A.K. BASHEER)
Judge.
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