IN THE HIGH COURT OF KERALA AT ERNAKULAM
OT.Rev.No. 7 of 2009()
1. STATE OF KERALA, REPRESENTED BY
... Petitioner
Vs
1. M/S. VEENUS TRADERS,
... Respondent
For Petitioner :GOVERNMENT PLEADER
For Respondent :SRI.V.CHITAMBARESH (SR.)
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice P.S.GOPINATHAN
Dated :29/03/2010
O R D E R
C.R.
C .N. RAMACHANDRAN NAIR &
P.S. GOPINATHAN, JJ.
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O.T. Rev. No. 7& 12 OF 2009
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Dated this the 29th day of March, 2010
JUDGMENT
Ramachandran Nair, J.
Connected revision cases, one filed by the State and the other
filed by the assessee, pertain to assessment of the assessee for the
assessment year 2005-06. We have heard counsel appearing for the
assessee and Government Pleader for the State.
2. The assessee was engaged in purchase, processing, packing
and sale of cashew kernels. During inspection conducted on 27.9.2005,
stock variation noticed was 3626 Kgs. The offence was compounded
by collecting compounding fee of Rs. 5,000/-. There is a controversy
as to how the price was estimated for the suppressed quantity for the
purpose of collecting compounding fee of Rs. 5,000/-. According to
the statement of the Tribunal, compounding fee was collected by fixing
the price of cashew kernel at Rs. 7 per Kg. whereas the assessee’s
counsel contended that the price fixed was at the rate of Rs.10 per Kg.
O.T.RV.7&12/09
In any case, we do not think there is any need for us to go into this
issue because compounding is not the dispute raised in these revisions.
In fact, suppression in quantity was admitted by the assessee and
compounding fee was paid after inspection. In the course of
assessment, the assessing officer found that the assessee was engaged
in undervaluation as well because sale price accounted was much
below the actual sale price. The assessing officer verified the details of
10 tins of cashew kernels sold to one Bombay party and found that the
actual sale price realised was Rs. 59.62 per Kg. and therefore actual
sale price was applied for estimating suppressed turnover. It is also to
be noted that receipt of unaccounted sale proceeds through bank
account was also detected and even though the assessee tried to explain
that credit in the bank represented amount received from his daughter
and son in the middle-east, he could not prove the same. In other
words, it is proved beyond doubt that the assessee was engaged not
only in quantum suppression but also in undervaluation as well.
Rejection of books of accounts and estimation of turnover were
confirmed in first appeal. However, the first appellate authority refixed
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the suppression at four times the stock variation in quantity and
directed to apply the value for 50% of the quantity at the rate estimated
by the assessing officer and for the balance quantity the first appellate
authority directed acceptance of the sale price returned by the assessee.
When further appeal was filed to the Tribunal, the Tribunal changed
the pattern of addition and fixed it at Rs.3 lakhs. So far as purchase
turnover is concerned, the Tribunal directed the assessing officer to
grant rebate under Rule 38(5) on 80% of the purchases under Section 6
(2) of the Act. State has filed revision challenging the relief granted by
the Tribunal. Assessee has filed revision contending that once the
offence is compounded under Section 74(1) no further addition in
assessment is called for under Section 74(2) of the Act.
3. On facts there is no controversy inasmuch as assessee itself
does not canvass for acceptance of books of accounts and the return
filed even though assessee has a case that after compounding no
estimation is permissible in assessment under Section 74(2) of the Act.
In other words, if Section 74(2) assessment is permissible by rejection
of books of accounts and by estimation of turnover because of the
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compounding, then assessee cannot dispute rejection of books of
accounts and estimation of turnover. What is stated in Section 74(2)
before amendment was as follows:
On payment of such amount under sub-section (1), no
further proceedings shall be taken against such person, in
respect of that offence.
By Amendment Act 22/2006 with effect from 1;.7.2006, Section 74(1)
stands amended as follows:
On payment of such amount under sub-section (1) no
further penal or prosecution proceedings shall be taken
against such person, in respect of that offence.
According to counsel for the assessee, prior to amendment, Section 74
(2) prohibited assessment also on estimation basis based on
compounding done. His further contention is that it is only after the
amendment, further action, which is prohibited under Section 74(2)
after compounding, was limited to penal and prosecution proceedings.
In other words, until amendment to Section 74(2) the above said sub-
section prohibited even any addition in assessment based on
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compounding. Government Pleader on the other hand contended that
Section 74(2) does not speak about assessment and speaks about penal
and prosecution proceedings. We are unable to accept the assessee’s
contention because in the first place Section 74 providing for
composition of offence falls under Chapter VIII which deals with
offences and penalties, whereas the provisions for assessment are
covered by Chapter V. Further in the Budget Speech introducing the
amendment it is specifically clarified that Section 74(2) does not refer
to assessment and amendment is only clarificatory. What was
prohibited after compounding under Section 74(2) even before
amendment is further proceedings that could be taken against a dealer
which obviously means proceedings further to detection of offence that
led to composition. Assessment of the dealer is indispensable under
the Act irrespective of whether the dealer is involved in any offence or
not. Therefore further proceedings referred to in Section 74(2)
pursuant to detection of offence and compounding thereafter cannot
refer to assessment proceedings which are permissible as provided
under Chapter V. We therefore hold that even prior to the amendment,
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prohibition contained in Section 74(2) does not deal with assessment at
all. So much so, rejection of books of accounts based on compounding
of offence by the assessee was perfectly justified.
4. Since the assessee has conceded that books of accounts were
not properly maintained and offence was compounded, assessee cannot
obviously canvass for the correctness of books of accounts. So far as
the challenge against the value adopted for assessment is concerned, we
feel the value fixed for the purpose of compounding at Rs. 7 per Kg. or
Rs. 10 per Kg. for cashew kernel is not binding on the Assessing
Officer. In this case, the assessing officer found from the assessee’s
own records show that average sale price for sales made to one
Bombay party was Rs.59.62. In fact Cashew Development Corporation
has confirmed to the department that the average market price during
the year was ranging from Rs. 46 to Rs.115/-. Even though counsel for
the assessee contended that the said communication was issued in
2007, we do not think the date furnished can be ignored particularly
when the same is corroborated with actual sale figures of assessee’s
sales to Bombay party. Even though the average sale price of cashew
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kernel based on the data of Cashew Development Corporation is
around Rs. 80/-, the average price adopted by the Officer from actual
sales made by the assessee during the relevant period is much below
the same. We are of the view that the first appellate authority as well
as the Tribunal are not justified in deviating from the actual sale figures
adopted by the assessing officer from the assessee’s own records which
also stand proved with the data furnished by the Cashew Development
Corporation.
5. The next question pertains to challenge against pattern of
addition sustained by the Tribunal. The suppression estimated by the
Officer at 12 times the actual suppression detected on one inspection
was above Rs. 25 lakhs. This was in fact reduced to around one third
by the first appellate authority at Rs. 8,54,728.48. There is nothing to
indicate from the Tribunal’s order the basis of their estimation of
suppressed turnover at Rs. 3 lakhs. Since we find no basis for the
Tribunal to change the pattern of addition, we feel four times the
quantity of suppression adopted by the first appellate authority is
perfectly in order, and we do not want to disturb the discretionary
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power exercised by him. However, four times the addition should be
on the quantity of suppression and the valuation of the suppressed
quantity should be uniformly adopted at the rate of Rs. 59.62 per Kg.
6. We do not think it is a fit case to consider the question raised
by the State whether Rule 38(5) will apply retrospectively because in
this case having regard to the modified additions sustained by us we do
not want to disturb the finding of the Tribunal on purchase tax
assessment. We direct the assessing officer to follow the Tribunal’s
order on this issue with the modification of the turnover as fixed above.
Tax Revision case filed by the assessee is dismissed and Tax
Revision Case filed by the State is partly allowed by modifying the
Tribunal’s order as above.
(C.N.RAMACHANDRAN NAIR)
Judge.
(P.S. GOPINATHAN)
Judge.
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