BHIMA JEWELLERS v. STATE OF KERALA. — 1994 DIGILAW 446 (KER)

JUDGMENT T. L. VISWANATHA IYER, J. - These tax revision cases relate to the assessments made on the petitioner for the years 1987-88 and 1988-89 under the Kerala General Sales Tax Act, 1963 ("the Act"). The assessments were completed to the best of the assessing authority's judgment, based on an inspection on May 16, 1987 in regard to the assessment year 1987-88 and on September 2, 1988 in relation to the assessment year 1988-89. 2. We shall deal with the assessment for 1987-88 in the first instance. It was alleged that the inspection on May 16, 1987 revealed discrepancy between the stock on hand and the stock as per the accounts, the value of which was determined at. Rs. 49,293. The assessing authority rejected the accounts in consequence and made an addition of 60 per cent of the returned turnover towards omissions and suppressions. That amounted to Rs. 2,80,73,389. On appeal the Deputy Commissioner confirmed the rejection of the accounts, but reduced the addition to 30 per cent of the turnover conceded. The Appellate Tribunal on second appeal felt that the addition was excessive and reduced it to 2 per cent of the turnover conceded. Petitioner contends that this addition is excessive. 3. We heard the counsel for the assessee and also counsel for the department. We find that adequate reasons are not made out for interference with the order of the Appellate Tribunal in this case. The Tribunal has discussed the matter from various angles, and come to the conclusion that having regard to the facts disclosed at the inspection and otherwise, an addition of 2 per cent of the returned turnover is necessary. We are not inclined to interfere with this addition in a proceeding under section 41 of the Act, no question of law or any arbitrariness being involved. T.R.C. No. 157 of 1992 is therefore dismissed. 4. We now come to the assessment for 1988-89. In fact the serious challenge before us was to the assessment made for this year. There was an inspection of the petitioner's business premises on September 2, 1988 when, it is alleged, stock discrepancy was noted to the extent of 470.160 grams of gold valued at Rs. 1,39,637. The Intelligence Officer who inspected the premises also found certain jewels having weight of 2,336.150 and 523 grams respectively kept separately in the safe. There was an inspection of the petitioner's business premises on September 2, 1988 when, it is alleged, stock discrepancy was noted to the extent of 470.160 grams of gold valued at Rs. 1,39,637. The Intelligence Officer who inspected the premises also found certain jewels having weight of 2,336.150 and 523 grams respectively kept separately in the safe. According to the assessee, these jewels had been received that day from M/s. Shantilal & Sons, Jewellers, Nellore, who had despatched the jewels through messenger on August 31, 1988. Another small quantity of 49.780 grams of gold ornaments out of a quantity of 66.600 grams received from Jewel Craft Corporation, Bombay, along with issue voucher dated August 17, 1988 was also in the safe. These items received from Nellore and Bombay had not been entered in the accounts. The assessee's case was that it had received the jewels from Nellore just before the inspection on September 2, 1988 and had kept them separate for verification of the purity, quantity and quality. SO also the Bombay jewels. It was for this reason that these jewels had not been entered in the books by the time the inspection took place on September 2, 1988. In the view that these jewels had been deliberately suppressed from the accounts, and that it was suppressed stock, the assessing authority held the stock discrepancy to be Rs. 10,61,289, by adding the value of the stock received from Nellore and Bombay, viz., Rs. 8,63,952 to the stock discrepancy of Rs. 1,39,637 noted on inspection. In consequence the assessing authority made an estimate of the taxable turnover of the assessee at six times the average running stock, the turnover so determined being Rs. 9,14,43,550 as against the turnover of Rs. 5,10,08,000.31 returned by the assessee. It may he mentioned here itself that though the turnover was estimated at six times of the average running stock, viz., the average of the opening stock of gold on April 1, 1988 and closing stock on March 31, 1989, the Intelligence Officer at the time of inspection had found that the assessee had only 70 per cent of the average running stock with it at the time of the inspection. 5. The appeal before the Deputy Commissioner (Appeals) was dismissed. 5. The appeal before the Deputy Commissioner (Appeals) was dismissed. But the Tribunal in second appeal reduced the addition from six times the average running stock to five times the average running stock, thereby determining the taxable turnover at Rs. 7,65,93,425. The result of the Tribunal's decision was that there was still an addition of over Rs. 2.5 crores to the conceded turnover of the assessee. In effect the turnover estimated was 150 per cent of the turnover returned which as mentioned earlier was about Rs. 5.1 crores. 6. The assessee challenges this order of the Tribunal. The assessee does not seriously canvass for acceptance of the books of account, in view of the discrepancy found at the time of the inspection. However, the assessee submits that the stock difference found could not be treated as suppressed or unaccounted stock. The assessee has also a substantial grievance that the Intelligence Officer and the assessing authority had wrongly proceeded to treat the gold received from Nellore and Bombay valued at Rs. 8,63,952 as unaccounted stock. The assessee therefore submits that even if there is a case for estimation of turnover, it cannot be to the extent sustained by the Appellate Tribunal of an addition of over Rs. 2.5 crores. 7. We shall first deal with the question whether the stock received from M/s. Shantilal & Sons, Nelloye, could be treated as unaccounted or suppressed stock of the assessee. The assessee's case was that the jewels were received from M/s. Shantilal & Sons on September 2, 1988, after they were despatched from Nellore through messenger on August 31, 1988. The jewels were received just prior to the inspection and since they had to be verified for their purity, quality and quantity, the receipt had not been entered in the accounts by the time the inspection took place. The Tribunal chose to reject the assessee's explanation on the ground that the assessee's manager had not mentioned at the time of the inspection that the jewels had been received only on that day. But in doing so, the Tribunal omitted to note that the documents seized by the Intelligence Officer included the documents pertaining to the purchase from M/s. Shantilal & Sons, namely, their seller and their gold issue vouchers dated August 31, 1988 which contain the seal of the Central excise authority at Nellore. But in doing so, the Tribunal omitted to note that the documents seized by the Intelligence Officer included the documents pertaining to the purchase from M/s. Shantilal & Sons, namely, their seller and their gold issue vouchers dated August 31, 1988 which contain the seal of the Central excise authority at Nellore. These documents had been scaled by the Intelligence Officer and signed by him. They were produced before the Tribunal and were also shown to us. These documents are referred to in the shop inspection report which was prepared by the Intelligence Officer on the spot. With these documents in the premises at the time of inspection, it could not he said that the assessee's explanation about the ornaments received from M/s. Shantilal & Sons, Nellore, is an afterthought or that the explanation was not a bona fide one. In fact, if the despatch from Nellore was only on August 31, 1988, as is clear from the Central excise seal, they could have been received by the assessee only on September 2, 1988 having regard to the distance and the lack of direct communication from Nellore to Ernakulam. We are therefore of the opinion that the Tribunal was wrong in rejecting the explanation put forward by the assessee regarding the non-accounting of these jewels received from M/s. Shantilal & Sons, Nellore, in the records at the time of inspection. The explanation according to us is valid and should have been accepted by the Tribunal. 8. Similar is the case of the jewels received from Bombay. No doubt the issue voucher is dated August 17, 1988 and it contains the seal of the Bombay excise. The jewels were received by the assessee only long later. This voucher was also available at the time of inspection. In the circumstances, we do not find any reason not to accept the assessee's explanation, as in the case of the Nellore jewels. In any case, the value of the Bombay jewels is only about Rs. 19,000. 9. The Tribunal has therefore erred in treating the stock received from Nellore and Bombay as suppressed items. An amount of Rs. 8,63,952 should therefore be deducted from the value of the alleged stock discrepancy on September 2, 1988. 10. The only other item of discrepancy that remains to be examined is the stock difference of 470.160 grams. 19,000. 9. The Tribunal has therefore erred in treating the stock received from Nellore and Bombay as suppressed items. An amount of Rs. 8,63,952 should therefore be deducted from the value of the alleged stock discrepancy on September 2, 1988. 10. The only other item of discrepancy that remains to be examined is the stock difference of 470.160 grams. The total stock holding of the assessee at the time of inspection was 63,287.350 grams of gold. The difference of 470.160 works out to 0.74 per cent of this quantity. There is no material to show that this discrepancy pertained to a single day. It has been recognised by the Board of Revenue itself that difference in weightment and other factors can result in difference in stock up to 2 per cent of the stock on hand. It is true that the circular issued by the Board of Revenue on this point is not applicable to the assessee. But the fact remains that accumulated differences in weightment, and other factors, can over a period of time result in difference between the stock on hand and the stock as per accounts. It can particularly be so in the case of the assessees with large holdings as in the case of the assessee before us whose stock on hand itself exceeded 63,000 grams. At the same time, having regard to this discrepancy, it is not possible to hold that the book results have to be accepted. But this is a factor to he reckoned in estimating the turnover of the assessee to the best of judgment and the whole of the difference cannot be treated as suppressed stock. This factor is one relevant to be considered while estimating the turnover of the assessee for the year. 11. A perusal of the orders of the authorities below shows that none of them had applied its mind to this aspect of the matter. We have already mentioned that the authorities below proceeded on the basis that the stock received from Nellore and Bombay is also an item of suppressed stock and that it has to be taken into account in estimating the turnover. We have accepted the explanation of the assessee regarding this stock and therefore that item has to be eschewed from consideration while estimating the turnover. We have accepted the explanation of the assessee regarding this stock and therefore that item has to be eschewed from consideration while estimating the turnover. So far as the stock difference of 470.160 grams is concerned, we have already indicated that the entire quantity of 470.160 grams cannot be treated as suppressed stock. The Tribunal will have to make a reasonable, estimate as to what portion of it could be treated as unaccounted stock. The addition made to the turnover is over Rs. 2.50 crores whereas even accepting the entire difference of 470.160 grams as suppressed stock, the alleged suppression will be only Rs. 1,39,637. Even assuming that the Nellore and Bombay jewels had to be taken into account, still the estimate of turnover is arbitrary and out of all proportion to the alleged suppression of Rs. 10,61,289. The addition made is, on the facts, unreasonable, oppressive and arbitrary and cannot be sustained. 12. The order of the Tribunal for the year 1988-89 has therefore to be set aside and the matter remitted back to the Tribunal for re-determining the quantum of turnover, liable, to be assessed. We dismiss T.R.C. No. 157 of 1992 relating to the assessment 1year 1987-88. We allow T.R.C. No. 158 of 1992 and remit the matter back to the Appellate Tribunal for determining the taxable turnover afresh for the year 1988-89 in the light of the observations contained in this judgment. There Will be no order as to costs. Since the assessment is of the year 1988-89, the Tribunal shall expedite the bearing, and dispose of the case within a period of three months from the date of receipt of a copy of this judgment. Ordered accordingly.