Research › Search › Judgment

Madras High Court · body

2009 DIGILAW 3096 (MAD)

MAHADEVA IYER & SONS v. STATE OF TAMIL NADU.

2009-08-07

B.RAJENDRAN, FAKKIR MOHAMED IBRAHIM KALIFULLA

body2009
JUDGMENT B. Rajendran, J. - The assessee, who is a dealer in timber and tiles, has come forward with the present tax case. The assessee submitted its return for the assessment year 1989-1990 showing total and taxable turnover of Rs. 1,21,40,395.85 and Rs. 82,48,579, respectively in form A1 for the year ending March 31, 1990. The assessee is having their head office at No. 38, Kankodutha Pillaiyar Koil Street, No. 1 road, Mayiladuthurai and branches at Kumbakonam, Tuticorin and at three places at Chennai. The place of business of the assessee and also the residence of the dealer at T. Nagar, Madras were inspected by the Enforcement Wing Officials on January 11, 1991, April 16, 1991 and October 4, 1991. At the time of house search, 48 items of records such as files, bill books were etc., seized. The inspection conducted at Kumbakonam on January 11, 1991 resulted in recovery of 29 slips and 5 slips secured from the head office at Mayiladuthurai. Thereafter, in order to get the records verified with the accounts of the assessee, summons were issued on various dates by the Enforcement Wing Officials, but the assessee did not produce the accounts. In the meantime, the assessee filed W.P. No. 12614 of 1991 and based on the order dated October 1, 1991 passed by this court, 29 items of records were returned to the assessee with instructions to re-submit the same as and when called for by the Department. Subsequently, the assessee appeared for an enquiry on November 18, 1992. During the course of enquiry, statement of the assessee was also recorded by the Enforcement Wing Officials and copies of such statements recorded were handed over to the assessee. Ultimately, based on the report of the Enforcement Wing Officials, the Commercial Tax Officer passed a revised order of assessment in which the suppression was noticed as under : -------------------------------------------------------------------------- Purchase suppression detected Rs. 21,35,910.00 -------------------------------------------------------------------------- Add : Expenses as per slip AP 16/15.5.89 Rs. 20,000.00 -------------------------------------------------------------------------- Rs. 21,55,910.00 -------------------------------------------------------------------------- Add : Gross profit 9.73 per cent. as per books Rs. 2,09,770.00 -------------------------------------------------------------------------- Rs. 23,65,680.00 -------------------------------------------------------------------------- Add : Equal time for probable omissions Rs. 23,65,680.00 -------------------------------------------------------------------------- Total estimated suppressions escaped assessment liable at eight per cent. Rs. 47,31,360.00 -------------------------------------------------------------------------- Tax due at eight per cent. on Rs. 47,31,360 Rs. 3,78,508.80 -------------------------------------------------------------------------- (or) -------------------------------------------------------------------------- Rs. 3,78,509.00 -------------------------------------------------------------------------- Thereafter, surcharge was imposed at Rs. as per books Rs. 2,09,770.00 -------------------------------------------------------------------------- Rs. 23,65,680.00 -------------------------------------------------------------------------- Add : Equal time for probable omissions Rs. 23,65,680.00 -------------------------------------------------------------------------- Total estimated suppressions escaped assessment liable at eight per cent. Rs. 47,31,360.00 -------------------------------------------------------------------------- Tax due at eight per cent. on Rs. 47,31,360 Rs. 3,78,508.80 -------------------------------------------------------------------------- (or) -------------------------------------------------------------------------- Rs. 3,78,509.00 -------------------------------------------------------------------------- Thereafter, surcharge was imposed at Rs. 94,626, additional sales tax due at Rs. 70,970 and penalty under section 16(2) at 150 per cent. of the tax, surcharge and additional sales tax assessed at Rs. 8,16,151. A preliminary notice was issued and objections invited from the assessee. The notices were sent to the assessee by registered post but they were returned by the postal authorities stating "no such person". Then, the notice was served by affixture. Since the assessee has not come forward with any objections, the proposals contained in the preliminary notice was confirmed and a sum of Rs. 47,31,360 was imposed as total and taxable turnover estimated, which sum has escaped assessment and liable at eight per cent. along with surcharge, penalty, etc., by an order dated February 28, 1994. Aggrieved by the said order dated February 28, 1994, the assessee filed Appeal Nos. 392 of 1995 and 393 of 1995 before the Appellate Assistant Commissioner, Cuddalore, one against the original assessment order dated November 15, 1994 and the other against the revised assessment dated December 28, 1994. Before the Appellate Assistant Commissioner, the appellant pleaded that notice was not served as the assessee had closed the business by March 31, 1993 due to heavy loss. The total purchase of Rs. 2,07,24,938 as per list filed and adopted in the revised order is exclusive of the opening stock as on April, 1989 and therefore, there was no purchase suppression at all. The Appellate Assistant Commissioner, after an elaborate discussion modified the orders passed by the assessing officer in Appeal No. 392 of 1995, stating that there was difference about Rs. 7,00,000 in opening stock, Rs. 1,00,000 in purchases, Rs. 2,50,000 in closing stock. Further, the original assessment and revised assessment were made based on inaccurate details and the only dispute was with reference to opening stock and purchase. Ultimately, the Appellate Assistant Commissioner arrived at the net purchase value originally reported and the one which was subsequently reported as under : ----------------------------------------------------------------- Net purchase value originally reported Rs. 1,86,09,925 ----------------------------------------------------------------- Net purchase value subsequently reported Rs. 1,93,63,827 ----------------------------------------------------------------- Difference Rs. Ultimately, the Appellate Assistant Commissioner arrived at the net purchase value originally reported and the one which was subsequently reported as under : ----------------------------------------------------------------- Net purchase value originally reported Rs. 1,86,09,925 ----------------------------------------------------------------- Net purchase value subsequently reported Rs. 1,93,63,827 ----------------------------------------------------------------- Difference Rs. 7,53,902 ----------------------------------------------------------------- Therefore, the Appellate Assistant Commissioner added 50 per cent. of the difference of Rs. 7,53,902 as taxable turnover by adding 9.73 per cent. gross profit and refixed the turnover at Rs. 4,73,788. So far as penalty is concerned, the Appellate Assistant Commissioner found there was wilful suppression to the extent of Rs. 30,080 which is considered for levy of tax at 100 per cent. of the tax, surcharge and additional sales tax under section 16(2) of the TNGST Act and refixed at Rs. 2,406. In so far as Appeal No. 393 of 1995, the Appellate Assistant Commissioner gave benefit of doubt to the assessee by treating the sale made at Madras beyond the balance of surcharge and additional surcharge levied in the revision of assessment for 1989-90 is held to be sustained at Rs. 39,593. Similarly, the penalty levied was refixed by the Appellate Assistant Commissioner at 50 per cent. as already levied and fine at Rs. 59,390. To sum up, the Appellate Assistant Commissioner has granted the relief as under : --------------------------------------------------------------------- Tax SC ST Penalty --------------------------------------------------------------------- Rs. 3,40,606 Rs. 88,940 Rs. 70,970 Rs. 8,13,745 --------------------------------------------------------------------- Rs. 39,593 Rs. 59,390 --------------------------------------------------------------------- As against the said order dated June 14, 1996 passed by the Appellate Assistant Commissioner, the assessee has filed two appeals in T.A. No. 778 of 1996 and 779 of 1996. The Additional Assistant Commissioner has also filed an enhancement petition No. 66 of 1997 before the Tribunal to restore the assessment on a turnover of Rs. 42,57,572 and the consequent tax of Rs. 3,40,606, surcharge of Rs. 88,940, additional surcharge of Rs. 70,970 and penalty of Rs. 8,13,745. The Tribunal, after considering the various aspects in detail and on perusal of the records, set aside the order of the Appellate Commissioner rejecting the concession granted to the assessee and restored the orders of assessment passed by the assessing officer, including penalty. 3,40,606, surcharge of Rs. 88,940, additional surcharge of Rs. 70,970 and penalty of Rs. 8,13,745. The Tribunal, after considering the various aspects in detail and on perusal of the records, set aside the order of the Appellate Commissioner rejecting the concession granted to the assessee and restored the orders of assessment passed by the assessing officer, including penalty. The Tribunal also allowed the enhancement petition filed by the Additional Assistant Commissioner, hence, the present appeal is filed by the assessee against the common order dated December 21, 1998 passed by the Tribunal in Appeal No. 778 of 1996, 779 of 2006 and petition No. 66 of 1997. At the instance of the assessee, the following substantial questions of law were raised : "1. Whether there can be equal addition as sales suppression due to misclassification, unreasonable profit, incorrect reporting of taxable turnover and based on purchase omission, when the Tribunal held that for the purpose of levy of maximum penalty such equal addition not applicable. 2. Whether can there be equal addition as sales suppression when the inspection itself after the close of assessment year. 3. Whether the benefit of 50 per cent. to sales effected from Chennai on the total turnover granted to the levy of surcharge is also applicable to assessment relating to net purchase value representing both taxable sales and second sales. 4. Whether penalty be sustainable on surcharge, additional surcharge and additional sales tax for the year 1989-90, when the provision to impose penalty was introduced only by Act 31 of 1996. 5. Whether penalty at 150 per cent. is imposable in the circumstance of the case." The main ground urged by the learned counsel for the appellant before us is that the Tribunal has totally rejected all the relief granted to the assessee by the Appellate Assistant Commissioner and erroneously confirmed the levy of penalty at 150 per cent. Such enhancement of punishment, as he would call, by the Tribunal is not in accordance with law. The learned counsel would further contend that the imposition of additional sales tax and surcharge is not sustainable. To effectively adjudicate upon the issues involved in this appeal, certain facts are required to be mentioned. The assessee originally filed a return reporting a total and taxable turnover of Rs. 1,21,40,395.85 and Rs. The learned counsel would further contend that the imposition of additional sales tax and surcharge is not sustainable. To effectively adjudicate upon the issues involved in this appeal, certain facts are required to be mentioned. The assessee originally filed a return reporting a total and taxable turnover of Rs. 1,21,40,395.85 and Rs. 82,48,579, respectively in form A1 for the year ending March 31, 1990 and the same was ordered by the assessing officer by order dated November 30, 1990. Subsequently, the places of business of the assessee were inspected by the enforcement officials and during the course of search, records such as files, bill books were, etc., recovered. Thereafter, a notice was issued to the assessee to produce the books of accounts. The assessee, instead of producing the books of accounts has filed a writ petition before this court in W.P. No. 12614 of 1991 praying to direct the authorities to return 29 items recovered during the search and the same was also ordered by this court on October 1, 1991. Subsequently, the assessee appeared for an enquiry on November 18, 1992 and statements were recorded. On scrutiny of the document on records, the enforcement wing officials found that the assessee imported wooden logs from maleysia and sold in wholesale. Apart from such import of wooden logs, the assessee also purchased logs on high seas purchase from other similar importer and sold. According to the assessing officer, such sales are first sales at the hands of the assessee and are liable to tax. Though the assessee has paid customs duty and payment of costs of logs, the assessee failed to maintain day to day stock account for head office and six branches and godown as required under law. It was also found that the assessee had done business in other States and such sales were separately assessed under the Central Sales Tax Act, 1956 for the year 1989-90. It is pertinent to note that ultimately when final notice was issued and objections were invited by sending a notice under registered post, the same was returned with an endorsement "no such person". It was also found that the personal service was not possible as the assessee did not co-operate to receive the same. It is pertinent to note that ultimately when final notice was issued and objections were invited by sending a notice under registered post, the same was returned with an endorsement "no such person". It was also found that the personal service was not possible as the assessee did not co-operate to receive the same. Further it is stated that even the manager, who was authorised to file the return, did not co-operate and ultimately the summons were affixed at the last known place of business. As the assessee purposely avoided to produce the accounts and also failed to receive the summons, the assessing authority passed revised assessment under section 16(1) of the Tamil Nadu General Sales Tax Act, imposing surcharge and penalty. The assessee has filed an appeal before the Appellate Assistant Commissioner and succeeded in deleting a major portion of penalty and surcharge of tax on the ground that the opening stock was not deducted from the beginning. Not satisfied with such relief granted by the Appellate Assistant Commissioner, the assessee filed two appeals before the Tribunal and the Department also filed an enhancement petition including for penalty. The Tribunal came to the conclusion that since the assessee failed to disclose the net purchase value at the time of final assessment and the same were unfolded only during the inspection and house search conducted by the enforcement wing, it would be appropriate to take the entire difference relating to taxable first sale items and accordingly, the Tribunal determined the levy of tax on the sale value of Rs. 8,27,257 by adding gross profit of 9.73 per cent. to the net purchase value at Rs. 7,53,902. The Tribunal also rightly found that but for the recovery of records during the inspection and house search, the actual suppression might not have been disclosed by the assessee. In such view of the matter, the Tribunal deemed it fit to impose maximum penalty of 150 per cent. as the same is warranted in the facts and circumstance of the case. The Tribunal also found that the gross profit of 5.43 per cent. in respect of first sales is unbelievably low as it clearly indicated the misclassification of first sales as second sales. as the same is warranted in the facts and circumstance of the case. The Tribunal also found that the gross profit of 5.43 per cent. in respect of first sales is unbelievably low as it clearly indicated the misclassification of first sales as second sales. It was also found by the Tribunal that the Appellate Assistant Commissioner having observed that there has been misclassification of taxable first sales and non-taxable second sales, ought to have adopted the formula to restrict the second exemption claimed by the assessee or estimated the first sales by adding gross profit of 9.73 per cent. to the net purchase value or at least made the equal further addition to the actual first sales suppression of Rs. 8,27,257. The Tribunal therefore held that the scribbled figures of first purchase furnished by the assessee do not include the difference in net purchase value to the extent of Rs. 7,53,901.75, hence, the taxable first sales and non-taxable second sales turnover of the appellant were rightly refixed by the Tribunal. The substantial questions of law raised by the assessee in this appeal are only questions of fact and there is no question of law involved. On a careful consideration of the order of the Tribunal, it is clear that but for the inspection conducted by the enforcement wing officials, the suppression could have gone unnoticed and the intention of the assessee to suppress such a huge turnover is clearly established. When such intention is proved beyond reasonable doubt, the findings of the Appellate Assistant Commissioner giving benefit of doubt to the assessee, merely because the opening stocks were not properly taken into account, is unsustainable in law. Per contra, the Tribunal has rightly considered all the relevant materials and set aside the order passed by the Appellate Assistant Commissioner. The Tribunal has also rightly concluded that imposition of 150 per cent. of penalty is warranted in the facts and circumstance of the case especially when there is a huge and large scale suppression of the transaction on the part of the assessee. The order of the Tribunal is therefore fully justified and we do not find any reason to interfere with the same. of penalty is warranted in the facts and circumstance of the case especially when there is a huge and large scale suppression of the transaction on the part of the assessee. The order of the Tribunal is therefore fully justified and we do not find any reason to interfere with the same. In such circumstance, the question of law raised by the appellant that incorrect reporting of taxable turnover without equal addition was not applicable for the purpose of levy of maximum penalty has to be answered in favour of the Revenue. Consequently, the other questions of law raised by the assessee, which are only questions of fact, are also answered against the assessee, and in favour of the Revenue. In the result, the tax case fails and is dismissed. No costs.