2016 (7) TMI 921 - HC - Income Tax

Partnership firm's tax assessments upheld despite reliance on Section 133A statement

The court upheld the assessments for the appellant partnership firm in the furniture business for the years 2002-2003 and 2008-2009, despite the challenge ... Assessment based only on the statement under Section 133A - Levy of penalty under Section 67 of the KVAT Act - finding of excess stock and suppression of sale - Held that:- It is seen that the Revenue relied on letter dated 18.09.2007 issued by V. Ahammed to the Assistant Director of Income Tax (Investigation) clarifying his statement under Section 133A of the Act. This shows that the maker of the statement himself has re-affirmed the statement and nothing has been produced by the assessee to show that the contents of the statement are incorrect. In such a situation, we cannot accept the contention now raised by the learned counsel for the assessee and hold the assessments to be illegal. During the course of hearing, the learned for the appellant produced before us order No.TRL-08/06-07 dated 08.08.2007, whereby the penalty proceedings under Section 67 of the Act were compounded by the assessee on payment of ₹ 28000/- as compounding fee which shows that the total suppression detected was only ₹ 2,10,595/-. This means that the penalty proceedings were initiated on the basis that there was excess stock of ₹ 14,38,785. In the final order that was passed, the said amount is now reduced to ₹ 2,10,595. Since the assessment under the Income Tax Act has been completed quantifying the suppression of sale based on the excess stock detected in the inspection conducted by the authorities under the KVAT Act on 17.08.2006, the reduction in the excess stock as seen in the final order passed in the proceedings under Section 67of the KVAT Act, should have an impact on the assessment under the Income Tax Act also. Therefore, though we confirm the orders impugned before us, we are of the view that the assessee is entitled to get the benefit of the reduced excess stock as determined by the authorities of the KVAT Act in their order No.TRL- 08/06-07 dated 08.08.2007. For that matter, we remit the proceedings to the Assessing Officer, who will issue revised orders taking into account the order dated 08.08.2007 passed by the Intelligence Officer, Squad No.II, Tirur. The appeals are accordingly disposed of remitting the matter to the Assessing Officer to pass fresh orders as directed above. Issues:Assessment based on statement under Section 133A, reliance on KVAT Act proceedings, quantification of suppression of sale.Assessment based on statement under Section 133A:The appellant, a partnership firm in the furniture business, challenged assessments for the years 2002-2003 and 2008-2009. The appellant argued that assessments solely relying on a statement by a salesman under Section 133A without corroborative evidence are illegal. Citing case law, the appellant contended that such statements lack evidentiary value due to the absence of oath during recording. The court referred to precedents emphasizing the limited evidentiary value of Section 133A statements. However, the Revenue supported the assessment, highlighting additional evidence like KVAT Act proceedings and a letter reaffirming the statement. The court acknowledged the reliance on other evidence and upheld the assessments.Reliance on KVAT Act proceedings:The Revenue's case included reliance on proceedings under the Kerala Value Added Tax (KVAT) Act, specifically penalties imposed for stock suppression. The assessment order detailed how the suppression of sale was calculated based on excess stock detected during a KVAT inspection. The court noted the connection between KVAT Act findings and the Income Tax Act assessment. The appellant later presented a reduced suppression amount from KVAT proceedings, leading the court to remit the case to the Assessing Officer for revised orders considering the updated KVAT findings.Quantification of suppression of sale:The assessment quantified the suppression of sale by the appellant based on excess stock detected during a KVAT inspection. The court recognized the assessment's basis on the KVAT findings and the subsequent reduction in the suppression amount as per the final KVAT order. Acknowledging the impact of reduced excess stock on the Income Tax Act assessment, the court remitted the matter to the Assessing Officer for revised orders within six months. The appellant was granted the benefit of the reduced excess stock as determined by the KVAT authorities.