2017 (7) TMI 581 - HC - VAT and Sales Tax

Legal obligations in tax assessment & penalties clarified in court ruling on individual & partnership firm

The court addressed challenges against assessment and penalty orders in two writ petitions involving an individual petitioner and a partnership firm for ... Penalty - purchase of Gold Bullion - suppression of facts - Held that: - there is no justification for the imposition of any penalty on the petitioner for the said assessment year since, as already noted above, it was the petitioner, who brought the discrepancy with regard to non-inclusion of the purchase turnover in the return for the month of December 2013 to the notice of the assessing authority, and hence, there was no deliberate suppression or misrepresentation by the assesse necessitating the imposition of a penalty for the said assessment year. I, therefore quash P5 (a) penalty order that is impugned in the writ petition. It is relevant to note in this connection that, by Ext.P1 notice dated 24.08.2016, the assessing authority had already initiated steps in connection with the completion of an assessment by requiring the petitioner firm to produce its books of account for verification. Although it is the case of the petitioner firm that it was only thereafter, and at the time of auditing the books of accounts of the firm, that it was noticed that the purchase turnover of gold bullion referred above was not included in the return filed by the partnership firm, I am of the view that, inasmuch as the realisation by the petitioner firm, of the omission, was only after the issuance of Ext.P1 notice to them, it is a case where the petitioner could not have been permitted to revise the return so as to cure the defects that were noticed by the assessing authority. The petitioner, therefore, had to suffer the consequences of any omission in the only valid return that was filed before the assessing authority. When so viewed, I do not find any illegality in the estimation that is done by the assessing authority while finding against the petitioner in Ext.P6 order that is impugned in W.P.(C).No.33522 of 2016 - In Ext.P6(a) order, the penalty that is imposed on the petitioner is double the tax levied. I modify Ext.P6(a) order by reducing the penalty imposed from ₹ 23,61,076/- to an amount of ₹ 1,00,000/-. Petition allowed - decided partly in favor of petitioner. Issues:1. Assessment and penalty orders challenged in two writ petitions.2. Alleged suppression of purchase turnover by petitioner in individual capacity and partnership firm.3. Discrepancies in filing returns and subsequent assessment actions by the assessing authority.4. Legal obligations of the petitioner under the Kerala Value Added Tax Act.5. Justification for assessment and penalty imposition.6. Revision of returns and assessment completion process.7. Penalty imposition based on Supreme Court precedent.Issue 1: Assessment and Penalty Orders ChallengedThe judgment addresses challenges against assessment and penalty orders in two writ petitions, one involving an individual petitioner and the other a partnership firm. The petitioner in the individual capacity initially conducted a gold jewellery business and subsequently formed a partnership firm with his wife. The partnership firm also faced assessment and penalty orders for alleged suppression of purchase turnover.Issue 2: Alleged Suppression of Purchase TurnoverThe petitioner in the individual capacity failed to declare gold bullion purchases in the returns for December 2013, leading to assessment and penalty proceedings. Similarly, the partnership firm omitted to indicate the purchase turnover in its returns despite bringing the purchases into the books of accounts. The assessing authority initiated actions based on these alleged suppressions.Issue 3: Discrepancies in Filing Returns and Assessment ActionsThe assessing authority issued pre-assessment notices and completed assessments against both the individual petitioner and the partnership firm. The petitioner in the individual capacity self-disclosed the omission, seeking to revise the returns, but the authority proceeded with assessments. The partnership firm realized the omission after a notice was issued, leading to penalties.Issue 4: Legal Obligations under the Kerala Value Added Tax ActThe judgment emphasizes the legal obligations of the petitioner to file accurate returns and undergo assessment under the KVAT Act, even after canceling the registration of the business concern. The assessing authority's actions were evaluated based on these statutory requirements.Issue 5: Justification for Assessment and Penalty ImpositionThe court assessed the justification for completing assessments and imposing penalties on the petitioners. It scrutinized the assessing authority's reasoning for resorting to estimation and penalty imposition, considering the circumstances of self-disclosure and the nature of the alleged suppressions.Issue 6: Revision of Returns and Assessment Completion ProcessThe judgment highlighted the importance of allowing revisions to returns to rectify discrepancies, especially when self-disclosed by the assesse. The court directed the assessing authority to permit the revision of returns for accurate assessment of tax liabilities.Issue 7: Penalty Imposition based on Supreme Court PrecedentThe court referenced a Supreme Court precedent regarding penalties for suppressed turnovers found in the books of accounts. It modified the penalty imposed on the partnership firm based on this precedent, reducing it to a specific amount in line with the legal interpretation.This detailed analysis of the judgment provides insights into the legal intricacies surrounding the assessment and penalty orders challenged by the petitioners, emphasizing statutory obligations, self-disclosure, assessment procedures, and penalty imposition criteria based on legal precedents.