2018 (12) TMI 297 - HC - VAT and Sales Tax

Judgment favors Revenue on tax issues, assesses proof of income source, evidence requirements

STATE OF KERALA Versus SRI. P. KANDANKUTTY AND SONS

The judgment partially allowed the revisions without costs, favoring the Revenue on issues one and three, and ruling in favor of the assessee on issue ... Liability of Sales tax - transaction of sale taking place or not - source of miscellaneous income not proved - addition made on Gross Profit - Held that:- Unless there was sufficient material to show that a particular transaction was one of sale of goods, there could be no turn over addition made for the purpose of imposition of Sales Tax. For the purpose of levy of sales tax, it would be necessary to show not only that the source of money has not been explained but also the existence of some material to indicate that the acquisition of money by the assessee has resulted from transactions liable to sales tax and not from other sources. The assessee herein had taken a specific contention with respect to the miscellaneous income being income generated from real estate business; which could be easily proved by production of documents. The assessee having failed to so prove the transactions which geerated the income, with documents and materials available with the assessee, the Assessing Officer was perfectly justified in drawing an adverse inference - decided in favor of Revenue. Addition made on Gross Profit - Held that:- The books of accounts shows the amounts as miscellaneous income. The income if derived from the dealership, would definitely include gross profit. The addition made of gross profit, to the income disclosed, is not sustainable - decided in favor of Assessee. Decided partly in favor of Revenue. Issues:1. Tribunal's deletion of additions made by the Assessing Officer regarding miscellaneous income.2. Tribunal's deletion of additions based on the Assessing Officer's failure to conduct an enquiry and reliance on supporting materials.3. Obligation of the assessee to prove the source of income derived from Real Estate business.Analysis:Issue 1:The State filed revisions challenging the Tribunal's order regarding the addition of miscellaneous income as taxable turnover. The Tribunal directed the Assessing Officer to conduct an enquiry to determine if the income was derived from transactions subject to Sales Tax. The State contended that the burden of proof lay on the assessee to show the income was not taxable, which the assessee failed to discharge. The Tribunal relied on legal precedents to distinguish between income tax and sales tax liabilities.Issue 2:The Tribunal deleted the additions made by the Assessing Officer due to the failure to conduct an enquiry as directed. The State argued that the Assessing Officer had the authority to proceed with the assessment based on best judgment if the source of income was not explained. The assessee relied on legal cases to support the argument that without sufficient material indicating a taxable transaction, no turnover addition could be made for Sales Tax purposes.Issue 3:The assessee claimed the income was from Real Estate business but failed to provide evidence to support this claim. The Assessing Officer, in the absence of proof, assumed the income was from the dealership, which attracts Sales Tax. Legal principles regarding the burden of proof in tax proceedings were discussed, emphasizing the need for the assessee to substantiate claims with evidence. The judgment favored the Revenue on issues one and three, while ruling in favor of the assessee on issue two.The judgment concluded by partially allowing the revisions without costs. The detailed analysis considered legal precedents, burden of proof, and the obligation of the assessee to substantiate claims, ultimately upholding the State's position on the additions made to the taxable turnover.