Input tax credit and turnover additions fail when departmental material is withheld and primary records are not considered

Reversal of input tax credit could not be sustained where the department relied on undisclosed web data but did not furnish that material to the dealer, despite primary purchase records being produced; the addition was set aside for fresh adjudication. Alleged mismatches between purchase turnover in returns and the profit and loss account also failed for want of proper consideration of the dealer's explanation, so the matter was remitted. Receipts from warehouse and storage facilities, and the estimated turnover added for deletion of condemned articles, were likewise set aside because the assessment order did not deal with the supporting documents or explanations. The assessment orders and consequential penalty were therefore annulled and sent back for fresh speaking orders after hearing the assessee.

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Issues: (i) Whether reversal of input tax credit on the basis of undisclosed departmental web data was sustainable when the dealer had produced primary purchase records; (ii) whether the addition arising from the alleged mismatch between purchase turnover in the returns and the profit and loss account was justified; (iii) whether income received for providing warehouse and storage facilities to AMWAY constituted taxable turnover under the Act; and (iv) whether the estimated turnover added towards deletion of condemned articles was sustainable.

Issue (i): Whether reversal of input tax credit on the basis of undisclosed departmental web data was sustainable when the dealer had produced primary purchase records.

Analysis: The dealer had produced the original supporting records required for a claim of input tax credit under Rule 10(2) of the Tamil Nadu Value Added Tax Rules, 2007. The reassessment was founded on alleged mismatches derived from departmental website data, but those materials were neither supplied to the dealer nor made available for rebuttal. In such circumstances, the assessing authority could not sustain the reversal without furnishing the material relied upon and considering the dealer's explanation.

Conclusion: The reversal of input tax credit was not sustainable and the addition was set aside with a direction for fresh adjudication.

Issue (ii): Whether the addition arising from the alleged mismatch between purchase turnover in the returns and the profit and loss account was justified.

Analysis: The discrepancy was explained by freight charges and discounts received from suppliers, and supporting details had been placed before the assessing authority. The assessment order did not any meaningful consideration of that material or any proper analysis of the explanation offered. The absence of such examination rendered the addition unsustainable at that stage.

Conclusion: The issue was remitted for reconsideration on the basis of the materials already on record.

Issue (iii): Whether income received for providing warehouse and storage facilities to AMWAY constituted taxable turnover under the Act.

Analysis: The assessee relied on the service arrangement and related amendments to show that the receipts were for warehouse and storage facilities and not turnover liable to tax. The assessment order recorded no finding on the material produced or the explanation offered, and the issue was not examined on merits. Additional documents were also available for consideration before the assessing authority.

Conclusion: The issue was remitted for fresh consideration along with the relevant materials and additional evidence.

Issue (iv): Whether the estimated turnover added towards deletion of condemned articles was sustainable.

Analysis: The assessee asserted that the assets remained in stock until sold on 19.01.2015 and that the sale proceeds had already been offered to tax in a later year. The assessing authority proceeded on an assumption of earlier sale without addressing the documentary material or the assessee's specific explanation. The addition therefore lacked proper factual foundation.

Conclusion: The estimated addition was set aside and the matter was remitted for reconsideration.

Final Conclusion: The assessment orders and the consequential penalty were set aside, and the matters were sent back for fresh speaking orders after affording the assessee a hearing and consideration of the record.

Ratio Decidendi: A tax assessment cannot be sustained when material relied upon by the department is not supplied to the assessee and the assessment order discloses no proper consideration of the assessee's primary records and explanations; such non-consideration vitiates the order and warrants fresh adjudication.

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