2025 (10) TMI 3 - HC - VAT / Sales Tax

Tax authority's suppression findings on purchases, sales and stock restored; late 'coolie conversion' plea rejected, AO order reinstated

The State of Tamil Nadu, Represented by The Deputy Commissioner (C.T), Tirunelveli Versus Tvl. Alagar Jewellery Mart

MADRAS HIGH COURT (HC) upheld the Assessing Officer's determination of suppressed turnover, finding large-scale suppression in purchases, sales and stock ... Suppression of purchases and sales - Deletion of additions by accepting the plea of coolie conversion - Tribunal failed to note that the dealers had not produced any evidence to prove that the entries found in the pocket notebook were only details relating to “coolie conversion” - contradictory orders for 3 (three) different assessee sister concerns - suppression of turnovers - HELD THAT:- The inspection on 14.11.1996 disclosed not isolated defects but largescale suppression in purchases, sales, and stock. The private notebooks clearly revealed transactions outside the books. The respondent admitted the discrepancies at the time of inspection. An admission made in such circumstances carries great weight and cannot be lightly ignored. Once the materials seized and the admission established suppression, the burden lay on the respondent to show that these were only job work transactions. No such supporting evidence was produced. The plea of “coolie conversion,” raised only at the appellate stage, is therefore unconvincing. The Assessing Officer, who had the benefit of examining the seized records and the statement of the dealer at the time of inspection, was justified in assessing the suppressed turnover. The Appellate Assistant Commissioner and the Tribunal accepted the explanation without insisting on corroborative proof. In the absence of any material to displace the findings of the Assessing Officer, their interference was not justified. On these facts, the assessment made by the Assessing Officer was proper and supported by evidence. The deletion of turnover by the appellate authorities cannot be sustained. The order of the Assessing Officer is restored. The orders of the Appellate Assistant Commissioner and the Tribunal are set aside. The Tax Case Revision is allowed. The substantial questions of law are answered in favour of the Revenue. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Assistant Commissioner and the Tribunal were justified in deleting additions to turnover where inspection revealed large-scale suppression in purchases, sales, and stock, supported by seized private notebooks and an admission at inspection. 2. Whether an explanation of 'coolie conversion' (job work) raised only at the appellate stage, without contemporaneous records (vouchers, receipts, acknowledgments) or entries passed through accounts, can rebut seizure evidence and an admission made at inspection. 3. Whether the assessing authority's findings based on inspection records, seized materials, and admission can be displaced on appeal in the absence of corroborative evidence produced by the dealer. 4. Whether penalty and consequent tax levies founded on established suppression are warranted and whether appellate interference with such levies is permissible when no concrete evidence is produced to displace the assessing officer's conclusion. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of deletion of additions where inspection disclosed largescale suppression supported by seized notebooks and admission Legal framework: The assessing authority may assess suppressed turnover when inspection uncovers undisclosed purchases, sales, and stock variations. Admissions made at the time of inspection and seized records form admissible material supporting assessment. Precedent Treatment: The Court treated the assessing authority as the primary fact-finder with the advantage of contemporaneous examination of seized records and statements; appellate authorities must not overturn such findings without compelling contrary material. Interpretation and reasoning: The inspection disclosed systematic discrepancies (unrecorded issues to goldsmiths, omitted sales, unaccounted purchases, and stock variations) totaling substantial suppression. Private notebooks seized at inspection quantitatively linked outward transfers to receipts returned by goldsmiths, and the respondent admitted discrepancies at inspection. The Court held that these concurrent materials and admission establish suppression prima facie and place the burden on the dealer to rebut. Ratio vs. Obiter: Ratio - where inspection uncovers largescale, coherently corroborated suppression and admission, appellate deletion of assessed additions is improper absent substantive rebuttal. Obiter - none material to this issue beyond reinforcing the weight of contemporaneous admissions. Conclusions: The Assessing Officer's additions were proper and supported by evidence; the appellate deletion of turnover cannot be sustained. Issue 2 - Sufficiency of 'coolie conversion' plea raised only at appeal without contemporaneous documentary support Legal framework: Explanations offered by a dealer to negate turnover (e.g., job work/coolie conversion) must be supported by records (vouchers, receipts, acknowledgments) and, where relevant, be contemporaneous to the transactions; late explanations may be regarded with suspicion. Precedent Treatment: The Court followed the principle that afterthought explanations at appellate stage are suspect, particularly where no supporting documentary evidence was produced at the time of inspection or thereafter to substantiate the claim. Interpretation and reasoning: The respondent did not raise the job work plea during inspection and produced no independent evidence showing entries in pocket notebooks represented mere job work rather than sales. The plea emerged only on appeal after assessment based on D7 records, indicating an afterthought aimed at escaping liability. The Court found the absence of supportive vouchers or acknowledgment fatal to the plea's credibility. Ratio vs. Obiter: Ratio - a plea of job work raised only at appellate stage without contemporaneous or corroborative documentation cannot displace inspection-based findings and admissions. Obiter - the Court noted such conduct suggests accounts were manipulated post-inspection, strengthening inference of deliberate suppression. Conclusions: The 'coolie conversion' plea was unconvincing and insufficient to rebut the assessing officer's findings; appellate acceptance of that plea was erroneous. Issue 3 - Scope of appellate interference with assessing officer's findings based on inspection and seized materials Legal framework: Appellate authorities may review assessments but should not substitute their conclusions for the assessing officer's findings where the latter had the advantage of examining seized records and the assessee's contemporaneous statements, and where no new, concrete material displaces those findings. Precedent Treatment: The Court reaffirmed the assessing officer as the best judge of inspection evidence and held appellate intervention unjustified absent material demonstrating error in the initial assessment. Interpretation and reasoning: The Assessing Officer examined seized notebooks and obtained admissions at inspection; in contrast, the appellate authorities accepted a retrospective explanation without insistence on corroborative proof. The Court reasoned that, in the absence of material to displace the assessing officer's findings, appellate interference was not justified. Ratio vs. Obiter: Ratio - appellate authorities must require corroborative evidence before overturning inspection-based assessments; absent such evidence, assessments should be restored. Obiter - the Court emphasized that failure to produce accounts contemporaneously undermines later attempts to reconstruct records. Conclusions: The Appellate Assistant Commissioner's and Tribunal's deletions were unjustified; the assessing officer's order was restored. Issue 4 - Levy of penalty consequent to established suppression and propriety of appellate modification Legal framework: Where suppression of turnover is established, levy of tax and penalty follows as warranted by statute and assessment; appellate authorities cannot negate penalty where the foundational suppression stands unrebuffed. Precedent Treatment: The Court treated penalty as consequential to properly assessed suppression and affirmed that removal of penalty requires displacement of the underlying finding of suppression by evidence. Interpretation and reasoning: Given the Court's conclusion that suppression was established by seized records and admission and that the assessing officer's assessment was proper, the Court inferred that penalty levied consequent to such assessment was warranted. Appellate modification removing turnover necessarily undermined lawful imposition of penalty without supporting proof to do so. Ratio vs. Obiter: Ratio - penalty and tax consequences flow from established suppression; appellate modification of such consequences without evidentiary basis is unsustainable. Obiter - none beyond the logical consequence that restoring assessment reinstates associated penalties. Conclusions: The levy of penalty is warranted given the sustained finding of suppression; appellate modification removing the taxable turnover and associated penalty was set aside.