TaxTMI 
TaxTMI 
2026 (7) TMI 1440
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....erence on stock verification, based on trading account analysis, the value of the stock suppressed was determined to be Rs. 20,42,659/-. Adding 20% towards deemed profit and adding one time equal addition, for the total sum tax @ 5% and penalty @ 150% levied. For the above proposed assessment, the appellant was served with notice dated 31.08.2016. The appellant did not object to the assessment. The Final Assessment Order was passed on 22.05.2017, with tax effect of Rs. 2,64,728/- and penalty of Rs. 1,98,545/-. 3. Aggrieved by the order of assessment, the trader/appellant had preferred appeal before the Appellate Deputy Commissioner. The appeal, VAT A.P.No.43 of 2017 (2015-16), was partly allowed on 20.10.2021 with the following terms:- (i) The tax of Rs. 1,96,085/- on the unaccounted purchase of cotton yarn and the estimated suppressed turn-over, together with the equal addition of Rs. 1,96,085/- and 150% penalty of Rs. 14,706/- were set-aside and remanded to the Assessing Officer for re-examination and pass fresh order on merits affording opportunity of personal hearing. (ii) Upheld the assessment of tax on suppressed sales turnover based on the value of the s....
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....hether the Appellate Tribunal being a final fact finding authority has committed judicial impropriety in not following numerous orders by the Hon'ble Division Bench of the Madras High Court which held that equal time estimation cannot be sustained in the absence of stock variation made on notional trading method ? 5.Whether the Appellate Tribunal was wrong in sustaining the levy of penalty u/s. 27(3)(c) of TNVAT Act, 2006 of Rs. 1,83,839.00 for estimated stock difference found based on trading account method without proper physical verification of stock? 6.Whether the Appellate Tribunal was wrong in overlooking the settled proposition of law penalty cannot be levied under section 27(3)(c) of the TNVAT Act, 2006 in the absence of a specific finding that there was wilful nondisclosure of assessable turnover ? 7.Whether the Appellate Tribunal was equally wrong in ignoring the fact that the entire tax was paid by the petitioner even before the revision of assessment was made and in such circumstances, can there be a penalty levied under section 27(3)(c) of the TNVAT Act,2017 as held by the Division Bench of the Hon'ble Madras High Court in the case of Sri Vig....
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.... v. Sri Vinayaga Agencies reported in [2010] 27 VST 358. (ix) Sri Ramu Furniture Company vs. State of Tamil Nadu reported in [2013] 57 VST 383 (Mad). (x) S.V.Cycle Stores vs. Commercial Tax Officer, Vaniyambadi reported in [2011] 46 VST 565 (Mad). (xi) Nokia India Private Ltd vs. Deputy Commissioner (CT)-IV, Large Tax Payers Union, Egmore reported in [2015] 79 VST 137 (Mad). 9. In response, the Learned Government Advocate appearing for Taxes, contended that, Section 22 of the Act empowers authority to make best assessment in respect of suppressed turnover and impose one time equal addition. Section 27 provides for imposing penalty for the willful suppression. Hence in the case in hand, the trader who failed to maintain invoices of cotton yarn which is the raw material for the end product (hosiery garments) and failed to maintain stock register for the end product during the inspection by the inspection wing, based on stock verification following trading account method. The judgments cited not applicable to the cases arising from best judgment assessment. The power to impose equal addition and penalty is in-build in the statute. The willful suppression ....
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....ysical verification of stock? Discussion on substantial questions of law 12. In the final order of assessment dated 22.05.2017, the Assessing Authority had mentioned two defects found in his best judgment assessment, based on the Inspection Wing report. The two defects and the tax assessed are as follows:- Defect No.1 They have purchased cotton yarn from local registered dealers, manufacture hosiery goods and effect sales. The verification of the purchase bills with reference to the monthly returns filed found that they have not accounted for the following purchase of cotton yarn and availed the tax due on the tax value as follows. Name of the Seller Tin Purchase Bill No/Date Purchase amount Add Fright Add GP 20% AS Textiles 33492404743 204/31.08.15 Rs.160200 3204/- 32681/- Total Value Add Total Tax at 5% Penalty 150% Total Due 196085/- 196085/- 392170/- 19608/- 14706/- 34315/- They have to pay the amount. Defect No.2. They have not maintained stock register in form "H" prescribed under TNVAT Act 2006. The physical stock as on 28.03.2016 available in the place verified which resul....
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....arding suppression of purchase and failure to maintain Form H regarding stock, leading to disclosure of difference in physical stock and book stock. Both the defects are interrelated. Suppression of the purchase of cotton yarn, being the raw material and the omission to maintain the mandatory Form-H, being the end product. The Assessing Authority had placed on record, in detail, about the quantum of suppression of purchases and the excess of stock in hand. 16. Regarding non-accounting of purchases, the trader had contended before the Appellate Authority that, even though the purchases has not been reported in the returns, it has been duly accounted for in the books of accounts and reflected in the balance sheet which proves the fact that the yarn has been utilized for the manufacture of hosiery garments. The Appellant further argued that by not reporting in the returns, there is no loss of revenue to the Government but there is a loss to the appellant as the Input Tax Credit could not be claimed. Therefore, treating the non-reporting of purchases as sales suppression is not fair and reasonable. When such being the position, the equal addition made thereon for probable omission i....
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....ed view, the Trading Account Method for stock verification, though may not be accurate, when no other method of stock verification is possible, in such circumstances, Trading Account Method can be adopted. Variations arrived based on purchases, sales and stock reflected in the books of account and the actual physical stock found during the inspection, will certainly disclose suppression of stock, if any. The suppression so estimated if found to be willful that is sufficient to levy tax by adopting best judgment assessment. Consequently, penalty is also leviable under Section 27(3) if the suppression is willful. Insofar as equal additions towards probable omission are concerned, Courts in catena of judgments have held that there must be material available on record for warranting said additions. The authority should also assign reasons for levy of equal additions. 21. In Nokia India (P) Ltd vs. Deputy Commissioner (CT)-IV, Large Tax Payers Union, Egmore, Chennai and others reported in 2014 SCC Online Mad 8988, the Division Bench of this Court, after a deep analysis of the Expression "Best of judgment assessment" and the power under Section 22(4) to levy equal addition and under S....
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....r. In S. V. Cycle Stores [2011] 46 VST 565 (Mad), the Division Bench pointed out that addition under the head "equal addition" for probable omission, does not follow as an automatic, concomitant assessment on actual suppression ; merely because the assessee's explanation as regards the subsequent accounting of the unaccounted purchase had been rejected by the officer, that by itself, would not justify the equal time addition towards probable suppression. The honourable Division Bench in the case of S. M. Baba Sahib [1979] 44 STC 299 (Mad), while considering the correctness of the penalty imposed under section 16(2) of the TNGST Act, pointed out that a wilful non disclosure of assessable turnover is a necessary ingredient to make out a case of invoking sub-section (2) of section 16 of the TNGST Act, viz., a deliberate intention to suppress an assessable turnover which should, in fact, have existed. It was further held that it is not possible to say, merely from the fact that there has been a reassessment of escaped turnover on the basis of best judgment, that there has been a wilful non- disclosure of assessable turnover and there must be something to indicate that the turnover ....
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....es tax Act, 1947, pointed out, an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not be ordinarily imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation and penalty will not be imposed unless it is lawful to do so. Where penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. In the instant case, except for observing that there was wilful non-disclosure on the part of the petitioner, and but for the audit, the matter would not have come to light, the assessing authority did not examine as to whether the conduct of the petitioner/dealer was wilful. Further, the assessing officer has not assigned independent reasons as to the imposition of penalty on the entire demand, which essentially should have been done by the assessing officer." In cases where the Assessing Officer had not brought out the "willfulness" in the manner it has t....