THE PRINCIPAL COMMISSIONER OF INCOME TAX vs. M/S. NORTH MALABAR GRAMIN BANK

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS TUESDAY, THE 12TH DAY OF JANUARY 2021 / 22TH POUSHA, 1942 OT.Rev.No.41 OF 2016 AGAINST THE ORDER/JUDGMENT IN TAVAT 37/2015 DATED 30-09-2015 OF VALUE ADDED TAX APPELLATE TRIBUNAL,ADDITIONAL BENCH,PKD REVISION PETITIONER/S: STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM BY SR G P SHAMSUDDIN V K. RESPONDENT/S: M/S.MINAR ALLOYS & FORGINGS(P)LTD 8/615C, NIDA, KANJIKODE, PIN:678621. R1 BY ADV. SRI.K.P.ABDUL AZEES R1 BY ADV. SMT.T.ARCHANA R1 BY ADV. SRI.K.VINEESH OTHER PRESENT: AKHIL SURESH FOR RSPDT THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 12.01.2021, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:

O.P.Rev. No.41/2016 -2- O R D E R Dated this the 12th day of January 2021 S.V.Bhatti, J. Deputy Commissioner (Law), Commercial Taxes, Ernakulam is the petitioner and present O.T. Revision is filed challenging order dated 30.09.2015 of Kerala Value Added Tax Additional Appellate Tribunal, Palakkad. 2. M/s. Minar Alloys & Forgings (P) Ltd., is a registered dealer and an assessee under Kerala Value Added Tax Act (for short 'KVAT Act'). The present revision concerns the returns filed for the Assessment Years 2010-11. The respondent filed return showing the taxable turnover for the assessment year 2010-2011 at Rs.25,14,07,555.66. The Assistant Commissioner (Assmt.), Special Circle, Commercial Taxes, Palakkad issued

O.P.Rev. No.41/2016 -3- notice of assessment under Section 25(1) read with Section 25A of the KVAT Act dated 22.05.2013. The notice refers to three heads of alleged suppression of sales turnover by the dealer and in the subject revision the issue relates to an entry shown in Profit and Loss account under the head Other Income noted as sundry creditor written off of Rs.3,01,69,858/-. According to the Department, the said amount of Rs.3,01,69,858/- forms part of sales turnover and either the said amount escaped assessment or is suppressed by the dealer. To appreciate the basis of proposed inclusion of Rs.3,01,69,858/- and the reply of respondent we find it convenient to excerpt the following portions from the show cause notice dated 22.05.2013 and reply dated 18.06.2013 of respondent read as follows: “On verification of the audited statement in Form 13 & 13A with reference to Profit & Loss account, the dealer has disclosed an amount of Rs.3,01,69,858/- under the head Other Income noted as sundry creditor written off. No explanation has been given to the income received. Hence the amount will be added to the

O.P.Rev. No.41/2016 -4- sales turnover conceded and will be assessed to tax. xxx xxx xxx We have written off an amount of Rs.3,01,69,858/- this was carried out as per the Assessment order issued by the IT Dept. We are ready to submit detailed information for the same. Please allow us more time to produce all the details related to creditor written off.” 3. The assessing officer disbelieved the reply of respondent by noting that the basis for such inclusion is that the dealer though has furnished the list of sundry creditors showing the amount, no other evidence is produced to substantiate the claim that it is a notional entry and not actual turnover in any form falling within the purview of Section 8 of the KVAT Act. The assessing officer concluded thus: “Another issue as pointed out in defect No.II (2) regarding the receipt of Rs.3,01,69,858/- under the head Other Income noted as sundry creditor written off. In the reply, the dealer stated that this was carried out as per the assessment order issued by the IT Department. The dealer also furnished list of sundry creditors showing the amount, but no other evidences were produced in order to substantiate the claim. Hence the contention in this

O.P.Rev. No.41/2016 -5- regard is rejected.” 4. The assessing officer finally determined the tax and interest payable by the respondent at Rs.19,84,425/-. The dealer carried the matter in appeal KVATA No. 2666 of 2013 before the Deputy Commissioner (Appeals)-I, Kottayam. The Appellate Authority upheld the inclusion of Rs.3,01,69,858/- in the total turnover of the dealer and modified the order of penalty imposed from two times to one time. The Department and assessee filed T.A.(VAT) No.37 of 2015 and 84 of 2015 before the Appellate Tribunal. The Appellate Tribunal through order in Annexure C dated 30.09.2015 dismissed the appeal filed by the respondent filed questioning the levy of penalty and allowed the appeal filed by the respondent including the alleged written off secured creditor to sales turnover. The Appellate Tribunal referred to the judgment of Supreme Court in

O.P.Rev. No.41/2016 -6- Giridharilal Nannelal v. Sales Tax Commissioner1 and applying the ratio laid therein, to the facts on hand the Tribunal held that the onus is on the Department to prove that the Other Income amounting to Rs.3,01,69,858/- represented profit from the sales or sales turnover as such. The onus was not discharged by the Department and, therefore, it cannot be said that the description of Other Income shown in the audited statement; Profit and Loss account form part of turnover and such turnover escaped assessment and consequently is taxable. The Department aggrieved by the order in TA (VAT) No. 37 of 2015 is in revision before us. The questions framed for consideration read thus: 1. Whether Annexure C order passed by the Tribunal is in accordance with law? 2. Whether the finding of the Tribunal that the suppression of sales has to be proved by the Revenue is correct or not? 3. Whether the findings of the Tribunal that the Department has failed to take note of the fact that the 'burden' of proof in respect of sales suppression is on the assessee and not on the Department? 1 (1977) 39 STC 30

O.P.Rev. No.41/2016 -7- 5. The learned Senior Government Pleader Shamsuddin referring to the conclusions recorded by the assessing officer and the appellate authority argues that the finding recorded by the Tribunal is completely erroneous. The Tribunal, while recording the finding that the Department failed to discharge the onus, ought not to have allowed the Tax Appeal No. 37 of 2015, but to protect the interest of revenue and collect the tax on escaped turnover, ought to have remanded the matter to assessing authority for consideration and disposal afresh. Senior Government Pleader has placed before us, for perusal, the files from the Office of Assessing Officer, Kanjikode. He fairly submits that the description of an entry P & L a/c by itself is not the deciding factor but for attracting the liability of tax under KVAT Act something more ought to have been placed by the Department while passing order under Section 25(1). 6. Advocate Akhil Suresh submits that the proposed

O.P.Rev. No.41/2016 -8- inclusion of suppressed turnover of Rs.3,01,69,858/- is completely illegal and a notional entry is treated as sale of goods by the dealer. According to him, the respondent is consistent in its stand vis-a-vis written off sundry creditors amounting to Rs.3,01,69,858/- under KVAT Act and Income Tax Act. The details of sundry creditors, the treatment in books of account to the written off sundry creditors were furnished before the Income Tax Officer and the entry of sundry creditors written off in the respective accounts was accepted. According to him, no finding is recorded by the assessing officer that Rs.3,01,69,858/- attracts the incidence covered by Section 8 of the KVAT Act, still the said amount is treated as constructive sale on account of the alleged failure of respondent to place evidence before the assessing officer. He submits that the assessing officer did not appreciate the reply dated 18.6.2013 given by the Dealer. The dealer requested for an opportunity to

O.P.Rev. No.41/2016 -9- adduce evidence in support of reply dt.18.6.2013 and without affording opportunity, order of assessment was made. The onus of proving the ingredients of alleged sales suppression, escaped turnover etc. as rightly observed by the Tribunal, is on the Department while making an order of assessment under Section 25(1) of the KVAT Act. According to him, the finding of fact recorded by the Tribunal is unexceptionable and no ground is made out for warranting interference of this Court. He prays for dismissing the revision. 7. We have heard the counsel appearing for the parties and perused the record. 8. The submissions have substantially centered around the contentions already put forward before the authorities under the KVAT Act. It can be straight away proceeded to examine whether the Department is right and justified in proposing to include Rs.3,01,69,858/- as suppressed turnover or escaped assessment and

O.P.Rev. No.41/2016 -10- determine tax liability of the dealer. The case of respondent is that the said entry does not constitute actual sale but a notional entry made in books of account. In other words it is more or less a notional entry given effect to for the purposes of the Income Tax Act and correspondingly reducing the amount payable to sundry creditors. From the files produced by the Department, it is noticed that the audited accounts and balance sheet refer to Other Income from other sources and in Schedule it is explained as written off Sundry creditors. Our attention is also drawn to the amount due to sundry creditors as on date of the beginning of the Financial Year and the closing balance after the amount is written off by the Sundry creditors. We are of the view that the petitioner, to treat the said entry as sales, as rightly observed by the Tribunal, has not discharged the onus. The Assessing Officer under I.T. Act has accepted the genuineness of the entries in this behalf and made assessment order. Therefore the prima facie case of dealer is proved. The petitioner for the purposes of liability under KVAT Act intends

O.P.Rev. No.41/2016 -11- to treat the said entry as constituting sale of goods is required to discharge the onus in the manner expected by Sec.8 r/w Sec.25(1) of the KVAT Act. The finding of fact recorded by the Tribunal is not pointed out as perverse or unavailable from the material available in this behalf. Though an attempt is made for remanding the case for consideration afresh, we are of the view that such remand would be a statistical remand to keep the issue alive without meriting an effective adjudication for the purposes of KVAT Act. We are satisfied no ground is made out warranting interference of order in Annexure C. The revision fails and accordingly dismissed. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE jjj

O.P.Rev. No.41/2016 -12- APPENDIX PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 26-076- 2013 ANNEXURE B A TRUE COPY OF THE ORDER IN KVAT NO. 2666/2013 DATED 30-08-2014 ANNEXURE C A CERTIFIED COPY OF THE ORDER DATED 30-09-2015