SRI SAIDEEPA JEWELLARY WORKS vs. ASST COMMISSIONER OF COMMERCIAL TAXES(AUDIT)-2

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WP/23858/2013HC KarnatakaKAHC01016906201315 July 2013Bench: RAM MOHAN REDDY10 pages
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What did the High Court hold?

The High Court held that the reassessment proceedings should not have been initiated while the validity of the protective assessment order was still under challenge in a revision petition. The order rejecting the petitioner's objections was quashed.

What were the facts?

The petitioner, a registered trader, was issued a protective assessment order for suppressed turnover based on loose slips. This order was upheld in appeals. Subsequently, the tax authorities issued notices for reassessment and penalty, which the petitioner challenged.

What were the issues?

Whether reassessment proceedings under Section 39(1) of the Act are valid when the underlying protective assessment order is under challenge in a revision petition. Whether loose slips seized during an inspection can form the basis for reassessment without a final determination.

Which sections of the Income-tax Act were involved?

Section 38,Section 39,Section 52,Section 72,Section 36

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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1 W.Ps.23858-862 & 31180-191/2013 IN THE HIGH COURT OF KARNATAKA, BANGALORE

DATED THIS THE 15TH DAY OF JULY, 2013

BEFORE

THE HON'BLE MR.JUSTICE RAM MOHAN REDDY

WRIT PETITION NOS.23858-23862/2013 & 31180- 31191/2013

BETWEEN:

SRI SAIDEEPA JEWELLERY WORKS, BEING REP., BY ITS PARTNER, SRIKANTH V. KURUDEKAR, S/O VISHNU N. KURUDEKAR, MAJOR, 48 YEARS, No.57/1, CHOWKIPET, DAVANGERE 577 001.

PETITIONER.

(BY SRI M.V. MAHESWARAPPA, ADVOCATE)

AND

1.

ASST. COMMISSIONER OF COMMERCIAL TAXES (AUDIT)-2, VANIJYA THERIGE BHAVANA, D. DEVARAJ URS LAYOUT, DAVANGERE-577 006.

2.

ASST. COMMISSIONER OF COMMERCIAL TAXES (ENFORCEMENT-2), VANIJYA THERIGE BHAVANA, D. DEVARAJ URS LAYOUT, DAVANGERE – 577 006.

RESPONDENTS.

(BY SRI K.M. SHIVAYOGISWAMY, AGA.,)

2 W.Ps.23858-862 & 31180-191/2013

THESE WRIT PETITIONS ARE FILED PRAYING TO QUASH THE IMPUGNED ANNEXURES NAMELY, ANNEXURE ‘A’ NOTICE DATED 01.02.2013 BEARING ASSIGN No.14042620/DT. 31.01.2013 ISSUED IN FORM VAT 275 FOR THE YEAR 2005-06 ISSUED BY THE ASST. COMMISSIONER OF COMMERCIAL TAXES (AUDIT-2), DAVANGERE.

THESE WRIT PETITIONS COMING ON FOR PRL. HEARING THIS DAY, THE COURT MADE THE FOLLOWING:

ORDER

Petitioner, a registered trader under the Karnataka Value Added Tax Act, 2003, (for short, ‘the Act’), filed a return under Section 35 of the Act for the assessment year 2005-06 which was subject matter of proceeding under clause (a) of sub-section (5) of Section 38 whence a protective assessment order dated 11.02.2010 Annexure ‘G’ was passed by the second respondent – Assistant Commissioner of Commercial Taxes (Enforcement-2), Davangere, and directed payment of tax with interest amounting to `.65,335/- on the premise that turnover recorded in loose slips was suppressed. In other words, the transactions forming

3 W.Ps.23858-862 & 31180-191/2013 part of sales recorded in loose slips had not been declared. That order when carried in an appeal before the statutory authority, was dismissed, leading to a second appeal before the Karnataka Appellate Tribunal in Appeal No.1423/2010, which too when dismissed on 12.04.2012, has led to filing STRP No.19/2013 on 10.01.2013.

2.

In the meanwhile, the first respondent – ACCT (Audit-II), Davangere, issued notices of even date 01.02.2013 in Form VAT 275 Annexures ‘A’ to ‘E’ for the periods 2005-06 to 2009-10, calling upon the petitioner to produce the books of account and documents indicated therein in exercise of jurisdiction under sub- section (1) of Section 52 of the Act. Petitioner did not respond to the notices by furnishing documents.

4 W.Ps.23858-862 & 31180-191/2013

3.

The first respondent alleging that on verification of the protective assessment order Annexure ‘G’ and the report of the local VAT Officer (LVO-460) dated 24.10.2009 stating that the petitioner declared less turnover as compared to the sales effected and being in the habit of not maintaining true and correct books of account, issued notice dated 17.04.2013, Annexure ‘H’, invoking sub-section (1) of Section 39; sub-section (2) of Section 72; and Section 36 of the Act. The notice alleged that during the inspection of the business premises of the petitioner on 12.11.2009, found loose slips, which when seized disclosed transactions of purchase and sale, whence the protective assessment order Annexure ‘G’, was passed recording sale transactions of `.7,04,706/- with tax liability of `.7,047/- and interest at `.4,240/- totaling to `.11,287/- and therefore, the first respondent proposed to reject petitioner’s return of income and estimated the

5 W.Ps.23858-862 & 31180-191/2013 suppressed sale turnover twice over to conclude reassessment under sub-section (1) of Section 39 of the Act, levying penalty and interest under sub-section (2) of Section 72 and Section 36 of the Act, respectively, for the assessment year 2005-06.

4.

That notice was opposed by filing statement of objections Annexure ‘J’ dated 24.04.2013 inter alia contending that the notices in Form VAT-275 Annexures ‘A’ to ‘E’ were for initiation of proceedings under sub-section (1) of Section 52 of the Act and not for proceeding under Section 39(1) of the Act and therefore, are invalid and without jurisdiction. In addition, it was contended that, the protective assessment under sub-section (5) of Section 38 of the Act, is not a provisional assessment, but a final assessment for the purposes of sub-sections (6) to (9) of Section 28 of the Karnataka Sales Tax Act, 1957 and

6 W.Ps.23858-862 & 31180-191/2013 therefore, the protective assessment order dated 11.02.2010 Annexure ‘G’ is a final assessment of the turnover, which has escaped the self assessment under sub-section (1) of Section 35 of the Act. Petitioner sought to support the contention by placing reliance upon the decision of the Apex Court in Smt. Tarulata Shyam Vs. Commissioner of Income Tax1. It was further contended that sub-section (1) of Section 39 relating to re-assessment of tax is unavailable on the allegations set out in the notice Annexure ‘H’ since turnover assessed in sub-section (5) of Section 38 had become final and placed reliance upon the decision of the Apex Court in GKN Driveshafts (India) Ltd., Vs. Income-Tax Officer and Others2. Without prejudice to the aforesaid objections, it was contended that the seizure of scribbling papers and issuing of notice under sub-section (1) of Section 39 as well as sub-section (1)

1 (1977) 108 ITR 345 2 (2003) 259 ITR 19

7 W.Ps.23858-862 & 31180-191/2013 of Section 52 of the Act are in derogation of the law laid down under Section 70 of the Act.

5.

The first respondent, having considered the objections of the petitioner, assuming that the protective assessment order Annexure ‘G’ had become final on the dismissal of appeal No.1423/2010 on 12.04.2012, while the petitioner had not disclosed filing of STRP No.19/2013 on 10.01.2013 calling in question the order in appeal, rejected the objections by order dated 26.04.2013 Annexure ‘F’. Hence, this petition.

6.

Facts not being in dispute and the regard being had to sub-section (5) of Section 38 of the Act invoked for passing an order of protective assessment Annexure ‘G’ based upon the inspection report and the seizure of slips of paper allegedly recording transactions of purchase and sale of jewellery in the petitioner`s business establishment, which order is presently

8 W.Ps.23858-862 & 31180-191/2013 subject matter of STRP No.19/2013, it cannot but be said that the protective assessment order has not become final. Sub-section (1) of Section 39 of the Act provides for re-assessment of tax if any assessment order is issued under Section 38, which understates the correct tax liability of the dealer. The first respondent apparently invoked the said provision on the premise that the officer passing the protective assessment order Annexure ‘G’ ought to have doubled the Turnover imposed penalty and interest, since the petitioner had not maintained true and correct accounts.

7.

In the circumstances, the first respondent should have awaited the decision of this Court in STRP No.19/2013 since the premise on which the protective assessment order Annexure ‘G’ was passed was subject matter of the said revision petition. It is only after this Court conclusively holds that the slips of paper could be

9 W.Ps.23858-862 & 31180-191/2013 considered as recording transactions of purchase and sale not disclosed in the petitioner’s return and failed to maintain true and correct accounts i.e., suppression of the said transactions in the return filed by the petitioner for the year 2005-06, it is only then that the first respondent could invoke sub-section (1) of Section 39 of the Act. I must say so because invoking sub-section (1) of Section 39 of the Act is on the premise of existence of a fact i.e., seizure of slips of paper evidencing transactions of purchase and sale, which was suppressed in the return filed by the petitioner and failure of the petitioner is not maintaining true and correct accounts.

8.

It is no doubt true petitioner did not inform the first respondent in the objections to the notice under Section 39(1) of the Act, regarding filing of STRP No.19/2013 on 10.01.2013. Be that as it may, the fact

10 W.Ps.23858-862 & 31180-191/2013 of filing STRP and its being listed for admission on 18.07.2013 is not in dispute.

9.

In that view of the matter, the order dated 26.04.2013 Annexure ‘F’ calls for interference and is accordingly quashed. Notice dated 17.04.2013 Annexure ‘H’ is subject to the result of STRP No.19/2013. All contentions of the petitioner over the validity of the notices Annexures ‘A’ to ‘E’ are kept open for consideration in an appropriate petition.

Petitions are ordered accordingly.

Sd/-

JUDGE

sma

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