IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER THURSDAY, THE 3RD JULY 2008 / 12TH ASHADHA 1930 T.R.C.No.577 of 2001 ------------------------------------------ T.A.NO.598/1998 OF THE KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH-I, PALAKKAD (ORDER DATED 2ND MARCH, 2001) (ASSESSMENT YEAR 1993-94) .................... TAX REVISION PETITIONER/ASSESSEE:- ---------------------------------------------------------- M/S.MALAPPURAM STEELS, MALAPPURAM, REPRESENTED BY ITS MANAGING PARTNER P.A.AMANULLA. BY ADV. SMT.S.K.DEVI SRI.SANTHOSH P.ABRAHAM RESPONDENT/REVENUE:- -------------------------------------- STATE OF KERALA, REPRESENTED BY ITS FINANCE SECRETARY, SECRETARIAT, TRIVANDRUM. BY SENIOR GOVERNMENT PLEADER SRI.MUHAMMED RAFIQ. THIS TAX REVISION CASE HAVING BEEN FINALLY HEARD ON 03/07/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: H.L.Dattu, C.J. & A.K.Basheer, J. ---------------------------------------------- T.R.C.No.577 of 2001 ----------------------------------------------- Dated, this the 3rd day of July, 2008 ORDER H.L.Dattu,C.J. A Bench of this Court, finding that the law laid down by this Court in M/s.Surya Agencies v. State of Kerala [(2004) 12 KTR 215] and C.O.Varghese v. State of Kerala [(2004) 12 KTR 528] does not lay down the correct position in law, had referred the matter to a Full Bench for consideration and decision. The Full Bench by its order dated 11-04-2008 has furnished its opinion. The opinion of the Full Bench is as under: “We are therefore of the view that decision of the Division Benches in the above two decisions restricting addition on account of suppression of inter-State purchases only for the value of actual suppression noticed is not correct law. We therefore overrule this view expressed by the Division Bench in the above two decisions. We further declare that once accounts are found to be incomplete or incorrect on account of material defect found by the Department, such as purchase or sales suppression, whether it is local or inter-State, the assessing officer is free to reject the books of accounts and proceed for estimation of turnover in accordance with the principles laid down in Section 17(3) of the Act and the law declared by High Courts and Supreme Court. Since petitioners have raised other issues particularly reasonableness of addition, we feel the cases should go back to the Division Bench for considering these T.R.C.No.577 of 2001 - 2 - issues. We accordingly remit the cases to the Division Bench for decision on other issues consistent with the law declared above”. 2. After furnishing the opinion, the matter has been sent back to this Court for disposal of this revision petitions and other connected cases. 3. The assessee is a dealer, registered both under the provisions of the Kerala General Sales Act (“KGST Act” for short) and Central Sales Tax Act (“CST Act” for short). This revision petition pertains to the assessment year 1993-94. Petitioner is engaged in the business of iron and steel. 4. For the assessment year 1993-94, the assessee had filed its annual returns, conceding a particular turnover as total and taxable turnover. 5. The assessing authority has received information from the Check Post authorities with regard to the Check Post declarations made by the suppliers of iron and steel to the petitioner. In view of those Check Post declarations, the assessing authority has rejected the books of accounts and the annual returns filed by the dealer and, thereafter, had issued a pre-assessment notice to the petitioner asking to show cause why the proposal made in the pre-assessment notice should not be confirmed. 6. In the pre-assessment notice, the assessing authority had pointed out the following defects. They are as under: “M/s.Malappuram Steel, Malappuram have reported a total and taxable turnover of Rs.4,00,74,430.23 and Rs.3,63,07,896.37 T.R.C.No.577 of 2001 - 3 - respectively. Verification of the accounts for the year revealed that the assessee have suppressed their purchase of iron and steel worth Rs.9,23,375.00. So it is proved that the turnover reported for the year is concealing the corresponding sales. The action of the assessee are an offence punishable under the KGST Act. It was therefore proposed to impose a penalty of Rs.8,000/- u/s.45A of the Act for the above offence committed by them”. 7. After receipt of the pre-assessment notice, the assessee had filed its reply objecting to the proposal made in the pre-assessment notice and, further, requested to accept the annual returns filed and, further, to drop the proposals made in the pre-assessment notice. The assessing authority, after rejecting the books of accounts and the return filed by the assessee, has completed the best judgment assessment and, in that, has made an addition of the actual suppression detected from the Check Post declarations, and has made further addition of two times the probable omission and suppression of sales of iron and steel. He has further added 15% to the gross profit declared by the assessee. 8. After service of the orders of assessment and the notice, the assessee had preferred an appeal before the first appellate authority. The first appellate authority has modified the orders of assessment passed by the assessing authority and, in that, has observed as under: “The assessing authority and the Intelligence Bureau had cross verified the account of the dealer with entries in the register kept at sales tax check post Vazhikkadavu and Valayar. A good T.R.C.No.577 of 2001 - 4 - number of declarations received from the sales tax Check Post were also verified. Practically almost all suppressions made by the dealer has been unearthed. Considering this addition of two times the suppressions detected (1 + 1) appears to be a bit high. Further as per accounts Gross profit of the dealer comes to 3.42% only. The assessing authority has adopted the Gross profit at 15%. This appears to be a bit high in the facts of the case. So I direct the assessing authority to adopt Gross profit at 5% while fixing the value of suppressed turnover against 15% adopted. I also fix the addition at 50% of the suppression fixed as directed above, over and above the actual suppression fixed”. 9. State, being aggrieved by the orders passed by the first appellate authority in modifying the orders of assessment passed by the assessing authority, had carried the matter in appeal before the Tribunal in T.A.No.598 of 1998. The assessee had also filed Cross Objection in No.1 of 1999 before the Tribunal. The Tribunal has combined both the T.A. and the Cross Objection and by order dated 2nd March, 2001 has partly allowed both the Revenue's appeal and also the assessee's Cross Objection. The Tribunal, while confirming the orders passed by the assessing authority, has concluded as under: “Points 3 and 4:- The respondent assessee would contend that there is no material to make an addition and so the addition is to be deleted. The facts and circumstances and the available evidence on record would warrant an addition. It is to be noted that T.R.C.No.577 of 2001 - 5 - a pattern of suppression has been established in this case. Then the question is regarding the fairness and reasonableness of the addition. The assessing authority made an addition of two times of the sale value of suppression. But the first appellate authority reduced the same to 50%. There is no valid or acceptable ground for the first appellate authority to reduce the addition. The conclusion of the first appellate authority that practically almost all suppressions made by the dealer have been unearthed cannot be accepted. The materials on record would give an indication of other probable and possible suppressions. It is pertinent to note that at the time of shop inspection on 8-1-1994 there was no day book or stock register maintained by the assessee. The addition made by the assessing authority is supported by materials on record. The same cannot be treated as excessive. It is only fair and reasonable. The first appellate authority has unnecessarily interfered with the said addition made by the assessing authority. There is no sufficient reason or ground to interfere with the same. It has reasonable nexus with the suppressions detected. If that be so, the order regarding addition passed by the first appellate authority is liable to be set aside and that of the assessing authority is to be restored. Hence we do so. These points are answered in favour of the appellant/State. Point No.5:- The foregoing discussions and the findings thereon would show that there are sufficient grounds to interfere with the impugned order passed by the first appellate authority. Hence the order dated 9.9.1998 passed by the first appellate authority is set aside. This point is answered accordingly”. T.R.C.No.577 of 2001 - 6 - 10. The assessee, being aggrieved by the orders passed by the Tribunal, is before us in this revision petition filed under Section 41 of the Act. 11. The assessee has framed the following questions of law for our consideration and decision. They are as under: “(i) Whether the Tribunal is erred in restoring the addition of two times apart from the actual suppression when the entire suppression was unearthed? (ii) Whether the Tribunal is right in holding that the addition made by the assessing authority has reasonable nexus when the suppressions were unearthed on verification of the entire check post declarations during the subsequent year?” 12. Sri.Santhosh P.Abraham, learned counsel appearing for the assessee would vehemently contend before us that the assessing authority was not justified in making addition of two times to the conceded taxable turnover for the probable omission of purchases and sales made by the assessee. The learned counsel would further submit that the first appellate authority, keeping in view the status of the dealer and also that the dealer was regular in paying tax due to the State, has modified the assessment and that assessment need not have been interfered with by the Tribunal. 13. Sri.Muhammed Rafiq, learned counsel appearing for the Revenue ably supports the orders passed by the Tribunal. T.R.C.No.577 of 2001 - 7 - 14. In the instant case, the assessee had conceded a particular turnover as total and taxable turnover. The assessing authority, before completion of the assessment proceedings, had received information from the Check Post authorities. The Check Post declarations are made as the basis for rejecting the books of accounts and the returns filed by the assessee and thereafter a pre-assessment notice had been issued to the assessee. 15. The assessing authority, after considering the reply filed by the assessee and being of the opinion that the explanation offered by the assessee cannot be accepted, has proceeded to complete the best judgment assessment and while doing so, has made an addition of two times the probable omission and suppression. Time and again we have observed that best judgment assessment is also an assessment and it should have a rational basis and it cannot be done merely on imaginations, surmises, presumptions, etc. 16. In the instant case, for completing the best judgment assessment, the assessing authority has kept in view the Check Post declarations and on that basis, has proceeded to reject the returns filed by the assessee and thereafter proceeded to make certain additions for the probable omissions of both purchases and sales by the assessee. If the addition so made when compared to the omission pointed out by the Check Post authorities in the Check Post declarations is taken into consideration, it cannot be said that the addition so made was excessive or arbitrary. Keeping this aspect of the matter in view, the Tribunal has annulled the orders passed by the first appellate authority, which has given some relief to the T.R.C.No.577 of 2001 - 8 - assessee. 17. We have carefully perused the orders passed by the appellate authority as well as the orders passed by the Tribunal. The Tribunal, which is the last fact finding authority, on facts, has come to the conclusion that the assessing authority is justified in making the addition of two times to the conceded turnover towards probable omissions, of both purchases and sales of iron and steel. Since we are of the opinion that the decision of the Tribunal is purely based on facts, interference with the said order, in exercise of the powers of this Court under Section 41 of the Act, is not called for. 18. Accordingly, while answering the questions of law framed by the assessee in the negative and against the assessee and in favour of the Revenue, the revision petition requires to be rejected and it is rejected. 19. C.M.P.No.629 of 2002 shall stand dismissed. Ordered accordingly. H.L.Dattu Chief Justice A.K.Basheer Judge vku/dk.