IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMAN MONDAY, THE 1ST SEPTEMBER 2008 / 10TH BHADRA 1930 WP(C).No. 570 of 2006(P) ------------------------ PETITIONERS: ------------------- 1. V.N.RAJEEV, S/O.LATE V.S.NATESAN ACHARY, VENPARAMBIL HOUSE, WEST OF THIRUNAKKARA TEMPLE, KOTTAYAM. 2. V.N.AJAYAN, S/O.LATE.V.S.NATESAN ACHARY, VENPARAMBIL HOUSE, WEST OF THIRUNAKKARA TEMPLE, KOTTAYAM. BY ADV. SRI.ARIKKAT VIJAYAN MENON SRI.HARISANKAR V. MENON SMT.MEERA V.MENON SRI.MASHESH V.MENON RESPONDENTS: ------------- 1. THE INTELLIGENCE OFFICER(IB), DEPARTMENT OF COMMERCIAL TAXES, KOTTAYAM. 2. THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES, KOTTAYAM. 3. THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAURAM. BY GOVT.PLEADER SRI MATHEW VADAKKEL THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 01/09/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P.(C).NO.570/06 APPENDIX PETITIONERS' EXTS: EXT.P1 COPY OF THE ORDER NO.IBK.II-202/02-03/CR.63/03-04(2000-01) ISSUED BY THE FIRST RESPONDENT. EXT.P2 COPY OF THE ORDER ISSUED BY THE 2ND RESPONDENT. EXT.P3 COLPY OF THE ORDER ISSUED BY THE 3RD RESPONDENT. True Copy P.S. TO JUDGE P.R. RAMAN, J. = = = = = = = W.P.(C) NO. 570 OF 2006 = = = = = = = = = = = = = DATED THIS, THE 1ST DAY OF SEPTEMBER, 2008. J U D G M E N T Petitioners are the legal heirs of one Natesan Achary who was running a proprietary business and engaged in gold and silver ornaments. The place of business of Natesan Achary was inspected on 7.2.2001 by the Income Tax Department and certain books of accounts and gold ornaments were seized. It was found that a quantity of 12452.805 gms. of gold ornaments were available at the place of business whereas the stock register disclosed only 2917.870 gms. Likewise an amount of Rs.2,71,910/- was found out from the cash chest whereas the books of accounts showed a cash balance of Rs.81,123.50 only. Based on this information, the Sales Tax Department initiated proceedings for imposition of penalty under Section 45A of the Kerala general Sales tax Act. The Intelligence Officer issued notice proposing to impose penalty and the assessee submitted his reply. As per Ext.P1 order dated 28.2.2004 the objections filed by the assessee were overruled and an amount of Rs.4,68,998/- was imposed by way of penalty being double the tax allegedly evaded by the assessee late WP(C) 570/2006 :2: Sri. Natesan Achary. The said Natesan Achary filed a revision before the second respondent Deputy Commissioner inter alia contending that there is no attempt to evade any tax and on various other grounds, which was disposed of by Ext.P2 order of the second respondent. The Deputy Commissioner found that since the assessee has opted to pay tax at compounded rate under Section 7(1) of the Act, the attempted evasion of tax under Section 5A does not arise based on any suppression as noticed, since according to him, such suppression in no way would reduce the tax liability of the assessee, he having opted to pay tax at compounded rate irrespective of there is any reduction in the tax liability based on actual sale or it would be more so and therefore, no consequence as far as the year in question is concerned namely, 2000-01. As a result, evasion of payment of tax of Rs.2,24,495/- was also held to be unsustainable. Finally, he reduced the penalty to Rs. 10,000/-. In a suo motu revision, the Commissioner, by Ext.P3 order, set aside the order passed by the Deputy Commissioner and sustained levy of tax as imposed by Ext.P1 order. Challenging the same, petitioners have approached this Court by filing this writ petition on several grounds. WP(C) 570/2006 :3: 2. The learned counsel for the petitioners sought to place heavy reliance on Ext.P2 order and contended that the Commissioner was not right in law in adding the corresponding value of old gold purchased suppressed to 90% of Rs.46,24,443/- which comes to an addition of Rs.41,61,998/- in the turnover. It is contended that no amount could have been added towards suppressed turnover under Section 5A since according to the petitioner, his liability to pay tax during the current year is based on Section 7 at compounded rate. Therefore, irrespective of the actual tax liability that might be, had not the option been exercised, has no relevancy. It is contended that Section 7 engrafted under the Act gives an option to the assessee to pay at the relevant time at 120% over the tax payable on the conceded turnover or the accounts of the previous year. If this compounding option is accepted by the Department, then whatever be the turnover for the year in question, either it be more or less, the liability as far as the assessee is concerned is to pay the tax as quantified for the purpose of compounding option. In case the turnover is less, the assessee cannot get any benefit as no option but to pay at the compounded rates. If it is more, then the Department cannot lay any claim for the tax over and WP(C) 570/2006 :4: above the compounded rate. Therefore, the suppression, if any, for the current year can have only relevance in the turnover of the current year conceded or as per the accounts which may have a bearing for the purpose of determining the compounding tax rate next year. But the Commissioner has taken the view that if the dealer opted for compounded rate for the year 2000-01 and 2001-02 under Section 7(1), as his tax liability is governed by the tax paid for the immediate preceding year or tax payable as per return or accounts whichever is higher. Therefore, for the year 2001-02 in case the dealer opted for compounded rates the tax liability depends on his book figure for the year 2000-01 and if the tax payable as per book is higher than the tax paid for the year 2001-02 at compounded rate, his compounded rate of tax would be at 120% of tax payable as per book figure. If the dealer suppresses substantial turnover so as to bring down quatum of tax payable as per books it will have a bearing on his further tax liability for the year 2001-02. If the tax due as per the books is lower than the tax paid during 2000-01 at compounded rate his tax liability for 2001- 02 will be only at 120% of the compounded rate. 3. This position is not disputed by the assessee. But the relevant year in question is 2000-01 and not 2001-02. Therefore, the Commissioner, WP(C) 570/2006 :5: who under the misconception that the evasion of tax liability by suppressing anything in the turnover of the year 2000-01 will have the effect of liability for the year 2001-02, was however, not justified in not accepting the contention as against the penalty for the year 2000-01. This is exactly what is pointed out by the Deputy Commissioner in his order Ext.P2. If for the year 2001-02 the assessee opted for compounding, it will be based on the tax payable on the conceded turnover or based on accounts or based on the tax paid during 2000-01 whichever is higher. Therefore, it is only in working out the tax liability for 2001-02, the suppression, if any, made in 2000-01 can have any relevance. As far as 2000-01 is concerned, the tax liability is determined well in advance by compounding option made under Section 7. Therefore, if the assessee makes any suppression that will have an effect on the turnover conceded or turnover as per the accounts which have a bearing for the succeeding year. There cannot be attempt for evasion of any tax under Section 5A since the assessee has already opted under Section 7. The suppression in no way, reduce his tax liability since the liability to pay tax is already fixed under Section 7. If so, the addition of an amount of Rs.41,61,998/- in the turnover is not sustainable in law. This will stand deleted. WP(C) 570/2006 :6: 4. Nextly it was contended that the whole basis for making the addition is the alleged suppression based on the disclosure made by the petitioner to the Income Tax Authorities. But according to the petitioner, even the Income Tax Authorities have found that a quantity of 3655 gms. of gold were held to be the personal possessions of the family members and excluded from the stock for trade. But the Commissioner did not accept this contention on the sole reason that it is a voluntary disclosure. But in the absence of any better evidence or materials to make this addition on the ground of suppression than voluntary addition so made by the assessee it has to be held that the quantity of gold as found to be in the possession of family members is necessarily to be excluded. Hence this contention of the learned counsel is accepted and while working out the figure value of the gold, less 3655 gms. alone be added 5. Then it was contended that the suppression if at all is by the father and therefore, in the hands of the legal heirs maximum penalty is not leviable and further, it is in the frag end of the year that the detection was made and therefore, there is no pattern suppression. Actually, the legal heirs are only discharging the liabilities incurred by the father. Therefore, this contention is rejected. WP(C) 570/2006 :7: 6. Accordingly, the writ petition is allowed in part and the matter is remanded for passing revised orders by the Commissioner. Since the relief is only partly granted, there will be a direction to the petitioners to provisionally pay an amount of Rs. 1,00,000/- (one lakh) over and above the deposit already made, which will be given due credit towards the amount of tax liability and mould the relief accordingly, subject to the final liability to be determined. P.R. RAMAN, (JUDGE) knc/-