2007 (12) TMI 436 - HC - VAT and Sales Tax

Whether on the facts and circumstances of the case manipulated enhanced figure of sale and purchase and stock furnished by the dealer to the bank for the purposes of obtaining loan would amount to relevant material for the purposes of reassessment under section 21 of the Act and based on these projected figures, reassessment and determination of turnover and tax liability would be justified? Held that - As this court had given its nod to accept an explanation of higher projected figure by the dealer for different purposes before different authority, the explanation given by the dealer and as accepted by the appellate authority appears to be correct.In the facts and circumstances of the case the Tribunal erred in accepting the turnover shown before the bank to be the actual turnover of the dealer. The revision accordingly succeeds and is allowed. The order of the Tribunal is set aside and that of the appellate authority is maintained.

Summary

Issues Involved:
Reassessment based on projected figures for obtaining a loan.

Analysis:
The dealer, engaged in the sale and purchase of iron and steel, disclosed a turnover of Rs. 1,34,931 for the assessment year 2000-01, subject to a four percent trade tax liability. Subsequently, the assessing authority discovered returns filed by the dealer before a bank, showing sales of Rs. 28,17,832 and purchases of Rs. 24,90,385, with opening and closing stocks also inflated for loan purposes. The assessing authority issued a show cause notice for reassessment under section 21 of the Act based on these figures, leading to a tax liability of Rs. 3,55,397.24 being imposed. The dealer explained that the inflated figures were for obtaining a loan, supported by a bank certificate, but the assessing authority rejected this explanation. The appellate authority, however, accepted the explanation, considering actual payments made by the dealer for bills and the progressive nature of the dealer's turnover. The Tribunal partially allowed the appeal, reducing the tax liability to Rs. 3,23,397.24 but maintaining the turnover determined by the assessing officer.

The dealer argued that the Tribunal erred in accepting the inflated turnover figures before the bank as actual turnover, without considering actual transactions or supporting evidence. The dealer's explanation was supported by legal precedents allowing higher projected figures for specific purposes. The High Court noted that the reassessment was solely based on figures disclosed to the bank, lacking any additional evidence of actual transactions beyond the account books. The burden of proof lay with the department to show transactions outside the account books, which it failed to do. The High Court cited legal precedents emphasizing the need for evidence linking undisclosed income to taxable transactions. Additionally, discrepancies in projected bill figures and the dealer's historical turnover further supported the dealer's explanation of inflated figures for loan purposes.

In conclusion, the High Court allowed the dealer's revision, setting aside the Tribunal's order and upholding the appellate authority's decision. The Court found the dealer's explanation reasonable and criticized the Tribunal for accepting the bank figures as actual turnover without sufficient evidence. No costs were awarded in this matter.