2025 (7) TMI 407 - HC - VAT / Sales Tax

Revision of assessment by levying tax and penalty against the respondent - evasion of tax payment or not - suppression of facts or not - main contention of the respondent/assessee before the appellate authority is that the assessment officer has not given any specific finding but had merely observed that there was possibility of similar omission in the previous years - violation of principles of natural justice - HELD THAT - It is not in dispute that the respondent has submitted his returns for the years 2011-2012 2012-2013 and 2014-2015. For the assessment year 2012- 2013 the assessing authority has estimated the turnover as Rs.1, 12, 89, 882/- for the reason that purchases to the tune of Rs.3, 07, 832/- were not declared in the monthly returns. Adding freight and profit the assessing offficer has estimated the above sales turnover and revised the assessment. Though copies of the bills were requested for verification the inspecting officers and the assessing officer had not given the copies. Hence the determination and estimation of the turnover under the head probable omission is not justified. The first appellate authority had taken note that of the fact that sales suppression was not culled out from outside the books and the assessing officer had not proved any wilful nondisclosure of the turnovers on the part of the respondent herein. The learned Government Advocate appearing for the Revenue has relied upon the decision of a Division Bench of this court in W.P. No.23806 of 2008 dated 23.09.2024 2024 (9) TMI 1765 - MADRAS HIGH COURT and contended that the revised assessment order is in accordance with law. The petitioner has relied upon paragraph 18 of the order which held that The Tribunal in the appeal filed by the Revenue by an order dated 02.03.2008 had set aside the orders of the appellate authority and restored the assessment order mainly on the ground that once the assessee has admitted the stock variation and by voluntary act has given a sworn statement admitting the discrepancies the assessee cannot be allowed to approbate and reprobate at the later stage. - Admittedly in the decision relied upon by the learned Government Advocate the assessee himself has given a voluntary statement disclosing that there were variation in the stock. But in the case on hand the statement of the assessee is only to the effect that he has not maintained purchase and sales registers. There is no concession in regard to stock variation. Moreover when there is no material furnished by the inspecting officer and the assessing authority to arrive at the determination the impugned order is not in accordance with law. It is to be noted that equal time addition has been made by the appellant for the previous years also though in the absence of any material whatsoever to justify the same. In the absence of any material to support the conclusion of suppression the equal time addition imposed by the appellant cannot be sustained and the appellant cannot now plead that the assessee has evaded tax payment. There is no reason to interfere with the orders passed by the Tamil Nadu Sales Tax Appellate Tribunal. Accordingly these tax cases are dismissed.

Summary

The core legal questions considered in this judgment revolve around the validity and legality of revised tax assessments and penalties imposed by the assessing officer under the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act), specifically concerning the years 2011-2012, 2012-2013, and 2014-2015. The principal issues include:

• Whether the assessing officer was justified in revising the assessments based on alleged suppression of purchases and sales, without furnishing specific details such as seller names, bill numbers, dates, and values of goods.
• Whether the imposition of penalty under Sections 27(1), 22(4), and 27(1)(a) of the TNVAT Act was legally sustainable in the absence of clear evidence of concealment or misconduct by the assessee.
• The propriety of the "equal time addition" or estimation of turnover based on probable omissions, particularly when the assessing officer relied on inspection reports and statements without corroborative documentary evidence.
• The scope and effect of the assessee's statements admitting to non-maintenance of records, and whether such statements amounted to admissions justifying the revised assessments and penalties.
• The applicability and relevance of precedents concerning the restoration or cancellation of equal time additions and penalties in similar tax assessment scenarios.

Issue-wise Detailed Analysis

1. Justification for Revised Assessments and Penalties Without Specific Details

The legal framework under the TNVAT Act empowers the assessing officer to revise assessments under Sections 27(1), 22(4), and 27(1)(a), particularly when suppression or concealment is detected. However, the assessment must be based on concrete evidence and particulars. The assessing officer in this case relied on inspection reports noting defects such as non-maintenance of purchase and sales registers, non-maintenance of input tax credit accounts, and suppression of sales and purchases.

The Court noted that the assessment orders lacked critical details such as the names of sellers, bill numbers, dates, values of goods, and modes of transport. The absence of these particulars undermines the validity of the revised assessments and penalties. The appellate authority and the Tribunal took cognizance of this deficiency and held that the assessment orders were unsustainable on this ground.

The Court emphasized that imposing penalties and revising assessments without furnishing such essential details violates principles of natural justice and statutory requirements. The assessing officer's failure to provide copies of bills or documentary evidence further weakened the case against the assessee.

2. Legality of Penalty Imposition in Absence of Clear Evidence of Concealment or Misconduct

Section 27(3) and Section 22(5) of the TNVAT Act provide for penalties in cases of concealment or suppression. However, the Court observed that the Revenue did not establish any wilful concealment or misconduct by the assessee. The statement of the assessee indicated only non-maintenance of records, not an admission of suppression or evasion.

The Government Advocate contended that the inspecting officers identified sales suppression, justifying penalties. However, the Court found that such contentions were not supported by material evidence. The appellate authority rightly held that the assessing officer's order lacked specific findings of habitual suppression or concealment, rendering the penalty imposition unjustified.

3. Validity of "Equal Time Addition" or Estimation of Turnover on Probable Omission

The assessing officer estimated turnover by adding probable omissions based on inspection findings, such as undeclared purchases and freight and profit margins. This "equal time addition" method is a recognized approach in tax assessments when direct evidence is lacking but suspicion of suppression exists.

However, the Court reiterated the principle established in a precedent case where equal time addition was set aside due to lack of material specific to the assessment year. The Court held that subsequent year inspections revealing suppression cannot justify additions for prior years without direct evidence relating to those years.

In the present case, the assessing officer's estimation was not supported by copies of bills or corroborative documents. The appellate authority and Tribunal rightly rejected the equal time addition on this basis. The Court affirmed that estimation must be based on credible evidence relating to the relevant assessment year, not on conjecture or subsequent year findings.

4. Effect of Assessee's Statements and Admissions

The Government Advocate relied on a precedent where the Tribunal restored assessment orders because the assessee voluntarily admitted stock variations in sworn statements. The Court distinguished the present case, noting that the assessee's statement only admitted to non-maintenance of records, not to stock variations or concealment.

The Court emphasized that mere failure to maintain records does not automatically translate into admission of tax evasion or suppression. Without explicit admissions or supporting evidence, the assessing officer's reliance on such statements to revise assessments and levy penalties was misplaced.

5. Treatment of Competing Arguments and Reliance on Precedents

The Court carefully considered the Revenue's reliance on prior Division Bench decisions upholding revised assessments based on voluntary admissions. However, it distinguished those cases on facts, emphasizing the absence of similar admissions or evidence in the present matter.

The Court also referred to a precedent where equal time addition was set aside due to lack of contemporaneous material, reinforcing the principle that estimation must be grounded in evidence specific to the assessment year.

In balancing the competing arguments, the Court prioritized adherence to statutory safeguards, evidentiary requirements, and principles of natural justice over speculative or unsupported assessments.

Conclusions

The Court concluded that the orders passed by the Tamil Nadu Sales Tax Appellate Tribunal, which set aside the revised assessments and penalties imposed by the assessing officer, were legally sound and did not warrant interference. The absence of specific details, lack of evidence of concealment, failure to provide documentary proof, and improper reliance on probable omission estimation rendered the revised assessments and penalties unsustainable.

Significant Holdings

The Court preserved the following crucial legal reasoning verbatim from precedent:

"The only ground on which the Tribunal restored the equal time addition was the results of the inspection made on February 18, 1999, during the course of the subsequent assessment year 1997-98. Barring that, there were no other materials to restore the equal time addition. It is no doubt true that in the assessment year under consideration, there was an inspection done on March 6, 1997. Except for the deficiency in stock of goods not supported by purchase bills, there were no other materials, which warranted equal time addition towards probable omission. Taking note of the facts therein, the first appellate authority rightly cancelled the equal time addition. The fact that in the subsequent year, there was an inspection, which revealed suppression, by itself, would not be a good ground for sustaining the equal time addition in respect of the assessment year 1996-97. The materials available, hence, have to be looked at as relevant to the transaction to the assessment year under consideration alone. In the absence of any justification to draw inference from the subsequent year's transaction, we do not find any good ground to uphold the order of the Tribunal. Consequenctly, the order of the Tribunal restoring the equal time addition stands set aside and the corresponding penalty also stands set aside. Accordingly, the appeal stands allowed. No costs."

The core principles established include:

• Revised assessments and penalties under the TNVAT Act must be based on specific, concrete evidence, including particulars of transactions.
• Mere non-maintenance of records or statements by the assessee admitting such non-maintenance do not justify presumptions of suppression or evasion.
• Estimations such as equal time addition require contemporaneous and relevant evidence specific to the assessment year and cannot be based on subsequent year inspections.
• Natural justice and statutory safeguards require that assessing officers provide details and documentary evidence supporting revised assessments and penalties.

Final determinations on each issue were in favor of the respondent/assessee, leading to dismissal of the Revenue's tax cases and upholding the Tribunal's orders setting aside the revised assessments and penalties.