LI Network
Published on: November 25, 2023 at 15:43 IST
The Allahabad High Court clarified that the rejection of books of accounts does not automatically warrant the enhancement of turnover.
The court emphasized the necessity of evidence indicating the assessee’s intent to evade taxes through turnover suppression.
Justice Piyush Agrawal, citing various precedents of the Allahabad High Court, maintained: “Once the findings of fact have been recorded in favor of the petitioner, there is no cogent reason for enhancing the turnover. The tribunal was not justified in confirming the enhancement of turnover in view of the fact that at the time of survey loose papers were found which have been explained by the revisionist, and merely on that ground the books of account can be rejected, but enhancement should not be made.”
Factual Background
The revisionist, a registered dealer under the UP VAT Act engaged in the trade of ready-made garments, commenced operations in the Assessment Year 2014-15. During a survey at the business premises, documents related to the previous assessment year were discovered, allegedly belonging to the previous tenant, as the revisionist’s business was closed at the time of the survey.
The revisionist argued that the found invoices and documents were unrelated to their business, emphasizing their exclusive involvement in the trade of ready-made garments and not garment stitching. The counsel also contended that no evidence indicated the revisionist’s participation in manufacturing or stitching activities.
Additionally, the counsel asserted that the appellate authorities had partially set aside the enhancement of turnover by the assessing authority. The revisionist argued that the rejection of books of accounts should not automatically imply involvement in fraudulent transactions.
On the contrary, the Department’s counsel defended the turnover enhancement, citing loose papers found during the survey.
High Court Verdict
The court noted that the Tribunal, being the final arbiter of facts, had found that the authorities failed to provide substantial reasons for enhancing the turnover. While books of accounts could be rejected based on the loose papers found during the survey, the court emphasized that there was no necessity to enhance the turnover.
The judgment drew upon precedents such as M/s Delight Engineering Company Vs. CST, where the Allahabad High Court asserted that “it is not necessary to enhance the turnover after rejecting the account books.”
Referring to M/s Krishna Gramodyog Samiti Vs. C.C.T., Devi Dayal Aluminum Industries Vs. CTT, and Shyam Sugar Industries Vs. CST, the court emphasized that best judgment assessments must rely on concrete evidence, not surmises or conjectures, to indicate suppression or concealment of transactions.
The court concluded that the Tribunal, having found no cogent reason for enhancing the turnover, erred in confirming the enhancement. Rejecting books of accounts based on loose papers found during the survey did not mandate automatic turnover enhancement.
The order of the Tribunal regarding the acceptance of the taxable turnover of the revisionist was set aside by the Court.
Case Title: M/S Sri Shanti Readymade v. The Commissioner, Commercial Taxes, U.P. [Sales/Trade Tax Revision No. – 106 of 2023]
