UP VAT Act | Enhancement Of Turnover Not A Necessary Consequence To Rejection Of Books Of Accounts: Allahabad High Court

The Allahabad High Court has held that turnover cannot be enhanced merely based on rejection of books of accounts. There has to be material as to suppression of turnover by the assesee to indicate evasion of tax.

Relying on various judgments of the Allahabad High Court, Justice Piyush Agrawal held

“Once the findings of fact has been recorded in favour 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

Revisionist is a registered dealer under the UP VAT Act and engaged in trading of ready-made garments. Revisionist commenced work from Assessment Year 2014-15. During the survey conducted at the business premises, it was closed for business, however carpentry work was going on. The revisionist was not present at the time of survey. During the survey, documents relating to previous assessment year were found, which belonged to the erstwhile tenant.

Counsel for revisionist argued that the invoices/ documents found pertained to a period before commencement of business of the revisionist and were not related to the business. It was argued that the revisionist was involved solely in the trade of readymade garments and not stitching and trading garments. It was argued that no material or evidence was found which indicated manufacturing or stitching business being carried out by the revisionist.

Further, counsel for revisionist submitted that enhanced turnover by the assessing authority had been partly set aside by the appellate authorities. The enhancement made merely based on the survey was liable to be rejected. It was argued that rejection of books of accounts will not necessarily lead to the conclusion that the assessee had entered into the transaction.

Counsel for the Department defended the enhancement as it was based on loose papers found during the survey of the business premises of the revisionist.

High Court Verdict

The Court observed that the Tribunal had categorically stated that the assessment authority as well as the First Appellate Authority had not recorded any basis for calculating the escaped turnover. The Tribunal is the last court of facts. Accordingly, on the basis of such finding books of account can be rejected but enhancement of turnover cannot be made.

“It is evident that the Tribunal being the last court of fact has recorded a finding that authorities have not given any substantial reason for enhancing the turnover. On the said finding, the books of account can be rejected but it is not necessary to enhance the turnover.”

Reliance was placed on M/s Delight Engineering Company Vs. CST, wherein the Allahabad High Court held that “it is not necessary to enhance the turnover after rejecting the account books.”

The Court further relied on M/s Krishna Gramodyog Samiti Vs. C.C.T., Devi Dayal Aluminimum Industries Vs. CTT and Shyam Sugar Industries Vs. CST wherein the Allahabad High Court held that best judgment assessment cannot be based on surmises and conjectures. It has to be based on some cogent material which indicates suppression or concealment of transactions by the assesee.

The Court held that once the Tribunal had recorded that there was no cogent reason for enhancing the turnover, it was not justified in confirming the enhancement of turnover. The Court held that books of accounts could be rejected based on the loose papers found at the time of survey. However, enhancement of turnover is not a necessary consequence to rejection of books of accounts.

Accordingly, the Court set aside the order the Tribunal to the extent that the taxable turnover of the revisionist was accepted.

Case Title: M/S Sri Shanti Readymade vs. The Commissioner, Commercial Taxes, U.P. 2023 LiveLaw (AB) 452[Sales/Trade Tax Revision No. - 106 of 2023]

Citation: 2023 LiveLaw (AB) 452

Counsel for Revisionist: Sanyukta Singh

Click Here To Read/Download Order