Apollo Gold Pattambi Llp vs State Of Kerala
2025 Latest Caselaw 3700 Ker

Kerala High Court

Apollo Gold Pattambi Llp vs State Of Kerala on 6 February, 2025

Author: A.K.Jayasankaran Nambiar

Bench: A.K.Jayasankaran Nambiar

                                             2025:KER:10344
OT.REV NO. 40 OF 2023
                            1

        IN THE HIGH COURT OF KERALA AT ERNAKULAM
                         PRESENT
   THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
                            &
         THE HONOURABLE MR. JUSTICE EASWARAN S.

THURSDAY, THE 6TH DAY OF FEBRUARY 2025 / 17TH MAGHA, 1946
                  OT.REV NO. 40 OF 2023
       (AGAINST THE ORDER OF THE KERALA VALUE ADDED
  TAX/AGRI.INCOME TAX AND SALES TAX APPELALTE TRIBUNAL,
ADDITIONAL BENCH, KOZHIKODE IN TA(VAT) NO.960/2018 DATED
                        27.4.2023)
REVISION PETITIONER/APPELLANT/APPELLANT:

         APOLLO GOLD PATTAMBI LLP
         APOLLO TOWER, PATTAMBI, PALAKKAD REPRESENTED BY
         ITS DESIGNATED PARTNER - - BASHEER
         CHARAPARAMBIL, PIN - 679303.

         BY ADVS.
         R.JAIKRISHNA
         NARAYANI HARIKRISHNAN
         C.S.ARUN SHANKAR
         ANISH P.


RESPONDENT/RESPONDENT/RESPONDENT:

         STATE OF KERALA
         REPRESENTED BY DEPUTY COMMISSIONER (LAW),
         COMMERCIAL TAXES, THIRUVANANTHAPURAM G.P.O.,
         THIRUVANANTHAPURAM, PIN - 695001.


OTHER PRESENT:
         GOVERNMENT PLEADER SMT.RESMITHA RAMACHANDRAN

     THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY
HEARD ON 06.02.2025, THE COURT ON THE SAME DAY DELIVERED
THE FOLLOWING:
                                                        2025:KER:10344
OT.REV NO. 40 OF 2023
                                  2


                             ORDER

Easwaran S., J.

Aggrieved by the order of the Kerala Value Added Tax

Appellate Tribunal, Additional Bench, Kozhikkode in dismissing

TA(VAT) No.960/2018, the assessee has come up with this revision

petition.

2. The brief facts necessary for the disposal of the revision

are as follows:

The revision petitioner is an assessee on the rolls of the Sales Tax

Office, Pattambi. The petitioner filed annual returns for the year

2012-13 disclosing a total sales turnover of Rs.1,20,06,408/-. The

return was rejected, and the assessment was completed on

31.12.2016. The reason for the rejection of the annual return was

that the assessee in the statement of income and expenditure for the

said year had conceded other income amounting to Rs.1,20,34,317/-

and out of this amount, an income of Rs.1,17,17,362/- had been

offered before the Income Tax Department as a result of the survey

conducted by the said Department. As the figures were mentioned

in the statement of income and expenditure pertaining to jewellery,

the assessing officer was of the view that the entire income must

have been derived from the sale of jewellery. Accordingly, the

assessee was issued with a notice as to why the assessment shall not 2025:KER:10344 OT.REV NO. 40 OF 2023

be completed under the best judgment process under Section 25(1)

of the Kerala Value Added Tax Act, 2003 by estimating a sales

turnover of Rs.14,64,67,025/-. The assessee appeared and objected

to the proposal to complete the assessment under the best judgment

process. However, rejecting the objection raised by the assessee,

the assessing officer completed the assessment by order dated

17.10.2017 by applying 8% bench mark theory over an amount of

Rs.1,17,17,362/- and imposing a total tax of Rs.1,14,24,425/-.

3. The assessee carried the matter in appeal before the first

appellate authority. The first appellate authority by order dated

21.3.2018 rejected the appeal. Aggrieved by the same, the assessee

approached the tribunal, which also by the order impugned in this

revision dated 27.4.2023 dismissed the appeal. Now, the assessee is

before us in the present revision petition raising the following

questions of law:

"1) Whether authorities below were correct in sustaining the addition of sale turnover by relying on the income disclosed under the head 'Income from Other Sources'/ 'Other Income' in the trading profit and loss account for the relevant assessment year?

2) Whether the income disclosed under the head 'other sources', in trading profit and loss account and assessed under head 'Income from Other Sources' as per the provision of Income Tax Act 1963, can be utilized to 2025:KER:10344 OT.REV NO. 40 OF 2023

estimating the sales turnover for the purpose of assessment under the Kerala Value Added Tax Act?

3) Whether the assessing authority was correct in estimating the sales turnover from the income disclosed under the head 'Income from Other Source' in the trading profit and loss account, without any independent finding and without any proof of stock variation or incorrect books of account especially when the petitioner has discharged the initial burden of proof?

4) Whether the authorities below were correct estimating the sale turnover by adopting the turnover at 8% as gross profit as the benchmark without any comparable data?

5) whether the petitioner is eligible for the benefit of the sub clause (3) of Section 25AA of the KVAT Act and the same has prospective operation and whether the law laid down by this Hon'ble Court in Souparnika Project & Infrastructure v State of Kerala in OT Rev no.48/2018 in its judgment dated 24.11.2021 is correct?

4. Heard Sri.Jayakrishna R, the learned counsel appearing

for the petitioner/assessee and Smt.Resmitha Ramachandran, the

learned Government Pleader.

5. Before us, it is contended by the learned counsel for the

petitioner that before the income tax authorities, an explanation was

sought for regarding the amount of Rs.1,17,17,362/-, it was

explained by the assessee that the same is income from other

sources, namely unsecured loan. The explanation offered by the 2025:KER:10344 OT.REV NO. 40 OF 2023

petitioner was accepted by the authorities and only an addition of

Rs.1,516/- was made and completed the assessment under Section

143(3) of the Income Tax Act, 1961. It is further pointed out that

even going by the returns filed before the income tax authorities, a

total amount of Rs.1,20,06,408/- alone is shown as income from sales,

whereas Rs.1,17,17,362/- is shown under the head other income.

The assumption of the Revenue that the income shown in the returns

assessed under the Income Tax Act as Rs.1,17,17,362/- being the

income derived out of the sales is not supported by evidence. Thus,

it is the case of the assessee that the best judgment assessment was

completed purely on surmises and conjectures, which is

impermissible and the said infirmity was not properly considered by

the first appellate authority as well as by the tribunal.

6. On the other hand, Smt.Resmitha Ramachandran, the

learned Government Pleader, supported the findings of the

authorities and said that all three authorities have concurrently

found that the income shown in the returns filed under the Income

Tax Act, 1961 is the income derived through the sale of gold

ornaments and, therefore, the Revenue is entitled to demand tax on

the sale of the goods. It is also pointed out that the statements of six

persons, who are stated to have extended unsecured loans, were

considered by the authorities and found that there were 2025:KER:10344 OT.REV NO. 40 OF 2023

discrepancies in the statements recorded and therefore, the best

judgment assessment was completed.

7. We have considered the rival submissions raised across

the bar.

8. Section 25(1) of the Kerala Value Added Tax Act, 2003

prescribes the power of the assessing authority to complete the

assessment on best judgment basis, if it is found that any income has

escaped the assessment. It is now trite law that even when an

intelligence officer initiates proceedings for penalty under Section

67 of the KVAT Act and finalises a report, the said report cannot form

the basis of reopening of the assessment. The above principle

equally applies to the proceedings initiated under Section 25. The

assessing officer is bound to conduct an independent enquiry as

regards the materials available, which according to him requires

reopening of the assessment or completing the assessment on a best

judgment basis.

9. On a close reading of the order passed by the assessing

officer, it reveals that except the assumptions formed by the

assessing officer that the amount of Rs.1,17,17,362/- would have

been derived out of the sale of the gold ornaments, no other

supporting evidence was available before him. It is also significant

that the Assessing Officer did not reject the trading account of the

assessee. Therefore, it is clear that the assessing officer proceeded 2025:KER:10344 OT.REV NO. 40 OF 2023

clearly on an assumption, which is impermissible under the scheme

of the Act. The infirmity which had crept into the assessment order

was not considered in proper perspective by the first appellate

authority as well as by the appellate tribunal.

10. In M/s. Girdhari Lal Nannelal v. Sales Tax Commissioner,

M.P [(1976) 3 SCC 701], the Hon'ble Supreme Court considered the

question as to whether acquisition of money by the assessee from

other sources could be taxed or not. It was held that for the purpose

of income tax, it may in appropriate cases be permissible to treat

unexplained acquisition of money by the assessee to be the

assessee's income from undisclosed sources and assess him as such.

As against that, for the purpose of levy of sales tax it would be

necessary not only to show that the source of money has not been

explained but also to show existence of some material to indicate

that the acquisition of money by the assessee has resulted from

transactions liable to sales tax and not from other sources.

11. In P.C.Ittymathew & Sons v. Deputy Commissioner of

Sales Tax (Law) [(2000) 9 SCC 318], the Hon'ble Supreme Court had

considered this question again and following M/s. Girdhari Lal

Nannelal (supra) held that addition of income by the income tax

authorities cannot form the basis of assessment by the assessing

officer, in the absence of any material to show that the said income

represented income from transactions liable to sales tax.

2025:KER:10344 OT.REV NO. 40 OF 2023

12. In State of Kerala, represented by the Deputy

Commissioner of Law v. M/s.Standard Bakery [2013 SCC Online Ker

21612], a Division Bench of this Court followed P.C.Ittymathew &

Sons (supra) and M/s. Girdhari Lal Nannelal (supra) and held that in

the absence of any nexus between the so called addition of income

by the income tax authorities and the alleged sale by the assessee,

presumption cannot be arrived at by the assessing officer.

13. In the light of the principles laid down by the Apex Court

followed by a co-ordinate bench of this Court, we are of the

considered view that none of the authorities have considered the

case in hand in its true perspective and applied the law correctly.

Thus, we find that the order of assessment as confirmed by the first

appellate authority and the tribunal cannot be sustained.

Accordingly, the O.T.Revision is allowed by setting aside

the order of assessment dated 17.10.2017 as confirmed by the first

appellate authority as well as by the tribunal and answering the

questions of law in favour of the assessee and against the Revenue.

Sd/-

DR.A.K.JAYASANKARAN NAMBIAR, JUDGE

Sd/-

EASWARAN S., JUDGE jg 2025:KER:10344 OT.REV NO. 40 OF 2023

PETITIONER ANNEXURES

Annexure A TRUE COPY OF ASSESSMENT ORDER ISSUED BY THE STATE TAX OFFICER, STATE TAX OFFICE, PATTAMBI DATED 17.10.2017

Annexure B TRUE COPY OF THE ORDER OF THE DEPUTY COMMISSIONER (APPEALS), PALAKKAD- THE FIRST APPELLATE AUTHORITY DATED 21.3.2018

Annexure C CERTIFIED COPY OF THE ORDER PASSED BY KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, KOZHIKODE IN TA (VAT) 960/2018 DATED 27.4.2023

Annexure D TRUE COPY OF THE ANNUAL RETURN OF THE PETITIONER FOR AY 2012-2013 DATED 18.4.2013

Annexure E TRUE COPY OF THE STATEMENT OF INCOME ALONG WITH THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF THE PETITIONER FOR THE YEAR ENDING 31.3.2013 DATED NIL

Annexure F TRUE COPY OF THE REVISED INCOME TAX RETURN FILED BY THE PETITIONER FOR AY 2013-2014 DATED 31.7.2014

Annexure G TRUE COPY OF THE ASSESSMENT ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), INCOME TAX DEPARTMENT, KOZHIKODE DATED 26.12.2014

Annexure H TRUE COPY OF THE REPLY ALONG WITH THE LIST OF LENDERS DATED 17.4.2017