All India Granite Works, Bangalore vs Additional Commissioner of Commercial Taxes, Zone-ii, Bangalore

R.V. Raveendran, J.-The petitioner-firm is an assessee under the Karnataka Sales Tax Act, 1957 and Central Sales Tax Act, 1956 (''KST and CST Act respectively'' for short). The matter relates to the assessment for the period 1-4-1996 to 31-3-1997.

On 10-3-1997, the Assessing Authority inspected the business premises of the petitioner in the presence of one of the partners of the assessee-firm by name Prabhakar. According to the Assessing Authority , the partner who was present admitted stocks of granite in the premises was of the value of Rs. 6,00,000/- (i.e., polished granite worth Rs. 4,00,000/- and unpolished granite worth Rs. 2,00,000/-) , though the books of accounts were not produced for inspection and that the said Prabhakar, partner of the petitioner-firm, also gave a statement in writing admitting that the firm was holding a stock of Rs. 4 lakhs worth of polished granite and Rs. 2 lakhs worth of unpolished granite.

A proposition notice was issued by the Assessing Authority on 27-6-1998. Subsequently, a revised proposition notice dated 21-8-1998 was issued referring to the inspection dated 10-3-1997 and the admission of assessees'' partner (Prabhakar) about the existence of stocks worth of Rs. 6,00,000/- on 10-3-1997. In the proposition notice, Assessing Authority, stated that, on verification of books of accounts, he found that on 31-3-1997, the petitioner had a stock worth Rs. 1,55,000/- and there was a corresponding purchase turnover of sales of Rs. 27,081-60. He therefore deducted Rs. 1,82,081-60 from Rs. 6,00,000/- and arrived at the suppressed purchase turnover as Rs. 4,17,918-40. To this, he proposed to add Rs. 2,00,600-83 being 48% of the proposed suppressed turnover as declared gross profit. He therefore proposed to subject a suppressed sales turnover at Rs. 6,18,519-23 to tax at 12% with surcharge and cess amounting to Rs. 96,798-21.

The petitioner filed objection statements dated 28-8-1998 to the said proposition notice denying it had a stock of Rs. 6,00,000/- on 10-3-1997. The petitioner also demanded a copy of the statement dated 10-3-1997 said to have been given by its partner Prabhakar. This was followed by another objection statement dated 4-9-1998 wherein, the petitioner stated that Prabhakar, though a partner of the firm, was not the person in charge of the maintenance of stocks etc., and that no inventory or stock valuation was prepared in any systematic manner or in accordance with law to arrive at the value of the stocks at Rs. 6,00,000/- and that Prabhakar had signed the statement written by the Assessing Authority in good faith without applying his mind. Thus, the petitioner clearly contended that the statement was one prepared by the Assessing Authority and the signature of petitioner''s partner was taken without furnishing a copy of the same. In spite of such objection, the Assessing Authority did not furnish a copy of the statement dated 10-3-1997, on the basis of which the proposition notice was issued, but proceeded to pass an order dated 9-9-1998, assessing the alleged suppressed turnover of Rs. 6,18,519-23 to tax, as proposed in the proposition notice.

Feeling aggrieved, the petitioner filed an appeal before the Joint Commissioner of the Commercial Taxes (Appeals), Division-II, Bangalore City. The Appellate Authority, by its order dated 29-12-1998 accepted the contention of the petitioner and deleted the said suppressed sales turnover and directed the Assessing Authority to issue revised demand notice.

The Revisional Authority (Additional Commissioner of Commercial Taxes, Zone-II, Bangalore) initiated suo motu proceedings under Section 22-A of the KST Act on the ground that the order of the Appellate Authority was prejudicial to the revenue. After issuing notices dated 19-3-1999 and considering the objections dated 6-5-1999, the Revisional Authority has passed the impugned order dated 24-5-1999. The Revisional Authority has held that there was a suppression of turnover, on the ground that the assessee had not produced the books of account on the date of inspection (10-3-1997) and on the ground that the partner of the assessee-firm had given a statement admitting that the firm had a stock valued at Rs. 6,00,000/-. He therefore, set aside the order of the Appellate Authority and restored the order of the Assessing Authority.

Feeling aggrieved, the petitioner has preferred this appeal. The petitioner contends that the orders of the Assessing Authority and the Revisional Authority are opposed to principles of natural justice, as a copy of the statement dated 10-3-1997 (on the basis of which, the said authority reached the conclusion that there was a suppressed turnover of Rs. 6,16,553-00) has not been furnished to the petitioner in spite of its specific requests to do so. It is also pointed out that the petitioner had clearly contended in their objection that Prabhakar, the partner of the firm who was present at the time of inspection, was not aware of the correct stock position. It is contended that before concluding that there was a suppression of turnover on the basis of inspection, there should at least be an inventory of the stocks giving details of the stocks and the value thereof and in the absence of such inventory, there cannot be assumption regarding suppressed turnover. It is also contended that the statement dated 10-3-1997 relied on by the revenue was not in the handwriting of Prabhakar, but was written by the Assessing Authority; and that the books of accounts were in fact very much available on the relevant date, but, at the time of inspection (5-25 p.m.), the partner in charge of the firm (Jayapal) was not available in the office, and therefore the books of accounts were not made available for inspection. Lastly, it is contended by the appellant that there is absolutely no basis for assessing the value of stocks found on 10-3-1997 at Rs. 6,00,000/- or for adding Rs. 2,00,600-83 by way of profit (that is 48% of the alleged suppressed turnover).

There is considerable force in the contentions of the appellant. Firstly, in spite of the specific demand of the appellant requesting for a copy of the statement dated 10-3-1997, the copy thereof was not provided to the appellant and therefore, the Assessing Authority has therefore denied due opportunity to explain the said statement dated 10-3-1997.

The learned Government Pleader made available the records which contains the statement dated 10-3-1997 obtained from the appellant''s partner. It is not disputed that the statement is in the handwriting of the Assessing Authority who has obtained the signature of the petitioner. It also does not contain the particulars or details of stocks or any particulars of valuation in regard to the value. It contains only the following statement:

"I have not produced books of accounts and I have held stock at the time of inspection Rs. 4,00,000/- worth of polished granite and Rs. 2,00,000/- worth of unpolished granite".

The appellant ought to have been given an opportunity to explain the said statement. In fact, the Appellate Authority has considered the matter in detail while passing order. We find that non-furnishing of the copy of the statement dated 10-3-1997 and failure to give sufficient opportunity to show cause or to explain the statement in the document dated 10-3-1997 has caused prejudice to the appellant.

Therefore, without examining the matter on merits, we allow this appeal, set aside the orders passed by the Assessing Authority, Appellate Authority and the Revisional Authority and direct the Assessing Authority to furnish the copy of the statement dated 10-3-1997 to the appellant and give the appellant an opportunity to file further objections with reference to the statement dated 10-3-1997, consider the same and then pass an appropriate order in accordance with law.