Emelson Agencies vs Commissioner of Trade & Taxes

This is an appeal filed by the Assessee under Section 81 of the Delhi Value Added Tax Act, 2004 (hereafter the ''Act'') calling into question an order dated 20th May, 2014 (hereafter the ''impugned order'') passed by the Appellate Tribunal, Value Added Tax (hereafter the ''Tribunal''). By the impugned order, the Tribunal rejected the appeal preferred by the Assessee against an order dated 12th December, 2003 passed by the First Appellate Authority (hereafter the ''FAA'') which in turn dismissed the appeal preferred by the Assessee impugning the assessment order dated 4th February, 2000 passed by the Assessing Officer (''AO'') pertaining to the Assessment Year 1996-97.

Briefly stated, the relevant facts leading to the present appeal are as under:-

2.1. During the relevant year, the Appellant (Assessee) was engaged in the business of distribution of paints and other products on behalf of M/s. Asian Paints Ltd. as a consignment sale agent. The Assessee has placed a copy of the Consignment Agreement with Asian Paints Ltd. and asserts that it did not make any sale or purchase on its own account, but received stocks on consignment basis as an agent of M/s. Asian Paints Ltd.

2.2. On 3rd October, 1996, a survey was conducted on the business premises of the Assessee. Apparently, certain documents, registers, notebooks, diaries and loose papers were seized. It is alleged that the Assessee was unable to properly explain the said papers.

2.3. The AO passed the assessment order dated 4th February, 2000 in respect of the assessment year 1996-97. The AO held that the Assessee was confronted with the papers seized by the enforcement branch during the survey and the Assessee could not properly explain the same. The AO held that two challans, being challan no. 1435 dated 1st October, 1996 and challan No. 1439 dated 1st October, 1996, showing sale of goods to certain dealers could not be explained as the Assessee had neither produced the relevant sale records nor entered the sales reflected in the said challans in the sales tax account registers. However, other bills in the challan book had been duly verified from the books maintained by the Assessee. The AO recorded that that the survey team had found excess stock of Rs. 2.49 lacs at the Assessee''s premises at Patparganj, New Delhi and further held that as the Trading Accounts, as on 3rd October, 1996 and as on 31st March, 1997, were not provided by the Assessee, the variation in the stock found by the enforcement branch was unexplained.

2.4. On the basis of the aforesaid findings/observations, the AO proceeded to frame a best judgment assessment by enhancing the declared sales by 10% and assessing the tax accordingly. Thus, the sales were enhanced by Rs. 2.5 crores. Penalty proceedings were directed to be initiated separately.

2.5. The Assessment order was challenged before the FAA on several grounds. The Assessee asserted that it was never confronted with the loose papers, documents, registers, diaries, notebooks etc. as recorded in the Assessment order. The Assessee also contested the finding of the AO that the Assessee could not produce the relevant record to explain the documents with which the Assessee was confronted. The Assessee contended that it had produced all relevant records and explained all the documents that it was confronted with during the assessment proceedings. It was specifically asserted that the documents put to the Assessee were duly verified from the books of accounts produced by the Assessee. Insofar as the finding regarding the two challans is concerned, the Assessee claimed that it was confronted with the said challans on the last date of hearing and as such did not have any opportunity to reconcile the said challans with the sales. In respect of the finding that the Assessee had not produced the trading account, it was contended by the Assessee that since sales were made on behalf of its principal, trading account was not maintained. In addition, the Assessee urged that it had produced the books relating to the stocks received from its principal and the Assessee was not confronted with any document indicating variation in stocks and the AO had not pointed out any discrepancy in the assessment order. The Assessee also contested the finding that there was excess stock of Rs. 2.49 lacs at Patparganj or there was any variation in stocks kept at other places. It was asserted that the Assessee was never confronted with the aforesaid figure and, therefore, had no opportunity to explain the same.

2.6. The appeal preferred by the Assessee was rejected by the FAA. The FAA held that there was sufficient proof on record to show that the Assessee was confronted with papers seized by the survey team on 3rd October, 1996 and the stocks in excess of Rs. 2.49 lacs at the business premises at Patparganj could not be explained despite several opportunities. The Assessee''s appeal before the Tribunal also met the same fate.

The principal contention urged on behalf of the Assessee is that its contentions have not been considered and neither the assessment order nor any of the Appellate orders indicate any specific discrepancy except two challans amounting to Rs. 1250/- on the basis of which the Assessee''s books have been rejected. It is further contended that the Assessee was confronted with these challans on 28th January 2000, which was the last date of hearing and thus, was not afforded adequate opportunity to respond to the same. It is further contended that the Assessee had explained to the enforcement team at the time of the survey that the said challans were dated 1st October 1996 and had not been entered in the books as 2nd October 1996 was a national holiday and the same would have been entered on the next working day i.e. 3rd October 1996 - the date of the survey. It is contended that this explanation has also not been considered by the AO.

A plain reading of the order of the FAA and the Tribunal indicates that the Assessee''s contentions have not been considered. The Assessee has annexed a statement (as Annexure 5 to the present appeal) which briefly indicates the findings/observations of the AO and the petitioner''s challenge to the same. The short order passed by FAA does not consider any of the Assessee''s contentions. Further, there is sufficient merit in the Assessee''s contention that none of the orders disclose any specific material on the basis of which adverse findings have been returned against the Assessee.

Clearly, the two challans amounting to Rs. 1,250/- cannot be the basis for rejecting the Assessee''s books and increasing the taxable turnover by Rs. 2.5 crores, particularly, when the Assessee''s turnover is to the extent of Rs. 25 crores. The Assessee has produced a copy of the Consignment Agreement with Asian Paints Ltd. The same indicates that the Assessee had agreed to sell the goods consigned by its principal - Asian Paints Ltd., as its agent, on terms and conditions specified by the principal. The Assessee was entitled to receive commission on the sales but was also responsible for recovery of the sale proceeds from various dealers. Any amount outstanding from the dealers over 45 days was recoverable from the Assessee by deducting the same from the commission payable to the Assessee; the Assessee was, essentially, a del credere agent of Asian Paints Ltd. This is not disputed by the AO. In absence of any purchases by the Assessee, it is doubtful whether a Trading Account could be prepared. At any rate, the Assessee was not obliged to maintain one. The AO has enhanced the turnover principally on the basis that the Assessee had failed to produce the Trading Account as on 3rd October 1996 and 31st March 1997. The issue - whether the same was at all necessary, has been completely ignored by the FAA as well as the Tribunal.

Although the AO has enhanced the turnover by Rs. 2.5 crores, on the basis of excess stock allegedly found that the premises of the Assessee, the AO has not indicated as to how the excess stock would affect the declared turnover. This assumes material significance as the stocks are received on consignment and are not subject to levy of taxes and the AO had not found any incidents on undeclared and unrecorded sales, which could possible lead the AO to infer that sales reflected by the Assessee were understated and the actual sales were in excess of the sales declared.

It is not disputed that the Assessee is entitled to a commission on the sales effected by it on behalf of its principal. However, while making the best judgment assessment, the AO did not examine the records pertaining to the commission received/receivable by the Assessee. It is difficult to ascertain the basis for increasing the taxable turnover by Rs. 2.5 crores (i.e. 10%). Whilst it is not disputed that in certain cases, the AO can make a best judgment assessment, the same has to be based on cogent reasons and on sufficient material. Plainly, the Assessment Order does not indicate any basis for the AO to enhance the turnover by Rs. 2.5 crores.

The learned counsel for the Assessee submits that the matter be remanded for a fresh consideration. The learned counsel for the Revenue also has no objection to the said prayer.

Accordingly, the present appeal is allowed. The assessment order dated 4th February 2000, the order dated 12th December, 2003 of the FAA and the impugned order dated 20th May, 2014 passed by the Tribunal are set aside and the matter is remanded to the AO to decide afresh in accordance with law. The Appellant Assessee shall appear before the AO in the first instance on 20th August, 2015.