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Judgment
Devan Ramachandran, J
We encounter a rather strange factual matrix in this appeal -where an order of penalty has been imposed against the assessee without disturbing the assessment originally made, which would not justify such imposition - but on the basis of certain new information allegedly obtained through other sources.
Both these appeals have been filed by the Revenue, relating to the same assessment years of the respondent – assessee; and hence have been heard together, thus being disposed of through this judgment.
Sri.Shaij Raj - learned Government Pleader, argued that the judgment of the learned Single Judge, assailed in WA No.213/2021, is in error; and consequently, that the judgment involved in WA No.321/21 is also deserving of being set aside. He explained that the issue relates to the assessment of the assessee for the years 2009-2010, 2010-11 and 2011-12; and that they had filed self returns qua the same, which were accepted and tax allowed to be remitted. He submitted that, in fact, there was suppression of turnover by the respondent in all these returns, which became discernible to the Authorities only on 28.02.2017, when they received such information from the Income Tax Settlement Commissioner (for short 'Commissioner'). He argued that, in such circumstances, it was certainly open to the appellants to have invoked Section 67(1) of the Kerala Value Added Tax Act ('KVAT Act') and to initiate proceedings for penalty against the assessee; but which have now been set aside by the learned Single Judge. He prayed that, therefore, both these appeals be allowed.
Sri.K.N.Sreekumaran – learned counsel for the assessee, argued that, it is well settled that the proceedings under Section 67(1) of the KVAT Act cannot be initiated as an independent cause, when the assessment orders and the tax remitted thereon remains undisputed. He conceded that, before the Income Tax Appellate Commissioner, his client conceded that there was suppression of turnover qua the angle of Income Tax; but explaining that he did so only since he wanted to avoid further prosecution under the Income Tax Act. He argued that such proceedings could not have been used by the Tax Authorities in Kerala, to impose penality, even without reopening the assessment, which has now become concluded. He predicated that the reason why the appellants have chosen not to reopen the tax returns is because, more than five or six years have elapsed – in the case of each of the assessment orders – and hence impermissible to do so statutorily. He prayed that, these appeals be hence dismissed.
We notice that the learned Single Judge has found in favour of the assessee and the reasons that led him to do so is available from paragraphs 4 and 5 of the impugned judgment, which are extracted below:
“4.On a consideration of the facts and circumstances of the case and submissions made across the bar, I find that it is not in dispute that the assessments pertaining to the petitioner for the assessment years 2009-2010 to 2011-2012 under the KVAT Act were completed on self assessment basis taking note of the returns filed by the petitioner for the said years, and that tax was duly paid by the petitioner on the basis of those returns. There were evidently no notices issued to the petitioner reopening the said assessments within the statutorily permitted period of 5/6 years from the end of the year to which the assessments related. The respondents, however, obtained information from the Income Tax Settlement Commission that suggested that the petitioner had submitted untrue or incorrect returns to the KVAT authorities during the assessment years in question. Immediately thereafter they caused notices to be issued proposing the imposition of penalties under Section 67 of the KVAT Act, and the proceedings so initiated culminated in the orders that are impugned in the present Writ petition.
5.While it could be argued that the notices proposing penalty under Section 67(1) of the KVAT Act were issued within a reasonable period of limitation (5/6 years) from the date of detection of the offence of submission of untrue or incorrect returns by the assessee, and the penalty imposed on the petitioner justified on that basis, I find that upholding the impugned penalty orders in the instant case could result in an anomalous situation where the assessments of the petitioner, under the very same statute, have been accepted by the department based on the returns filed by the petitioner assessee. The tax payments effected based on those returns have also been accepted as correct by the respondents. If the respondents are now permitted to assail the said assessments, albeit indirectly, through the imposition of penalties, then it would tantamount to permitting the respondents to redetermine the tax liability of the petitioner for the said assessment years, an act that they cannot otherwise do on account of the provisions of Section 25(1)/42(3) of the KVAT Act. I also find that, on account of the assessments of the petitioner not having been assailed or reopened during the time permitted under the statute, the respondents would be estopped from questioning the correctness of the returns and accounts filed by the petitioner during the relevant assessment years. It would follow therefore that for the very same assessment years, the petitioner cannot be subjected to penalties on grounds that were found acceptable for the purposes of assessment. To uphold the impugned penalty orders would result in the anomalous situation where the returns submitted by the assessee were seen as true and correct for the purposes of assessment but are now seen as untrue and incorrect for the purposes of penalty proceedings. It is trite that in taxation matters, wherever penalty proposals are integrally connected with the assessments, the penalties should ideally follow the assessments. That apart, an officer determining the liability of an assessee to penalty, cannot ignore the assessment proceedings that have taken place in respect of the same assessee for the assessment year in question. I am, therefore, of the view that the assessments completed in favour of the petitioner for the assessment years in question could not have been ignored by the authorities that passed the impugned orders of penalty. The assessment not having been challenged, the very basis on which the penalty orders have been passed is wrong. I therefore allow this Writ Petition by quashing the impugned penalty orders with consequential reliefs to the petitioner.”
It is admitted, and being without dispute, that the returns in question were filed under the KVAT Act; while the Income Tax Settlement Commission was dealing with a question of Income Tax payable by the assessee on the disclosed profits qua turnover. No doubt, the Commission entered the conclusion that there was suppression of turnover by the assessee; and consequently that he had to pay higher tax. The assertion of the assessee – which remains uncorroborated even before us – is that he did so, only because he did not want to face consequences under the Income Tax Act.
Therefore, as the matters now stand, there can be little doubt that the assessee has suppressed the turnover; and the ancillary question arises whether this could give rise to further action under the KVAT Act, particularly Section 67(1) thereof.
As rightly argued by Sri.K.N.Sreekumaran, the line of precedential declarations of this Court in Philips India Limited v. Assistant Commissioner (Assessment), Special Circle, Aluva & Others [(2017) 25 KTR 209(Ker), State of Kerala v. MCP Enterprises [2022 KHC OnLine 981], State Tax Officer and Another v. Baiju A.A (W.A No.48 of 2020) is that, when assessments are undisturbed, penalties cannot be imposed even for collateral reasons.
In the case at hand, without doubt, the self assessment, as also the amounts of tax paid under the same, have not been reopened; and not even an attempt has been made to do so. The Revenue nevertheless proposed to impose penalty, based on the order of the Income Tax Settlement Commission; and assert that, when a confession has been made by the assesee before such Authority, the same can trigger proceedings under the KVAT Act also.
We cannot offer approval to the afore contention because, as rightly found by the learned Single Judge, the two statutes in question operate independently, and not in conjunction with each other. Even when it can be safely taken that the assessee had made confessions before the Income Tax Settlement Commission, the assessments under the KVAT Act can be reopened only under the statutory scheme, permissible under it. The Authorities never even tried to do so; and consequently we are not required to ponder on why they did not, or whether they could have.
Without doing so, the appellants initiated action under Section 67(1) of the KVAT Act; and it is therefore, that the learned Single Judge has held that, when the assessment has been confirmed and the amount of tax remitted thereon has been left undisturbed, an independent process to impose penalty cannot stand on its own, nor can be taken forward.
We deduce from the arguments and materials on record that the appellant have chosen to initiate action under Section 67(1) of the KVAT Act, without attempting to reopen the assessment, only because they are under the impression that there is no statutory time limit for such action, though there is one as fixed for the latter. However, this by itself would not come to their aid, when penalty proceedings cannot be initiated or pursued independent of the assessment, particularly when it is concluded.
We are, therefore, in full affirmation with the findings of the learned Single Judge; and consequently;
W.A No.213 of 2021 is dismissed.
W.A No.321 of 2021 is dismissed clarifying that all liberties to the assessee under the amnesty scheme will be open to them.