Best judgment assessment allows tax authorities to estimate based on potential omissions and suppressions, necessitating substantiation of claims for input tax credit.

ORDER

Vinod Chandran, J.

Revision by the State, against the order of the Tribunal which upheld the order of the first appellate authority reversing the assessment made for the year 2010-11. The assessee, the respondent herein, filed an annual return reporting purchases lesser than that shown in the Trading and Profit and Loss account. The undisclosed purchase was also discernible from the audit report. Notice was issued for re-opening the self-assessment made under Section 21 of the Kerala Value Added Tax Act , 2003 ['KVAT Act' for brevity], pointing out two defects, one purchase suppression and the other discount claimed not being supported by sufficient materials.

2. The re-assessment was completed by Annexure-A, allowing the discount claimed based on the evidence produced; but, however, adding the purchase suppression to the turnover along with 25% gross profit (GP). In fact, before the Assessing Officer though the assessee had sought for time to proffer explanation regarding the difference in purchase, nothing was furnished.

3. Before the first appellate authority, the assessee admitted that certain purchases were not included in the monthly return and produced the bill for the same. The first appellate authority found that there is no omission or suppression in purchases or subsequent sales. It was found that non-inclusion of the purchase bills only resulted in the input tax being denied to the assessee. The Tribunal, in the State's appeal, found that the best judgment assessment carried out adding 25% for probable omission and suppression and 25% towards gross profit was not proper.

4. The questions of law raised by the State are as follows:

“(1) Ought not the tribunal below have held that, additions made by the assessing authority on account of purchase suppression and consequent estimation of taxable turnover under Section 25(1) of the Kerala Value Added Tax Act , 2003 were in order in view of the well settled principles of best judgment assessment;

(2) Ought not the tribunal below have found that mere production of some invoices at the appellate stage will not absolve the assessee from the risk of best judgment assessment in the absence of a revised return as permitted under Section 42 of the Act;

(3) Ought not the Tribunal have found that the first appellate authority went wrong in allowing input tax credit in respect of the purchase turnover in question;

(4) Is not the finding of the tribunal below to the effect that, in the facts and circumstances of the case it is not the best judgment assessment but penalty proceedings under Section 67 (1)

alone would lie is totally misconceived.

(5) Is not the findings of the tribunal below that additions made by the assessing authority were unwarranted is incorrect and perverse in the facts and circumstances of the case”.

5. At the outset we have to place on record our deep anguish in the casual manner in which both the appellate authorities carried out their adjudication as evidenced from the orders. The first appellate authority merely on production of four purchase bills found no omission or suppression in purchases and sales. Admittedly these four purchases were not disclosed in the returns. If the sales were properly made in the year, then the assessee could have substantiated the same from the specific sale invoices in relation to the purchased items as per the bills produced. We do not see any such substantiation having been attempted by the assessee before the Assessing Officer or the Appellate Authority. It is also pertinent that the assessee had not filed even an explanation much less any materials before the Assessing Officer to substantiate their contention with respect to undisclosed purchases. Likewise, we see from the Tribunal's order that the Tribunal has found fault with the 25% addition made for probable omission and suppression, which does not at all figure in the best judgment assessment.

6. We answer the 1st and 2nd questions together.

There was admittedly discrepa