Dealer cannot avail Benefit of Compounding If the same was not opted before Commencement of AY: Madras HC [Read Judgment]

Assessment Penalty - gross total income - Taxscan

In the case of State of Tamil Nadu vs Tvl.J.Hanumaiah Chetty and Co, Madras High Court recently held that dealer cannot avail the benefit of compounding under the Tamil Nadu VAT Act if the same was opted after the commencement of the assessment year.

Assessee in the present case is a dealer in hardware chemicals was assessed under the scheme of self-assessment, compounded rate of tax 4 percent on a turnover of Rs.16,46,510 under work contract for the assessment year  2000 – 2001.

During the year revenue department issued a notice regarding the compounding scheme applied by the assessee. In response to the said notice the assessee furnished the details of works contract executed for Rs.16,46,510.

 After verifying the documents relating to the composite works contract, the authority  assessed 70 percent of the turnover of the works contract receipt and allowed the dealer, to deduct 30 percent of turnover, from the works contract receipt, for labour and other charges, under Section 3 B of the Act by holding the fact that the dealer has not exercised  their option, to pay compounded rate of tax even before the commencement of the financial year or along with the monthly return, on the commencement of each works contract. Therefor the authority declared that the assessee is not eligible to avail the compounded rate of tax under Section 7 C of the Income Tax Act 1961.

On appeal, the Appellate Assistant Commissioner allowed assessee’s submissions and the same was upheld by the Tamil Nadu Sales Tax Appellate Tribunal.

However the revenue approached the court on further appeal. Before the court the assessee argued that they had not executed any works contract in the previous assessment year and hence there was no question of exercising option along with the first monthly return for the relevant assessment year.

After analyzing the facts and circumstances deeply, the High Court Justice S.Manikumar and Justice R.Pongiappan also rejected assessee’s submission. While upholding the decision of the lower authorities the court observed that while perusing the available material facts on records it is clear that the assessee was not opted the compounding scheme before commencement of the assessment year, therefor the assessee in the present case is not eligible to get the benefit of compounded rate of tax under section 7 C of the Act.

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