Tax Demand on Undisclosed Sale not permissible when Department failed to discharge its Burden of Proof: Allahabad HC [Read Order]

The Allahabad High Court has held that the tax demand on undisclosed sales is not permissible when Department failed to discharge its burden of proof.

M/S Balaji Polypack, the revisionist filed the tax revision petition under Section 58 of U.P. Value Added Tax Act, 2008 ('Act of 2008') has been filed against the judgment of the Commercial Tax Tribunal, Kanpur Bench-II, Kanpur dated 17.01.2022. The dispute relates to Assessment Year 2016-17.

The books of accounts of the revisionist-assessee were rejected by the assessing authority and the undisclosed purchase was assessed at Rs.2,30,00,000/- and the undisclosed sale was assessed at Rs.2,50,00,000/- and a tax demand of Rs.23,99,993/- was raised.

The first appellate authority vide judgment dated 05.02.2021 has reduced the quantum of sale and purchase to the tune of Rs.69 lacs and Rs.75 lacs and the quantum of tax was reduced byRs.16,80,000/-. The second appeal before the Commercial Tax Tribunal was decided by a common order dated 17.01.2022.

The revisionist submitted that Tribunal was not correct to record the finding that the assessee should have lodged the First Information Report against those persons to whom it has been alleged that certain sale and purchase has been made by the assessee, while there has been a specific denial by the assessee on the allegations made by the Department.

He further contended that the burden was upon the revenue which failed to discharge the same and it has not proved the alleged material which has been received by the mobile squad regarding certain transactions which have been completely denied by the assessee.

On the other side, Sri A.C. Tripathi, Standing Counsel submitted that the first appellate authority had categorically found that documents which have been received from various mobile squads were sent to the assessing officer who upon notice to the assessee found that certain transactions were outside the books of accounts of the assessee.

He further contended that there was no denial to the said fact by the assessee and in the order of the first appellate authority, it has come that the accountant of the assessee was new and was not well versed with the matter and due to his mistake, a discrepancy has occurred and certain transactions have not been entered into the book of accounts.

Justice Rohit Ranjan Agarwal observed that the burden to prove the material was recovered by the various mobile squads was upon the Department and the burden could not have been shifted upon the assessee to prove the same. Further, the assessee has denied the transaction having been made by him.

The Court observed that Department was not able to prove the material which was seized by the various mobile squads and the burden could not have been shifted by the Department upon the assessee and only on the ground that the documents were forwarded by the mobile squad to the assessing authority.

While allowing the Revision, the Court set aside the order passed by the Tribunal and held that “Assessee is entitled to the relief claimed and no tax liability can be fastened upon the assessee by the material which was seized by the mobile squad which remained unproved during the assessment proceedings nor at the first appellate stage.” Sri Rahul Agarwal appeared for the revisionist and Sri A.C. Tripathi appeared for the State.

To Read the full text of the Order CLICK HERE

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M/S Balaji Polypack vs The Commissioner Of Commercial Taxes , 2022 TAXSCAN (HC) 1071 , Rahul Agarwal , C.S.C.