K C CHACKO Vs. STATE OF KERALA
LAWS(KER)-2003-6-55
HIGH COURT OF KERALA
Decided on June 04,2003

K C CHACKO Appellant
VERSUS
STATE OF KERALA Respondents

JUDGEMENT

G. SIVARAJAN, J. - (1.) THE assessee is the revision petitioner in both these cases. THE assessment years concerned are 1992-93 and 1993-94 respectively. THE assessee is running a bar attached hotel under the name and style of M/s. Mukkadan's Restaurant, at Palayam, Thiruvananthapuram. THE assessing authority rejected the books of accounts and returns filed for the aforesaid two years on the ground that there were inspections of the business premises of the assessee during the assessment years concerned, that on verification of the materials gathered in the said inspection with reference to the books of accounts maintained by the assessee, stock variations were found in so many items of foreign liquor and that the assessee had admitted the offence of non-maintaining true and correct accounts by remitting compounding fee. In the assessment order for the assessment year 1992-93, so far as foreign liquor is concerned, the assessing officer had stated that the total suppression worked out to Rs. 2,484 that though the assessee had maintained day to day stock register, shortage had been detected in almost all items, which shows unaccounted sales. It is also stated that the assessing officer also verified the stock records as per the Shop Inspection Report with reference to the books of accounts and confirmed the stock variation arrived at by the Intelligence Officer. It is only on the basis of the stock variation so found, the assessing officer had made an addition of 1/2 per cent of the sales turnover of foreign liquor conceded and assessed to tax. So far as the assessment year 1993-94 is concerned, excepting the fact that the amount of suppression worked out on the basis of the shortage found at the time of inspection was valued at Rs. 9,254 the reasons stated for the rejection of the accounts and for making the addition are the same. So far as the addition of turnover of cooked foods is concerned, the only reason stated in the assessment order is "considering the prime location of the bar attached hotel and the volume of business, the turnover of cooked food returned is too low. THErefore 10 per cent of the purchase conceded will be added and corresponding sales turnover will be estimated at 2 times of such purchases and assessed to tax". Similarly, additions are made under soda and soft drinks. Being aggrieved by the assessment orders, the assessee took up the matter in appeal before the Appellate Assistant Commissioner, Commercial Taxes, Thiruvananthapuram, who, by a common order dated July 15, 1999, confirmed the addition made on the sales turnover of foreign liquor, but reduced the addition in respect of cooked foods from 10 per cent to 5 per cent. In further appeal by the assessee, the Sales Tax Appellate Tribunal, principal Bench, Thiruvananthapuram, dismissed both the appeals by a common order dated November 21, 2000 (annexure A3 ).
(2.) SHRI N. Manojkumar, learned counsel appearing for the revision petitioner, submits that so far as foreign liquor is concerned, it could be purchased locally only from the Beverages Corporation and that it is an item taxable only at the point of first purchases in the State, which was suffered at the hands of the Kerala State Beverages Corporation. Counsel further submitted that the petitioner, being a second seller, is not liable to pay any tax at all during the relevant period. Counsel also submitted that though an inspection was conducted during the assessment years concerned, only shortages were found in respect of different items of foreign liquor and that the shortages were not of substantial quantity. Counsel pointed out that no other discrepancies were found in respect of foreign liquor, and therefore, the decision of this Court in Kuruvila Chacko v. State of Kerala [1991] KLJ (Tax Cases) 665, would squarely apply. Counsel also relied on the decision of the Division Bench of this Court in Lovely Thomas v. State of Kerala [1999] 113 STC 505 and submitted that the said decision has been affirmed by the Supreme Court in Civil Appeal Nos. 3558 and 3559 of 1998 ( (2003) 131 STC 8 (State of Kerala v. Lovely Thomas) ). Counsel, of course, brought to our notice that though no detailed reason has been stated by the Supreme Court in the judgment, by virtue of the decision of the Supreme Court in Kunhayammed v. State of Kerala [2000] 119 STC 505; [2000] 245 ITR 360, the decision of the High Court has merged in the decision of the Supreme Court, and consequently, the law laid down by this Court is approved by the Supreme Court. Counsel, accordingly, submitted that the addition made on account of shortage of small quantity of foreign liquor found out at the inspection cannot be a ground for making an addition, in the absence of any material to show that the assessee had effected unaccounted purchases and sales of foreign liquor. Regarding the addition made on the turnover of cooked foods, counsel submitted that though inspections were conducted, no discrepancies in the purchases and sales were found and that the only ground on which 10 per cent addition was made by the assessing officer was that the bar attached hotel is located in a prime locality, and having regard to the volume of business, the turnover returned is low. Counsel submitted that this is a vague allegation, unsupported by any material. He also relied on a decision of this Court in Kaniampuram Brothers v. State of Kerala [1998] 111 STC 363; [1998] 6 KTR 464, wherein it has been held that even after the rejection of books of accounts, there must be some material for estimating the turnover. Counsel, in short, submitted that the addition made on both counts cannot be sustained. We also heard the learned Government pleader. He submitted that in the instant case, the inspection conducted by the department revealed that there was stock variation in respect of various items of foreign liquor, that the assessee admitted the offence and had paid compounding fee for both the years. Government pleader also submitted that the inspecting officers had noted that the day book was not available in the business premises. In the above circumstances, Government pleader submitted that the decisions of this Court in Rajendra Babu v. State of Kerala (1994) 2 KTR 172, Hotel Green Park v. State of Kerala [1998] 108 STC 21 and the unreported judgment dated February 17, 2003 in T. R. C. 84 of 2003 apply to the facts of this case. So far as the addition made to the turnover of cooked foods is concerned, Government pleader submitted that the hotel is situated in a prime locality at Thiruvananthapuram and, having regard to the volume of business transacted, the assessing officer was justified in making certain addition to the purchase turnover and sales turnover of cooked foods and that, at any rate, the first appellate authority has granted substantial relief by reducing the addition to 5 per cent.
(3.) WE have considered the rival submissions. According to us, the contentions taken by the learned counsel for the assessee has to be sustained. So far as the addition made to the turnover of foreign liquor returned by the assessee is concerned, as we have already noted, the only ground for such addition is the stock variation found in various items of foreign liquor based on the inspection conducted. Excepting the stock variation, no other discrepancies were found. This is a case of shortage simpliciter. In the circumstances, according to us, the decision of this Court in Kuruvila Chacko's case (1991) KLJ (Tax cases) 665 applies and, consequently, the addition made to the turnover of foreign liquor has to be deleted. WE notice that this decision has been followed by subsequent division Bench decisions also, viz. , Krishnanlal & Co. v. State of Kerala [2001] 123 STC 124; (2001) 9 KTR 397 and Polakulath Tourist Home v. State of Kerala [2001] 124 STC 387 (Ker.); [2001] 9 KTR 511, which we have already mentioned above. Further, though the correctness of the decision in Kuruvila Chacko's case (1991) KLJ (TC) 665 was canvassed before a Full Bench of this Court in Sreekrishna Trading Co. v. State of Kerala [1998] 108 STC 14, the Full Bench has held that there is no conflict with the views expressed in S. Valsala v. State of Kerala (T. R. C. 168 of 1992) reported in [1994] 95 STC 450 (Ker.) with that of Kuruvila Chacko's case (1991) KLJ (TC) 665. In fact, a division Bench of this Court in Lovely Thomas v. State of Kerala [1999] 113 STC 505, considered the question of addition based on shortage of foreign liquor found at the time of inspection and had come to the same conclusion. The said decision in Lovely Thomas v. State of Kerala [1999] 113 STC 505 (Ker) went up to the Supreme Court and the Supreme Court, in civil appeal, has confirmed the decision (2003) 131 STC 8 (State of Kerala v. Lovely Thomas ). . In this case it is unnecessary for us to consider the effect of the decision of the Supreme Court and the full bench decision in Mary Antony v. State of Kerala [2000] 120 STC 224, which has disapproved the observations made by the division Bench in Lovely Thomas case [1999] 113 STC 505 (Ker ). As already noted, the decision in Kuruvila Chacko's case (1991) KLJ (TC) 665 applies to the facts of this case and, consequently, the addition made to the turnover of foreign liquor by the assessing officer and sustained by the two appellate authorities has to be deleted. WE do so. So far as addition made to the turnover of cooked foods is concerned, as already noted, the reason stated for the addition is only general and vague, as held by this Court in Kaniampuram Brothers v. State of Kerala [1998] 111 STC 363; (1998) 6 KTR 464, even after the rejection of the books of accounts, in order to make an estimate, there must be some material. In the instant case, no such material in the form of discrepancies in the purchases and sales of cooked foods were found. Consequently, even the addition of 5 per cent sustained by the first appellate authority and confirmed by the Tribunal cannot be sustained. We, accordingly, direct the assessing officer to delete the additions made on the turnover of both foreign liquor and cooked foods.;


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