By TIOL News Service

ERNAKULAM, JUNE 29, 2018: THE ISSUE BEFORE THE BENCH IS - Whether prohibition on revision of returns where penalty proceeding are initiated, would also apply to cases seeking revision to correct bona fide errors. VERDICT IS NO.

Facts of the case

The assessee, a registered dealer under the Kerala VAT Act, purchased a machinery as capital equipment for its business in March, 2014. However, in the return, he failed show the same. Accordingly, the assessee sought to revise the return showing the purchase of machinery as capital. However, the AO failed to take any action on the application filed by the assessee. It was the contention of the Revenue that if assessee was permitted, he would be entitled to claim input tax credit as per Rule 13 of the Kerala VAT Rules. Therefore, the assessee filed writ petition against the decision of the Revenue and the same was allowed by the Single Judge. The Single Judge found that the possible claim by the assessee for input tax credit could not stand against the request for revision, especially since there was no penal action initiated against the assessee for the said period.

In another matter, the assessee by itself had approached the AO for revision of returns for the period from April, 2015 to March, 2016. In that case, monthly returns were filed by the assessee as stipulated under the Act. However, on the basis of audit report, the assessee noticed that there were some discrepancies in the returns which were detected and accordingly, the assessee sought for permission to revise the returns. However, the Revenue, rejected the same and issued notice for re-opening of the assessment for the year 2015-16. However, on assessee's writ petition, the Single Judge allowed the claim of the assessee directing the revision to be permitted, especially since the issuance of notice u/s 25(1) could not be treated as initiation of a penal action.

For AY 2011-12, the assessee filed annual returns on time. However, after the receipt of audit report u/s 42, the assessee noticed some discrepancies and sought the same to be incorporated in the return by way of revision. However, the same was kept without any action and hence the assessee filed writ petition. The Revenue contended that since the time permitted under the statute for revising return had already expired, there could be no revision effected, especially since limitation as brought in by a statute had to be scrupulously followed and strictly construed. The Single Judge found that the assessee on detecting an omission in the returns originally filed had voluntarily come forward to rectify the defects and pay the differential tax as also interest, which necessarily had to be considered favorably by the Department. Accordingly, the Single Judge permitted revision of returns.

For the AY 2009-10, the assessee filed return. Thereafter, the Data Mining Officers of the Intelligence Wing made a report, after examination of the annual return of the assessee and the audited statement pointing out certain discrepancies. The assessee on receipt of intimation from the AO sought to explain the discrepancies and also filed application seeking revision of returns. The assessee admitted the discrepancies and sought for revision incorporating the figures as available in the audited statement. However, the AO later issued notice u/s 25(1) not on the discrepancies in the audit report, but on the question of mis-classification of certain goods. In the meanwhile, Intelligence Officer had already issued summons for production of books of accounts as also explanation for the discrepancies found by the Data Mining Team, on the purchase details of exempted sales turnover of Rs.1223.25 lakhs and thereafter, proceeded with the penalty proceedings and concluded the same by levying penalty at twice the amount of tax sought to be evaded purely based on the discrepancies noticed by the Data Mining Team. However, the AO neither taken into account the report of the Data Mining Team, nor responded to the application of the assessee for revision of returns. On assessee's writ petition, the Single Judge allowed the same. Therefore, the Revenue filed instant writ appeals, challenging the decision of the Single Judge.

The High Court held that,

++ under section 21(2), the dealer, on detecting any omission or mistake in the monthly return, can file a revised return rectifying the same within two months from the last day of the return period. Sub-section (9) of Section 22 prohibits any such revision of return if an offense has been detected or other proceedings initiated. Sub-section (10) of Section 22 permits a revised return incorporating the turnover covered in the penal proceedings after the proceedings are finalized and compounded, upon which again the assessment is deemed to be completed subject to the provisions of Sections 24 and 25. The proviso to sub-section (10) provides for a best judgment assessment in accordance with the provisions of Sections 24 and 25 when a pattern of suppression is detected. Sub-section (2) of Section 42 enables a revision of return on detection of any omission or mistake in the annual return with respect to the audited figures. The revised annual return shall be filed along with the audit certificate, accompanied with proof of payment of tax and any interest and penal interest calculated at twice the rate specified under sub-section (5) of Section 31. The proviso to such provision also prohibits any revision by a dealer against whom penal action is initiated. Section 79B is a non obstante clause, by which also there is a prohibition in filing a revised return when instances of tax evasion has been detected and proceedings are initiated against such evasion;

++ it is clear that the sole prohibition as available in the various Sections is only against revision of returns when the dealer has been proceeded against for a defalcation or offense. This is specifically to not enable a dealer who had by his contumacious conduct attempted evasion, to wriggle out of the consequences of penalty. When there is a penal proceeding initiated, permission of revision of return, incorporating such figures in the return, which would efface the offense thus absolving the dealer from the liability of penalty, is alone prohibited. The other provisions, which permits revision of returns, are enabling provisions facilitating such revision on specified contingencies within a time limit. Merely based on the said enabling provision, there cannot be inferred an interdiction or prohibition from filing a revised return in circumstances where a mistake is detected after the period specified. If such a prohibition is inferred, then it will lead to even an honest dealer being inhibited from pointing out a bona fide mistake; thus depriving the State of the tax actually due and keeping himself on tender-hooks as to when and if the Assessing Officer detects such mistake. Again on such detection, there would be necessary penal consequences, which, if the dealer had been given a free play, permitting a voluntary disclosure of the mistake and revision of returns, in which event the dealer would not be visited with penalty;

++ the enabling provision mandates that on a revision of return being attempted to as provided therein, the Assessing Authority is obliged to accept it. At the risk of repetition, it has to be stated that there is no prohibition in attempting a revision of return after the time specified, if no penal proceeding is initiated. What would be required in such circumstances, as was earlier noticed, is a practical and pragmatic approach, wherein the Assessing Authority looks into the bona fides of the claim and decides whether a permission can be granted or not. The Assessing Officer definitely would have the authority to examine such claims even beyond the period and decide the question in accordance with well established principles of law and ensure that the attempt is not to cover up or get over a penal provision or avoid the penal consequences of detection;

++ in W.A.No.2636 of 2017 an application for revision of return was made along with the filing of audited statement; on which the Assessing Authority took no action and then proceedings under Section 25(1) was initiated. Similar are the facts in W.A.No.208 of 2018, wherein no action was taken on the application of the assessee; upon which the assessee was before this Court. W.A.No.2541 of 2017 was a case in which the assessee purchased a machinery as capital equipment in March, 2014 and failed to disclose it in the return. In September, 2015, the assessee applied for revision, which was resisted by the Department on the ground that this would lead to a claim of input tax credit;

++ in W.A.No.270 of 2018 has peculiar facts insofar as after initiation of penalty proceedings, the assessment was re-opened and completed without taking into account the alleged offense. The Intelligence Officer proceeded independently and finalised the penalty, on which again a re-opening was attempted, by the Assessing Authority. All this while, an application for revision of return, on the basis of the discrepancies noticed in the Data Mining Report, was pending with the Assessing Authority. The penalty proceedings were only on the basis of the Data Mining Report, which proceedings were initiated after the assessee requested for revision. There is definite lack of coordination between the Officers resulted from the anxiety to meet individual targets. All these cases bring forth bona fide claims for revision of returns, wherein no penal proceedings were pending at the time when the applications were made; the existence of which alone is the sole prohibition available under the KVAT Act. There is no need to interfere with, in the judgments of the Single Judge. However, even on such revision of returns, the same would be subject to Sections 22, 24 and 25; the limitation for which commences in the instant cases from the time when the revised return is filed by the assessee(s).

(See 2018-TIOL-1214-HC-KERALA-VAT)