STATE OF KERALA Vs. VEENUS TRADERS

JUDGEMENT

(1.) Connected revision cases, one filed by the State and the other filed by the assessee, pertain to assessment of the assessee for the assessment year 2005-06. We have heard counsel appearing for the assessee and Government Pleader for the State.

(2.) The assessee was engaged in purchase, processing, packing and sale of cashew kernels. During inspection conducted on September 27, 2005, stock variation noticed was 3,626 kgs. The offence was compounded by collecting compounding fee of Rs. 5,000. There is a controversy as to how the price was estimated for the suppressed quantity for the purpose of collecting compounding fee of Rs. 5,000. According to the statement of the Tribunal, compounding fee was collected by fixing the price of cashew kernel at Rs. 7 per kg. whereas the assessee's counsel contended that the price fixed was at the rate of Rs. 10 per kg. In any case, we do not think there is any need for us to go into this issue because compounding is not the dispute raised in these revisions. In fact, suppression in quantity was admitted by the assessee and compounding fee was paid after inspection. In the course of assessment, the assessing officer found that the assessee was engaged in undervaluation as well because sale price accounted was much below the actual sale price. The assessing officer verified the details of 10 tins of cashew kernels sold to one Bombay party and found that the actual sale price realised was Rs. 59.62 per kg. and therefore actual sale price was applied for estimating suppressed turnover. It is also to be noted that receipt of unaccounted sale proceeds through bank account was also detected and even though the assessee tried to explain that credit in the bank represented amount received from his daughter and son in the middle-east, he could not prove the same. In other words, it is proved beyond doubt that the assessee was engaged not only in quantum of suppression but also in undervaluation as well. Rejection of books of account and estimation of turnover were confirmed in first appeal. However, the first appellate authority refixed the suppression at four times the stock variation in quantity and directed to apply the value for 50 per cent of the quantity at the rate estimated by the assessing officer and for the balance quantity the first appellate authority directed acceptance of the sale price returned by the assessee. When further appeal was filed to the Tribunal, the Tribunal changed the pattern of addition and fixed it at Rs. 3 lakhs. So far as purchase turnover is concerned, the Tribunal directed the assessing officer to grant rebate under rule 38(5) on 80 per cent of the purchases under section 6(2) of the Act. The State has filed revision challenging the relief granted by the Tribunal. The assessee has filed revision contending that once the offence is compounded under section 74(1) no further addition in assessment is called for under section 74(2) of the Act.

(3.) On facts there is no controversy inasmuch as the assessee itself does not canvass for acceptance of books of account and the return filed even though the assessee has a case that after compounding no estimation is permissible in assessment under section 74(2) of the Act. In other words, if section 74(2) assessment is permissible by rejection of books of account and by estimation of turnover because of the compounding, then the assessee cannot dispute rejection of books of account and estimation of turnover. What is stated in section 74(2) before amendment was as follows :