Revised Return Filed After Income Tax Inspection Cannot Shield Dealer From Sales Tax Penalty: Madras High Court

The Madras High Court has upheld Income tax additions and penalty against a dealer, holding that a revised return filed after an Income Tax inspection cannot protect a taxpayer from the consequences of suppressed turnover.

It observed that a revised return filed after detection does not automatically establish bona fide conduct or protect a taxpayer from penalty.

"The revised return filed subsequent to Income Tax inspection cannot be a protection blanket for the tax evaders. Even if the Trader pays the tax due based on its revised return, he has to necessarily show that the omission to disclose the true and correct accounts was not willful or intentional. Payment of tax subsequent to the inspection of the petitioner's premises may be taken as a reason for mitigating circumstance to levy less than equal addition, instead of equal addition", the court ruled. .

A division bench of Justice Dr. G. Jayachandran and Justice N. Mala dismissed the tax case filed by Sayar Jewellers and upheld the orders of the tax authorities and the Sales Tax Appellate Tribunal.

The dispute arose after an Income Tax Department inspection revealed excess gold and silver stock that was not reflected in the dealer's books of account. Following the inspection, the dealer filed a revised return disclosing additional turnover and paid the tax due.

The dealer argued that the voluntary disclosure through the revised return should be treated as sufficient compliance and that no equal addition or penalty could be imposed. It relied on earlier judgments where courts had granted relief to taxpayers who had subsequently disclosed omitted turnover.

The State contended that the revised return was filed only after the Income Tax inspection unearthed unaccounted stock worth nearly ₹1 crore. It further argued that even the revised return did not fully disclose the actual excess stock detected during the inspection.

Accepting the Department's stand, the High Court held that a revised return filed after an inspection cannot become a "protection blanket" for tax evaders. The court observed that the dealer must establish that the omission to disclose the correct turnover was neither wilful nor intentional.

The bench further noted that the discrepancy in stock was based on concrete material collected during the Income Tax inspection and not on mere estimation.

It also found that the Tribunal had independently examined the facts and had already reduced the equal addition to 10%, considering it a mitigating circumstance.

The Court distinguished earlier judgments relied upon by the dealer, observing that those decisions involved cases where the entire suppressed turnover had been truthfully disclosed or where there was no material establishing wilful suppression.

In the present case, even the revised return did not fully reconcile the excess stock found during the inspection.

"The explanation clause appended to Section 12(3)(b) of the TNGST Act, 1959 prescribes a slab rate of penalty based on the turnover suppressed. In the present case, the assessee had failed to justify the suppression. The penalty, being imposed based on the quantum of suppression as per the best judgment of the Assessing Officer, no violation of the Act could be found", the Court held.

Accordingly, the High Court dismissed the appeal and upheld the assessment, equal addition and penalty imposed under the Tamil Nadu General Sales Tax Act.

For Petitioner: Advocate Hemalatha

For Respondent: R.Sethuprabhakaran, Government Advocate