Nippon Infra Projects PVT.LTD. vs. The State Tax Officer (Works Contract)

Facts

The petitioner, Nippon Infra Projects Pvt. Ltd., challenged an assessment order (Ext.P4) passed by the respondent State Tax Officer under the KVAT Act for the assessment year 2013-14. The petitioner argued that the assessment was based on a penalty order (Ext.P1) for the same year and that the assessing authority failed to address their specific contentions raised in the reply to the pre-assessment notice (Ext.P3). The petitioner contended that the assessment order was vitiated by a non-application of mind, as their objection regarding the discrepancy between contract receipts declared in VAT returns and those recorded in account books based on Accounting Standard 7 was not specifically considered. The department had accepted the returns in previous years.

Held

The Court found merit in the petitioner's contention that the assessing authority, while passing the assessment order (Ext.P4), did not specifically address the petitioner's objection raised in paragraph 4 of Ext.P3. This objection pertained to the circumstances under which contract receipts declared in VAT returns for earlier years differed from those recorded in account books based on Accounting Standard 7. The Court reasoned that the mere adoption of a particular accounting standard by the assessee for recording contract receipts in their books cannot be a reason to disregard contract receipts returned in previous years that were accepted by the Department. The Court noted that while the Department could accept figures from the books of account, consistency in adopting these figures across all assessed years for the same work is crucial. The judgment highlighted the possibility of double taxation on a portion of contract receipts due to the inconsistency. Therefore, the Court quashed Ext.P4 and directed the assessing authority to reconsider the matter, issuing a fresh assessment order after examining the petitioner's books of account and previous assessments. The fresh order must specifically reference each objection raised in the pre-assessment notice reply and provide reasons for its decision. The petitioner was directed to appear before the assessing authority on October 30, 2020.

Key Issues

1. Whether the assessment order (Ext.P4) is vitiated by a non-application of mind by the assessing authority, contrary to the principles of natural justice, in failing to specifically address the petitioner's contentions regarding the discrepancy in contract receipts as per Accounting Standard 7, which were raised in the reply to the pre-assessment notice (Ext.P3)? Petitioner's contention: The assessing authority failed to consider the petitioner's specific objection in paragraph 4 of Ext.P3, where the difference in contract receipts between VAT returns and account books (following AS 7) was explained. The petitioner argued that the assessment order did not specifically advert to this crucial point, indicating a lack of proper application of mind. Revenue's contention: The judgment records no specific argument from the revenue's side regarding this issue.