Assessment Order Passed Beyond Limitation Period: Andhra Pradesh High Court Sets Aside ₹50 Lakh Tax Penalty
The Andhra Pradesh High Court has allowed a plea of Shirdi Saibaba Constructions which was ordered to pay Rs.50,14,541/- as tax penalty, on the grounds that the assessment order was passed beyond the period of limitation.In this regard, a Division Bench of the High Court comprising Justice R. Raghunandan Rao and Justice K. Manmadha Rao, held,“…a best judgment order, of assessment, in the...
The Andhra Pradesh High Court has allowed a plea of Shirdi Saibaba Constructions which was ordered to pay Rs.50,14,541/- as tax penalty, on the grounds that the assessment order was passed beyond the period of limitation.
In this regard, a Division Bench of the High Court comprising Justice R. Raghunandan Rao and Justice K. Manmadha Rao, held,
“…a best judgment order, of assessment, in the case of willful evasion of tax, by the dealer, would mean that the period of assessment, of six years, for every month would commence from the 20th day of the succeeding month, where returns have been filed in time. As there is no dispute that the returns have been filed, by the petitioner, within the prescribed time, the limitation of every month would have to be taken into account. In such circumstances, the order of assessment, dated 31.03.2021, is beyond the period of limitation set out for the months of April to February of the financial year 2014-15. Since the assessment order is beyond the period of limitation, the order of assessment, dated 31.03.2021, passed by the 1st respondent is to be set aside for the period April, 2014 to February, 2015.”
Facts:
The petitioner, Shirdi Saibaba Constructions, registered under the Andhra Pradesh Value Added Tax Act, 2005 (“the 2005 Act”), was carrying on the business of execution of works contracts for government departments. It had opted for payment of VAT under the composition scheme under Section 4(7)(b) and (d) of 2005 Act by submitting such option in Form VAT 250 before the Assistant Commissioner (Sales Tax), Anantapuramu, (Respondent 1), who issued endorsements relating to all these forms. The government departments were deducting tax at source at 5% from the entire bills of the petitioner, and were paying the same to the Commercial Tax Department. The petitioner had filed his returns without paying any further tax as TDS of 5% was sufficient to meet the liability of the petitioner.
Respondent No. 1 was issued a show cause notice highlighting discrepancies in the Income Tax and VAT returns (filed monthly) for the period of 2014-15 and asked the petitioner to address why the difference in turnover should not be construed as suppressed turnover and tax. Additionally, there was a proposal to impose tax under Section 4(7)(b) and (d) of the 2005 Act, which implied that that the petitioner would have to pay tax at 14.5% on the turnover of the petitioner, after a standard deduction of 30% instead of 5% under the composition scheme.
By an assessment order dated 31.03.2021, Respondent 1 levied tax at 14.5% for the year 2014-15 and the year 2015-16 on a turnover of Rs.4,82,88,208/-, which implied that the petitioner had to pay Rs.50,14,541/- as tax after deducting the tax which had already been paid for this period.
Aggrieved by the assessment order, the petitioner filed a writ petition (W.P.No.5303 of 2022), post which Respondent 1 passed an ex parte order imposing penalty under Section 53(3) of the 2005 Act for a sum of 100% tax imposed. Aggrieved, the petitioner filed another writ petition (W.P.No.5350 of 2022).
It was the case of the petitioner that the assessment order was passed by invoking the extended period of limitation of six years, under Section 21(5), which could only be invoked owing to wilful evasion of tax. Additionally, the petitioner contended that even if the the extended period of limitation was permissible, a large part of the period would be barred by limitation. It was also argued that where a part of the period, under an assessment order, was beyond limitation, it would be necessary to set aside the entire order and remand the matter back to the Assessing Officer for passing a fresh assessment order.
Findings:
The Court examined Sections 20(1), which states that a period may be prescribed under the rules and the period for which returns have to be filed would be the calendar month, along with Rule 23, which stipulates that returns for each month would have to be filed on or before 20th day of succeeding month, and held that the assessment order was beyond the period of limitation. Hence, it was liable to be set aside.
With respect to the issue of remanding for fresh computation, the Court held,
“…the period beyond limitation would have to be excluded and a fresh computation of the tax that would have paid would have to be undertaken. For this purpose, it would be more appropriate that the entire order is set aside and the matter is remanded for a fresh assessment, by the Assessing Officer, for the period which is within limitation.”
Lastly with respect to the contention of the petitioner that the levy of tax at 14.5%, without giving the benefit of the composition scheme, was impermissible, the Court held that since the penalty was premised on the assessment order, which was set aside, the penalty also has to be consequently set aside.
Accordingly, the Court allowed both the writ petitions and subsequently set aside the order of assessment and the penalty imposed by Respondent 1.
Case Details:
Case Number: WRIT PETITION NOs.5303 & 5350 of 2022
Case Title: Shirdi Saibaba Constructions v. The Assistant Commissioner St and Others
Date: 21.04.2025