The Karnataka High Court has ruled that inflating contract figures and then disputing the tax authorities’ decision based on those figures amounts to defrauding the state. The Division Bench of Justices Krishna S Dixit and Ramachandra D. Huddar dismissed an appeal filed by M/s Yellalinga Electricals, affirming that such actions result in double deception of the state.
“Claiming higher contract amount by inflated figures and thereafter complaining that the Tax authorities have premised their decision on such figures, virtually amounts to defrauding the State, in two-ways. Such an assessee does not deserve any relief at the hands of this Court,” observed the bench.
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Case Overview
The case, titled M/s Yellalinga Electricals v. The Additional Commissioner of Commercial Taxes (Sales Tax Appeal No. 1 of 2024), revolved around allegations of inflated turnovers declared by the appellant's tax consultant with the intent to claim a tax refund through a fraudulent submission of Form VAT 156.
The appellant contended that he should not suffer due to the fraudulent actions of his tax consultant, who had since passed away. Additionally, he argued that the impugned order violated the principles of natural justice as he was not given a fair opportunity to present his case.
The Revenue Department opposed the appeal, arguing that:
- The appellant failed to produce books of accounts or any relevant evidentiary material despite being given multiple opportunities.
- The tax consultant, acting as the agent of the assessee, submitted inflated figures, and this does not absolve the assessee of responsibility.
- The appellant had duly signed the tax returns and records, indicating his awareness of the fraudulent submissions.
The court agreed with these submissions, emphasizing that the tax consultant’s actions benefited the assessee, making him equally accountable.
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The High Court, after reviewing the case, upheld the Revenue’s decision and dismissed the appeal, making several crucial observations:
The Karnataka High Court’s judgment in M/s Yellalinga Electricals v. The Additional Commissioner of Commercial Taxes reinforces the principle that tax evasion through fraudulent declarations cannot be justified. The court held that even if a tax consultant engages in fraudulent activities, the ultimate responsibility lies with the assessee. This ruling sets a precedent emphasizing accountability and the necessity for businesses to maintain transparent financial records.
Case Number: SALES TAX APPEAL NO. 1 OF 2024
Counsel for Appellant/ Assessee: Sathyanarayana T. R.
Counsel for Respondent/ Department: Aditya Vikram Bhat
