Madras High Court
K. Ramalinga Mudaliar & Co. vs State And Another on 8 July, 1991
Author: A.S. Anand
Bench: A.S. Anand
JUDGMENT Dr. A.S. Anand, C.J.
1. This tax revision case has been filed by the assessees against the order of the Tamil Nadu Sales Tax Appellate Tribunal (Main Bench), Madras, in T.A. No. 524 of 1981, dated November 3, 1981.
2. Brief facts are these : The assessees are dealers in glass sheets and mirrors. They reported a total and taxable turnover of Rs. 15,10,088.95 and Rs. 7,61,739.49 for the assessment year 1979-80. The assessing authority checked their accounts in support of their returns and discovered that the total and taxable turnover for the year 1979-80 worked out to Rs. 15,31,088.91 and Rs. 7,61,739.49, respectively. The sales of glass sheets and mirrors are for an amount of Rs. 7,48,349.42 and second sale of car at Rs. 21,000. The assessing authority found that the accounts disclosed gross loss in trade during the year while the gross profit in respect of second sales of glass was worked out at 41 per cent. The assessing authority also found that the assessees did not maintain any separate account for the local and inter-State purchases of goods during the year under assessment though they had purchased goods from dealers outside the State as well as locally. On the best of judgment, the assessing authority, therefore, determined the turnover taxable at 10 per cent at Rs. 11,84,080 by adding 30 per cent towards gross profit in respect of inter-State purchase value of glasswares. Thus, the addition of Rs. 4,22,341 to the taxable book turnover was the consequential result. Final orders were passed determining the total and taxable turnover at Rs. 20,23,523 and Rs. 11,84,040, respectively. The assessees went up in appeal before the Appellate Assistant Commissioner. The dispute in the appeal was limited to the addition of Rs. 4,22,341 to the taxable turnover of the assessees. It was pleaded before the Appellate Assistant Commissioner that the assessment order was arbitrary and whimsical and that in the facts, and circumstances of the case, recourse to best of judgment assessment was not permissible. According to these assessees, the assessing authority was not justified in taking recourse to the best of judgment assessment only on account of the fact that the assessees had not maintained stock accounts and separate account for the local and inter-State purchases as required by the Rules. It was maintained by the assessees that since not a single omission had been established to pull up the total turnover nor any wrong classification made and the stocks at the beginning and close of the year were not taken into account at all, while computing the first sales, an arbitrary method had been adopted to determine the gross profit of 30 per cent to the accounted first purchases by the assessees and therefore, the order of assessment was not justified. The Appellate Assistant Commissioner, however, found that the defects pointed out by the assessing authority, viz., (a) that the dealers did not maintain stock register and were not in a position to give details of the source of the purchases of the goods sold in other States, and (b) that the gross profit for second sales was huge and gross loss and had been shown in the trade justified the assessing authority resorting to best of judgment assessment in the case. However, so far as the quantum of addition made by the assessing authority was concerned, the taxable turnover was reduced by a sum of Rs. 69,000 on the ground that compounding fee had been paid for the consignment which had been subjected to cheek by the Roving Squad and, therefore, that amount had to be deducted. The appeal was, thus, partly allowed. The assessees went up in second appeal to the Sales Tax Appellate Tribunal. The assessees explained before the Tribunal that it had not been practicable to maintain the day-to-day stock account in respect of the goods purchased from outside the State and locally, since the goods were identical. It was asserted that the appellate authority as well as the assessing authority were wrong in assuming that the inter-State sale and intra-State sale of goods purchased from outside the State would be in the ratio of purchases from outside the State to that from within the State. It was argued that since the assessing authority had not alleged any misclassification of first sales as second sales, nor was any under invoicing of first sales detected, the addition to the first sales was not justified. The assessees asserted that in the facts and circumstances of the case, the assessing authority, without rejecting the return and accounts specifically, was not justified in taking recourse to the best of judgment assessment. According to the assessees, the defects allegedly found by the assessing authority did not justify recourse to the best of judgment assessment. The Tribunal, however, repelled the arguments raised on behalf of the assessees. The Tribunal opined as follows :
"We find that the appellants had not maintained separate accounts in respect of local purchases and outside purchases not is there any separate detailed stock accounts kept. In these circumstances the authorities have no alternative but to make a reasonable best judgment assessment of the taxable turnover. The learned authorised representative for the appellants in the course of the arguments gave a working sheet that at any rate the estimate of taxable turnover could be Rs. 8,47,828 only. We have gone through this working but find it not fully acceptable. However, we find some force in the contentions of the appellants that the gross profit estimated at 30 per cent by the assessing officer is somewhat excessive and the goods purchased from outside the State will normally be preferred for inter-State sales in view of the varying rates of tax. Having regard to the facts and circumstances of the case, we find that it will be reasonable to reduce the taxable turnover by a further sum of Rs. 60,000. The taxable turnover is thus fixed at Rs. 10,55,080."
The assessees are in revision.
3. Appearing for the petitioner, the learned counsel submitted that the authorities below, including the Tribunal, had fallen in error in taking recourse to best of judgment assessment. The addition to the total turnover was characterised as arbitrary and whimsical.
4. As would be seen from the record, recourse was made to the best of judgment assessment by the assessing authority, basically on two grounds, (1) that the dealers did not maintain stock register and were not in a position to give details of the source of the purchase of the goods sold in other States and (ii) that the gross profit for second sale was huge, while loss was shown in the trade. The assessing authority did not either specifically reject the accounts or held the return to he incorrect. He proceeded to determine the taxable turnover by treating the inter-State sale and intra-State sale in the same ratio as purchase, without basing the same on any material found by it.
5. Recourse to best of judgment assessment can he had under section 12(2) of the Tamil Nadu General Sales Tax Act, 1959, hereinafter referred to as "the Act". That section reads thus :
"If no return is submitted by the dealer under sub-section (1) within the prescribed period, or if the return submitted by him appears to the assessing authority to be incomplete or incorrect, the assessing authority shall, after making such enquiry as it may consider necessary, assess the dealer to the best of its judgment :
Provided that before taking the action under this sub-section the dealer shall be given a reasonable opportunity of proving the correctness or completeness of any return submitted by him."
On a plain reading, this sub-section provides for best judgment assessment in the following cases : (a) failure to submit return within the prescribed period or (b) where the return submitted is incomplete or incorrect. In either case, the assessing authority can assume jurisdiction under section 12(2) of the Act to proceed to assess to the best of his judgment only after making such enquiry as is considered necessary but before making the best of judgment assessment, the assessee has to be given a reasonable opportunity to prove the correctness or completeness of the return in cases where the return is found incorrect or incomplete. Where return is rejected without recording a finding that it is either incomplete or incorrect and without rejecting the accounts furnished by the assessee, it is not permissible, for the assessing authority to take recourse to the provisions of section 12(2) of the Act. A best judgment assessment is not a random or uncontrolled assessment so as to give a go-bye to the relevant circumstances and the material which may be relevant to the assessment of an assessee. The mere fact that the assessee failed to maintain stock register by itself is not normally a sufficient ground for rejecting the return. So also, the declaration of low gross profit or trade loss is not a sufficient reason to infer suppression, particularly where no finding of inflated purchase or suppressed sale has been made. The quantity of the material purchased and utilised was capable of verification and should have been so verified. The assessing authority did not record any finding to the effect that the assessee had made any wrong classification of the taxable sales under the exemption sales. There is nothing on record to show that the transactions of sale were not vouched for. In the assessment year, no purchase omission has at all been pointed out. As a matter of fact, no finding has been recorded by the assessing authority to the effect that the return filed by the assessee is either incomplete or incorrect. Without rejecting the accounts and the return the assessing authority cannot take recourse to best of judgment assessment. It depends upon the facts and circumstances of each case as to whether the mere non-maintenance of the account books can lead to any inference that the return is incomplete or incorrect and that question has to be considered in every case where this point arises and the assessing authority has to come to a conclusion, after taking all these factors into consideration, that the return is incomplete and the accounts incorrect where accounts are submitted. The assessing authority has proceeded merely on guess-work, surmises and conjectures in making best judgment assessment. No finding has been recorded by the assessing authority as to which particular transaction had not been explained plausibly by the assessees. The addition to the turnover made by the assessing authority is not on any basis whatsoever but on his whims. The assessees had given explanation before the appellate authority as also before the Tribunal with regard to the trade loss and the reason for not maintaining separate stock register, but those explanations have not been considered let alone discussed, by the Tribunal at all. The order of the Tribunal which has been extracted elsewhere in this judgment is beautifully silent about various pleas raised on behalf of the assessees.
6. Only on the basis of the "defects" pointed out by the assessing authority and without recording a positive finding rejecting the accounts and the return, the assessing authority was not justified to take recourse to the best of judgment assessment, and the appellate authority and the Tribunal also fell in complete error in upholding the order of assessment based on best of judgment without adverting to the pleas raised by the assessees. It was possible for the authorities to have taken note of the opening and closing stocks to test the correctness or otherwise of the return filed by the assessees. That course, for, reasons undisclosed, was not adopted.
7. In the peculiar facts and circumstances of the case and on account of the fact that the authorities below failed to record findings which are essential for taking recourse to the provisions of section 12(2) of the Act, the orders of the authorities, including that of the Tribunal, cannot be sustained. Consequently, this revision succeeds and is accepted. The orders of the authorities below are set aside. The case is remanded to the assessing authority to make a fresh order of assessment in accordance with law after giving the assessees an opportunity to explain the alleged defects. There shall, however, be no order as to costs.
8. Petition allowed.