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2007 DIGILAW 169 (GAU)

Joykali Radio Stores v. State of Tripura

2007-02-28

HRISHIKESH ROY

body2007
JUDGMENT H. Roy, J. 1. Heard Mr. S.C. Saha, the learned Counsel for the petitioner and Mr. J. Majumder, the learned Counsel representing the respondents. 2. The petitioner, which was a partnership firm during the relevant year 1994-95, is before this Court seeking to challenge the order of assessment dated 31.5.1996, the first appellate order dated 31.10.1996 and the second appellate order dated 24.6.1997 passed under the Tripura Sales Tax Act, 1976 (hereinafter referred to as "the Act"). 3. The petitioner who is a wholesale dealer in electronic goods was served with a show cause notice dated 30.5.1996 alleging that the dealer did not make payment of the full tax due under the Act within the prescribed date and accordingly an opportunity was given to show cause by next date, i.e., 31.5.1996 as to why the books produced should not be rejected and penalty and interest shall not be fastened on the dealer. 4. By his reply dated 31.5.1996, the writ petitioner claimed that he has produced all the materials including audited balance sheet for examination and no concealment of Turnover was detected in the said books produced by the petitioner and the returns furnished by the petitioner has been accepted and the tax has also been deposited by the petitioner on the basis of the books maintained by the petitioner. In the reply it was further stated that the profit in the concerned year of assessment was less than earlier years because of keen competition in the market and accordingly, the petitioner had to reduce his profit margin for sometime to deal with the competitive market. It was further stated that the petitioner has been maintaining stock registrar as per normal business practice and the total turnover reflected in the books of accounts maintained by the petitioner should not be rejected. 5. By assessment order dated 31.5.1996, the Superintendent of Taxes, Charge-III, Agartala rejected the books of accounts and turnover returned by the Dealer for the assessment year 1994-95. The Assessing Officer also added 4% of the turnover by taking analogy of profit for the previous years (1991-92,1992-93,1993-94) and held the Dealer liable for additional tax amounting to Rs.1,12,194.40. The Assessing Officer also fastened the petitioner with interest liability under Section 25(1) of the Act read with Rule 27 of the Tripura Sales Tax Rules. The Assessing Officer also added 4% of the turnover by taking analogy of profit for the previous years (1991-92,1992-93,1993-94) and held the Dealer liable for additional tax amounting to Rs.1,12,194.40. The Assessing Officer also fastened the petitioner with interest liability under Section 25(1) of the Act read with Rule 27 of the Tripura Sales Tax Rules. 1976 (hereinafter referred to as "the Rules") for an amount of Rs.54,524.58 making the petitioner liable to pay a total sum of Rs.1,66,719/- towards tax and interest under the Act. The said assessment was made purportedly on account of the margin of profit declared by the dealer at the rate of 6.25%, which was considered abnormally low for the concerned year of assessment, i.e., 1994-95. The said margin of profit was found to be considerably diminished as the assessee had declared margin of profit in the previous three years, i.e., 1991-92 at the rate of 8.87%; for the year 1992-93 at the rate of 9.87% and for the year 1993-94 at the rate of 10.87% respectively. The assessing authority further found that in respect of another dealer dealing with similar items, profit margin of 7.36% was shown by the said dealer (M/s. Audio Visual Communication) and accordingly, the rate of profit at 6.25% for the petitioner Dealer was found unacceptable. The other point on which the Assessing Authority found fault with the books maintained by the dealer is the high closing stock as on 31.3.1995, which was reflected at 37.67%o of the total turnover for the concerned year. The Assessing Authority found that closing stock shown at 37.68% for the concerned year cannot also be accepted as in the very previous year the dealer had shown closing stock at 17.90%. The Assessing Authority also found that the dealer had not maintained stock register in a 'classified' manner and accordingly, it was difficult for the Assessing Authority to verify the said closing stock figure furnished by the dealer. On the basis of the aforesaid observation as already stated, the Assessing Authority rejected the books of accounts and turnover return furnished by the dealer for the year 1994-95 and decided to add 4% of the returned turnover by taking analogy of average profit margin of the writ petitioner dealer for the previous three years calculated at the rate of 9.87%. As there was some delay in furnishing the return, the dealer was also fastened with liability to pay interest under the provisions of Section 25(1) of the Act read with Rule 27 of the Rules. 6. The Additional Commissioner of Taxes exercising powers under Section 20 of the Act concurred with the assessment order passed and the Second Appellate Authority, i.e., the Tripura Sales Tax Tribunal also confirmed the order of assessment in exercise of powers under Section 22 of the Act. The Additional Commissioner of Taxes, exercising the appellate power under Section 20, in his confirmation order dated 31.10.1996 referred to a few decision to lend support to his order confirming the assessment made against the writ petitioner. 7. Appearing for the assessee writ petitioner, Mr. S.C. Saha, the learned Counsel has argued that in the instant case the authorities have broadly indicated two reasons for not accepting the books and the returns furnished by the petitioner while making and approving the impugned order of assessment. They relate to allegedly disproportionate closing stock and the diminishing rate of profit shown in the books furnished by the Assessee. Mr. Saha has raised the question as to whether, the allegedly disproportionate closing stock of 37.67%o could be a ground for making an assessment against the petitioner. Mr. Saha has also argued that the authorities making the assessment and the authorities confirming the said assessment have also erred by relying on the diminished profit declared by the petitioner at the rate of 6.25% to be unacceptable and have further erred by adding 4% to the turnover of the petitioner for making the assessment. In support of his submission, Mr. Saha has cited the decision of the Allahabad High Court in the case of Sola Mal Jalim Singh v. Commissioner of Sales Tax reported in (1977) 40 S.T.C. 166 , wherein the Allahabad High Court interfered with the decision of the U.R Sales Tax Authorities to reject the books of account maintained by the assessee on the ground of turnover of the assessee being disproportionate to the stocks held by the assessee in the concerned year. The decision of the Madras High Court reported in (1981) 48 S.T.C. 274 in the case of B. Ravi v. The State of Tamil Nadu has also been cited to press home the argument that low percentage of profit disclosed by the assessee cannot be a ground for rejection of the declaration made regarding the profit received and to fasten a higher liability of tax by way of assessment on the dealer. The decision of the Orissa High Court reported in (1970) 25 S.T.C. 501 (Ramchandra Ramnivas v. State of Orissa) has also been cited to show that earning of low profit by itself cannot be a ground for holding that the accounts books are not acceptable. Another decision of the Orissa High Court reported in 1973 32 S.T.C. 549 (Polaki Srirangam v. State of Orissa) has also been cited to show that low profit disclosed by the assessee cannot be a ground for rejecting the books of accounts and the same would depend upon the facts of each case. 8. The learned Counsel has also drawn attention to the decisions, which have been relied upon by the First Appellate Authority in order to support the order of assessment made against the dealer. The Supreme Court decision reported in (1964) 15 S.T.C. 644 (The State of Andhra Pradesh v. H. Abdul Bakshi) has been read out in full by the learned Counsel to show that the said decision has no application in the facts of the present case to support the decision either of the Assessing Authority or of the Appellate Authorities. The learned Counsel has also drawn attention of this Court to the decision of the Orissa High Court reported in (1970) 26 S.T.C. 22 (Muralimohan Prabhudayal v. State of Orissa). The said decision was relied upon by the First Appellate Authority in support of his order affirming the order of assessment against the dealer. In this case, the Court held that taxing officers are not precluded from making a fair and reasonable guess about the profit and loss, if the same is found to be low, on consideration of the local conditions. The decision of the Allahabad High Court in Ganesh Jewellers v. Commissioner, Sales Tax, U.P., Lucknow reported in (1987) 66 S.T.C. 259 has also been cited as the said decision was relied upon by the first Appellate Authority. 9. The decision of the Allahabad High Court in Ganesh Jewellers v. Commissioner, Sales Tax, U.P., Lucknow reported in (1987) 66 S.T.C. 259 has also been cited as the said decision was relied upon by the first Appellate Authority. 9. It is submitted by the learned Counsel for the writ petitioner that the Assessing Authority has erred in adding 4% additional profit on the return turnover to determine the tax liability of the dealer as the said figure of 4% of the return turnover has been arrived at through guesswork and surmises and cannot be relatable either to any omission or nondisclosure in the books maintained by the petitioner. The said 4% imposition is also challenged as in case of comparable dealer a profit declaration of 7.36% was available to compare with 6.25% profit declared by the petitioner. 10. Appearing for the Revenue, Mr. J. Majumder, the learned Counsel has argued that in exercise of certiorari jurisdiction by a Court, interference would not be called for unless the Court is of the view that the authorities have acted contrary to the principles of natural justice or have acted on the basis of guess or surmises. It was argued that in the instant case the Assessing Authority had rightly rejected the closing stock figures and since the dealer did not maintain the stock register in a 'classified manner' the Assessing Authority was perfectly justified in passing the assessment order by rejecting the figures produced through the books of the dealer. Mr. Majumder in support of the said contention has drawn attention of the Court to the provisions of Section 34 of the Act as well as the provisions of Rule 41 of the Rules. 11. On scrutiny of the aforesaid provisions of Section 34 of the Act and Rule 41 of the Rules, the requirement of maintaining stock book in 'classified form' is not seen. Section 34 of the Act comes into operation when a notice under the Section is served on such dealer and if the Commissioner feels that books have not been maintained to his satisfaction, the Commissioner may direct the dealer to keep accounts in such form as he may prescribe. Rule 41 requires a dealer to maintain account of goods, its quantity, value etc. But through the said provisions, no specific form for maintaining books have been prescribed. Rule 41 requires a dealer to maintain account of goods, its quantity, value etc. But through the said provisions, no specific form for maintaining books have been prescribed. It could not also be indicated by the counsel appearing for the Revenue that any particular form has been prescribed by the Commissioner for maintaining the books of accounts and accordingly, the rejection of the books of accounts and stock maintained by the dealer because the same are not maintained in 'classified form', cannot in the opinion of this Court, be accepted as a good ground for rejection of the books maintained by the dealer. 12. The learned Counsel for the Revenue has also made submission to show that the Assessing Authority was perfectly justified in taking a decision to add back 4% of the return turnover by taking analogy of average margin of the dealer for the previous three assessment years, which has been calculated @9.87%. 13. It is seen from the assessment order itself that the writ petitioner dealer had declared profit margin @ 6.25% for the relevant year of assessment. In respect of a comparable dealer dealing in electronic items, the profit of margin declared by the said dealer was 7.36%, which figure was available before the Assessing Authority. Yet the Assessing Authority did not give any reason as to why he did not accept the profit margin declared by a comparable dealer to be the acceptable profit margin and as to why 4% of the return turnover was added to the margin of profit of % the assessee dealer. 14. It is seen from the decisions that have been cited that, merely because there is a lesser margin of profit in a given year or there is a higher closing stock at the end of the year, cannot be the basis for the Assessing Authority to eject the return turnover of the dealer. 15. In the instant case, I find that the assessment order as well as the orders confirming the said order of assessment have been made because of the diminished profit and the comparatively higher closing stock declared by the dealer. The non-acceptability of the turnover returns of the dealer has also been supported on the basis that the dealer had not maintained his books in a 'classified manner'. 16. The non-acceptability of the turnover returns of the dealer has also been supported on the basis that the dealer had not maintained his books in a 'classified manner'. 16. In the opinion of the Court, neither of the aforesaid reasons in the facts of this case could warrant the conclusion reached by the Assessing Authority or by the Appellate Authorities. The Assessing Authority decided to add back 4% of the returned turnover to decide on the profit margin of the dealer without explaining how that figure of 4% was reached. No reasons are discernible to indicate why the profit figure of 7.36% or a figure proximate thereto declared by a similar dealer, was not accepted. This Court also finds that there was no requirement of law to maintain books by a dealer in a "classic manner" as was contended by the Revenue authorities as no such Method/Form has been indicated under the provisions of Section 34 of the Act and Rule 41 of the Rules. 17. In view of the aforesaid discussion, this Court is of the view that the impugned orders are not based on relevant considerations and materials. A large part of the decision making process appear to be based on conjectures and surmises. Accordingly, the impugned orders dated 31.5.1996, 31.10.1996 and 24.6.1997 of the Assessing Authority, the First Appellate Authority and the Second Appellate Authority respectively are set aside and quashed. 18. The writ petition is allowed accordingly. No cost. In favour of Department.