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2012 DIGILAW 529 (GAU)

State of Tripura v. Joy Kali Radio Stores

2012-04-30

ADARSH KUMAR GOEL, SUBHASIS TALAPATRA

body2012
JUDGMENT A.K. Goel, C.J. 1. This appeal has been preferred against the order of the learned single Judge quashing the order of assessment as upheld by the first appellate authority and the Tribunal under the provisions of the Tripura Sales Tax Act, 1976 ("the Act"). The petitioner is a dealer registered under the Act and engaged in dealing with the electronic goods. It filed its return for the assessment year 1994-95. The assessing authority examined the books of accounts and was of the opinion that the turnover did not appear to have been correctly disclosed. After giving opportunity to the assessee of being heard, it was held that the assessee had not declared the turnover correctly. This inference was based on the observation that the dealer had not correctly declared margin of profit and closing stock. During the assessment years 1991-92, 1992-93 and 1993-94 margin of profit declared by the dealer was at 8.87 per cent, 9.87 per cent and 10.87 per cent., respectively, but for the assessment year in question, the margin of profit was declared to be 6.25 per cent, which was also far below the profit margin declared by other dealers in the locality. The second ground was that closing stock was much higher to the closing stock declared in the earlier years. On best judgment assessment addition equal to four per cent of the turnover was made. 2. The relevant observations are : 8. On examination of the books of accounts produced by the dealer and returns of turnover furnished by the dealer the following defects/inconsistencies have come to light which induce a suspicion in my mind that the books of accounts are unreliable or/and incorrect or/and incomplete : (i) The closing stock of the dealer as on March 31, 1995 is calculated as at 37.67 per cent of the total turnover returned which is much higher side in comparison of the same dealer for the assessment year 1993-94 which was at 17.90 per cent of the turnover returned for the said assessment year. (ii) The dealer did not maintain its stock register in a classified manner indicating value of taxable goods in the said register; 12. (ii) The dealer did not maintain its stock register in a classified manner indicating value of taxable goods in the said register; 12. The grounds as put forwarded by the dealer on less profit margin during the assessment year 1994-95 is not acceptable inasmuch as the dealer is only importer in the market of 'Videocon' B/W TV sets, coloured TV sets, refrigerator, washing machines, 'Kelvinator' refrigerator, 'CC TV sets B/W and coloured' and the dealer sold these commodities at his own price list. As such the question of composition in the market of aforesold purchase commodities is not tenable since there was no other dealer imported the same brand of commodities in the market. Moreover the dealer's margin of profit on the similar commodities (same brand as indicated in the instant para) at higher side during the assessment years 1991-92, 1992-93 and 1993-94 and the dealer had earned higher margin of profit at 8.87 per cent, at 9.87 per cent and 10.87 per cent, respectively, in the similar market condition as it was in the instant assessment periods. 13. There is a constant hiking of price of all goods in the market due to pressure of inflation. As earning of profit at such low rate and at a diminishing rate or the period under assessment in comparison to previous year (1993-94) is quite unreasonable and unbelieved. 15. In absence of stock register in a classified manner indicating the value of goods it makes difficult to cross-examine the transactions and to ascertain the margin of profit on the cost of at 12 per cent, at 15 per cent and at 20 per cent taxable goods sold separately. The non-maintenance of stock register in classified manner by the dealer giving all such details makes his account hazy and opaque. 19. Considering all facts arid circumstances narrated above I do not accept the turnovers returned by the dealer as correct and complete and after careful consideration of all facts and circumstances it is decided to add back at four per cent of the turnover returned taking analogy of average margin of the some dealer for the assessment years 1991-92, 1992-93 and 1993-94 (which is calculated as at 9.87 per cent) and also in the light of inconsistencies indicated in the forgoing paras. 3. On appeal, the above view was upheld by the appellate authority as follows : 5... 3. On appeal, the above view was upheld by the appellate authority as follows : 5... The glaring discrepancies like highly inconsistent variation of margin of profit, non-maintenance of stock book in a classified manner and number of inconsistencies in the final account strongly indicates that the books of accounts of the assessee is quite unreliable. The facts and materials upon which the learned assessing authority has estimated the turnover by enhancing the disclosed turnover by four per cent is based on strong facts and materials. So, I consider the estimation of turnover as quite fair and justified. 4. On further appeal, the Tribunal also upheld the said view as follows : 10. After rejection of the books of accounts, the learned assessing authority estimated the turnover of the dealer by enhancing it by four per cent computed on the basis of the average profit earned by the dealer in the previous years of 1991-92, 1992-93 and 1993-94, which I consider to be fair and reasonable and hence upheld the order of the learned assessing authority as endorsed by the learned Additional Commissioner of Taxes. In the premises, the appeal petition is rejected and the order dated May 31, 1996 of the learned assessing authority and that dated October 31, 1996 of the learned Additional Commissioner of Taxes are upheld. 5. The assessee approached this court under article 226 of the Constitution of India. Learned single judge took the view that lesser margin of profit compared to earlier years or high closing stock in the year could not be the basis to reject the declared turnover of the dealer. The relevant observations are : 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 reject the return turnover of the dealer. 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'. 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'. 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 four per cent of the returned turnover to decide on the profit margin of the dealer without explaining how that figure of four per cent was reached: No reasons are discernible to indicate why the profit figure of 7.36 per cent 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 'classified 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. 6. We have heard Mr. J. Majumder, learned counsel, appearing for the appellants as well as Mr. S.C. Saha, learned counsel appearing for the respondent and perused the record. 7. Question for consideration is whether the order of best judgment assessment of the assessing authority as upheld by the appellate authority and the Tribunal was liable to be interfered with under article 226 of the Constitution, having regard to the facts and circumstances of the present case. 8. After hearing the learned counsel for the parties, we are of the view that learned single judge was not justified in interfering with the orders of the assessing authorities. 9. Section 9 of the Act provides for making assessment of the taxable turnover. If the assessing authority, in the course of assessment, is not satisfied that the returned turnover is correct, he can issue notice to the assessee and thereafter proceed to make assessment. The assessee is required to maintain proper accounts under section 34 of the Act. However, the assessing authority can declare that the return furnished was not correct or complete only for valid and rational reasons and not arbitrarily. If such satisfaction is validly reached, some guess work has to be allowed to be made and that such assessment cannot be interfered with by this court under article 226 of the Constitution. 10. However, the assessing authority can declare that the return furnished was not correct or complete only for valid and rational reasons and not arbitrarily. If such satisfaction is validly reached, some guess work has to be allowed to be made and that such assessment cannot be interfered with by this court under article 226 of the Constitution. 10. In the present case, admittedly, the assessee had shown lesser margin of profit compared to the last three years and other similar dealers and also declared disproportionately higher closing stock. These two observations appearing in the books of accounts of the assessee have neither been factually disputed nor could be held to be irrelevant to determine the question whether the turnover declared in the return correctly reflected the turnover of the assessee. Learned single judge observed that the assessing authority had not explained how the figure of four per cent was reached and how the profit figure of 7.36 per cent or proximate thereto declared by a similar dealer was not accepted. It was further observed that there was no requirement to maintain books in "classified manner" as per section 34 of the Act. These observations in the order of the learned single judge did not make out a case to interfere with the assessment unless it could be held that reasons for not accepting the declared turnover were irrational and non-existent. The learned single judge observed that mere lesser margin of profit could not be the basis for rejecting the returned turnover. It was not a case where there was mere lesser margin of profit, but the margin of profit was disproportionately lower to the consistently higher margin of profit in the preceding three years without there being any valid explanation for the same. There is no dispute with the proposition that mere lesser profit could not be the ground for rejecting the books of accounts if there was explanation showing that lesser profit was genuinely declared. 11. Whether or not in a given case lesser margin of profit could be a ground not to accept books of account has to be decided in overall fact-situation. It cannot be held that in no situation lesser margin of profit could be questioned in the course of assessment. In a given case, the dealer may give satisfactory explanation. 11. Whether or not in a given case lesser margin of profit could be a ground not to accept books of account has to be decided in overall fact-situation. It cannot be held that in no situation lesser margin of profit could be questioned in the course of assessment. In a given case, the dealer may give satisfactory explanation. Primarily, the question whether the books of accounts are genuine or not is question of fact to be determined from case to case on settled principles of law. The books of accounts have to be accepted unless there is ground to question them. If there are valid reasons to suspect the correctness thereof, the assessee can be required to explain the same and if the explanation is not satisfactory, the assessing authority can reject the books of accounts and make assessment on reasonable basis. 12. As already held in the present case, the reasons given by the assessing authority were not irrelevant and consistently the authorities upheld the addition to the turnover. Such addition could not be weighed in golden scales, if the same is broadly justified. Some amount of guesswork is inevitable. In exercise of writ jurisdiction, this court does not sit in appeal over the decision of the statutory authorities and does not interfere unless the same are arbitrary or irrational. 13. Reference may be made to some of the settled legal principles in this regard. 14. In Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esufali, H.M. Abdulali, Siyaganj, Main Road, Indore (1973) 32 STC 11 (SC); (1973) 2 SCC 137 , the honourable Supreme Court observed as follows (pages 82-84 in 32 STC) : 8... The assessing authority while making the 'best judgment' assessment, no doubt, should arrive at its conclusion without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his 'best judgment' and not of anyone else. The High Court could not substitute its 'best judgment' for that of the assessing authority. Prima facie, the assessing authority is the best judge of the situation. It is his 'best judgment' and not of anyone else. The High Court could not substitute its 'best judgment' for that of the assessing authority. In the case of 'best judgment' assessments, the courts will have to first see whether the accounts maintained by the assessee were rightly rejected as unreliable. If they come to the conclusion that they were rightly rejected, the next question that arises for consideration is whether the basis adopted in estimating the turnover has a reasonable nexus with the estimate made. If the basis adopted is held to be a relevant basis even though the courts may think that it is not the most appropriate basis, the estimate made by the assessing authority cannot be disturbed. In the present case, there is no dispute that the assessee's accounts were rightly discarded. We do not agree with the High Court that it is the duty of the assessing authority to adduce proof in support of its estimate. The basis adopted by the Sales Tax Officer was a relevant one whether it was the most appropriate or not. Hence the High Court was not justified in interfering with the same. 9. The law relating to 'best judgment' assessment is the same both in the case of income-tax assessment as well as in the case of sales tax assessment. The scope of 'best judgment' assessment under the income-tax law came up for consideration before the Judicial Committee as early as 1937 in Commissioner of Income-tax, Central and U.P. v. Laxminarain Badridas (1937) 5 ITR 170 (PC) at page 180;. Therein Lord Russell of Killowen, speaking for the Judicial Committee, observed : The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. Therein Lord Russell of Killowen, speaking for the Judicial Committee, observed : The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist Kim in arriving at' a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In that sense, too, the assessment must be to some extent arbitrary. 10. In Raghubar Mandal Harihar Mandal v. State of Bihar (1957) 8 STC 770 (SC); (1958) 1 SCR 37 at page 778, a case arising under the Bihar Sales Tax Act, 1944, the law relating to 'best judgment' assessment was examined at length by this court. Therein S.K. Das, J., speaking for the court, observed: No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess; but the estimate must be related to some evidence or material and it must be something more than mere suspicion. To use the words of Lord Russell of Killowen again, "he must make what he honestly believes to be a fair estimate of the proper figure of assessment" and for this purpose he must take into consideration such materials as the assessing officer has before him, including the assessee's circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him in arriving at a fair and proper estimate. (emphasis supplied.) Proceeding further the learned judge quoted with approval the observations of Din Mohammad, J., in Ganga Ram Balmokand v. Commissioner of Income-tax (1937) 5 ITR 464 (Lahore): It cannot be denied that there must be some material before the Income-tax Officer on which to base his estimate, but no hard and fast rule can be laid down by the court to define what sort of material is required on which his estimate can be founded. After quoting those observations, the learned judge proceeded to observe : With that observation we generally agree. If, in this case, the sales tax authorities had based their estimate on some material before them, no objection could have been taken. 11. Applying the rule laid down in Raghubar Mandal Harihar Mandal's case (1957) 8 STC 770 (SC); (1958) 1 SCR 37, to the facts of the present case, it is seen that the Sales Tax Officer had material before him to find out, how much turnover had escaped assessment during a period of 19 days. On the basis of that material he estimated the escaped turnover for the entire year. Hence it cannot be said that there was no basis for the estimate made by the Sales Tax Officer. It may be that his. estimate was an over-estimate or an under-estimate, but it cannot be said that the estimate was without any basis. In making that estimate, there was an element of guess-work which was inevitable in the circumstances of the case. If the Sales Tax Officer was compelled to adopt a rule of thumb which in a sense is an arbitrary rule, the assessee was entirely responsible for that situation. 12. In State of Kerala v. C. Velukutty (1966) 17 STC 465 (SC) at page 470 :(1965) 60 ITR 239 (SC) at page 244, this court speaking through Subba Rao, J. (as he then was), observed : The limits of the power are implicit in the expression "best of his judgment". Judgment is a faculty to decide matters with wisdom, truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a "best judgment" assessment, it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. 13. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a "best judgment" assessment, it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. 13. The question before us is whether there is a reasonable nexus between the basis adopted by the assessing authority and the estimate of escaped turnover made. We have no doubt that there is such a nexus. 15 In Commissioner of Sales Tax, U.P., Lucknow v. Girja Shanker Awanish Kumar (1997) 104 STC 130 (SC): (1996) 11 SCC 648 , the honourable Supreme Court observed as follows (pages 131 and 132 in 104 STC) : 4. The keeping of a stock register, especially in the case of a manufacturer, is of great importance. It is a means of verifying the assessee's accounts by having a quantitative tally. Section 12(2) of the Act mandates the dealer to maintain stock books in respect of raw materials as well as products obtained at every stage of production. If such a stock book is not maintained, it leads to the conclusion that the account books are not reliable or that particulars are not properly verifiable. If the account books are rejected, the turnover has to be determined to the best of judgment of the assessing authority concerned. We are unable to uphold the view that a defect in non-maintenance of stock register is only technical and so the turnover disclosed in the account books should be accepted. On the facts of a particular case, it is for the assessing authority to consider along with other materials disclosed in the case, to what extent the account books can be relied on for determining the turnover. In normal circumstances, the rejection of account books call for the estimation of the turnover to the best of judgment of the assessing authority. Having upheld that the account books of the assessee were liable to be rejected, the learned Judge of the High Court was wrong in holding that the defect is of a technical nature and the account books should be accepted. We set aside the decision of the High Court and direct that the estimated turnover of the dealer as upheld in appeal, shall stand restored. The appeal is allowed. We set aside the decision of the High Court and direct that the estimated turnover of the dealer as upheld in appeal, shall stand restored. The appeal is allowed. However, in the facts and circumstances of the case, there shall be no order as to costs. 16. It is also well-settled that the writ jurisdiction is supervisory and not appellate. Re-appreciation of evidence may not be permissible in absence of error of law. (Hari Vishnu Kamath v. Ahmad Ishaque AIR 1955 SC 233 , Syed Yakoob v. K.S. Radhakrishnan (1964) 5 SCR 64 , Surya Dev Rai v. Ram Chander Rai (2003) 6 SCC 675 ). In view of above, the view taken by the learned single judge cannot be upheld. The appeal is allowed. The order of the learned single judge is set aside and the writ petition of the respondent-writ petitioner is dismissed. There shall be no order as to costs.