B. Ravi vs The State of Tamil Nadu and Another

Ramaswami, J.—The assessee is a manufacturer and dealer in stainless wares .It appears that he started the manufacturing industry some

time prior to 1974-75. His place of business was inspected on 10th October, 1975, by the sales tax authorities and it was found that he had

effected sales to an extent of Rs. 37,975.60 during the year 1974-75 as per bills. He submitted his return after the inspection on 17th October,

1975, disclosing the total turnover as Rs. 37,975.60. This was a belated return. The assessing officer noticed that as per the books of account

produced by the assessee the purchase value of the stainless steel was shown as Rs. 36,737.37 and the gross profit worked out only at 3 per cent.

On the ground that the gross profit shown as per the accounts suggested sales omission, a pre-assessment notice was issued u/s 12(2) proposing

an addition of 20 per cent to the purchase value and determining the total and taxable turnover at Rs. 44,084.85 and calling for the dealer''s

objections, if any. In the reply to the notice the assessee had stated that the low percentage of gross profit by itself did not warrant an inference of

suppression of sales turnover or rejection of the books of account and that there was no basis for proposing to assess at best judgment basis u/s

12(2). So far as the delay in filing the return is concerned he contended that he was a new undertaking, that he was not fully aware of his liability to

submit the return and that his business troubles did not allow him to attend to this legal obligation of submitting the return. He also pleaded that the

non-submission of his return in time was not wilful. The assessing officer rejected this explanation observing that but for the inspection on 10th

October, 1975, the assessee would not have submitted any return at all and that the objection to the best judgment is without any force. In the

result, adding 20 per cent to the purchase value of Rs. 36.737.37 he determined the total and taxable turnover at Rs. 44,084.85 and demanded

the tax at 8 per cent thereon. He also levied a penalty of Rs. 5,290.20 (rounded to Rs. 5,290) u/s 12(3) at 1 1/2 times the tax due. The assessee

preferred an appeal reiterating his contention that there was no wilful omission to file the return, that he came to know about his liability to submit

the return only when the inspecting officers pointed out that in spite of the fact that the turnover had not reached Rs. 50,000 he is governed by

section 3(2) and that, therefore, whatever be the turnover he had to submit a return. He also contended that there was not even a single purchase

or sales omission and, in fact, the assessing officer had not pointed out any sales or purchase omission and in the circumstances, therefore, merely

on the basis that the gross profit worked out at 3 per cent, there was no justification for rejecting the accounts or for best judgment assessment.

But the Appellate Assistant Commissioner rejected this contention holding that through the return was submitted voluntarily, it was belated. He was

also of the view that but for the inspection, probably the assessee might have suppressed the sales and would not have submitted the return at all.

He also sustained the penalty. The Tribunal accepted the finding of the Appellate Assistant Commissioner that there was a belated return and that

the explanation offered by the assessee for not submitting the return in time cannot be accepted. The Tribunal also held that there was no

justification for interfering with the order of the assessing officer in determining the taxable turnover at Rs. 44,084.85. While accepting that the

penalty is also leviable in this case the Tribunal took into consideration the fact that the assessee is a new dealer and, in the circumstances, some

leniency is called for on the imposition of penalty and, accordingly, reduced the penalty to 50 per cent of the tax payable on the suppressed

turnover. Treating the entire turnover at Rs. 44,084.85 as suppressed turnover, the penalty payable was determined at Rs. 1,764. It is against this

order the present revision has been filed.

We have seen the trading account of the assessee for the year 1974-75. It showed the purchase turnover as Rs. 38,114.87 and the sales

effected as Rs. 6,041.50. The manufacturing wages paid amounted to Rs. 4,664. It is in these circumstances that the gross profit is mentioned as

Rs. 1,238.23. This cannot be considered to be the real gross profit of the trading account because, this is a manufacturing gross profit and,

therefore, the assessing officer was not correct in stating that the trading account showed only 3 per cent gross profit. The assessing officer had not

taken into account the closing stock of Rs. 6,041.50. A look at the trading account leaves us an impression that the assessing officer seems to have

an unreasonable suspicion and there was no real basis for rejection of the return submitted by the assessee. It may also be pointed out that neither

the assessing officer nor the appellate authorities have found any particular sale or purchase omission. It is only on the general impression that 20

per cent profit should have been derived by the assessee that the account books were rejected and the taxable turnover was determined at best of

judgment basis. Even for adopting 20 per cent as the normal gross profit for such transaction, we do not have any evidence or comparable data

with reference to the business of other dealers in this line. This Court has been repeatedly pointing out that even a best judgment assessment cannot

be a wild guess but a reasonable and justifiable guess based on some material at least. As we have pointed out earlier, in this case there was

absolutely no material by which one can justifiably say an addition of 20 per cent to the purchase turnover was reasonable. Further, in the Full

Bench judgment in Kathiresan Yarn Stores v. State of Tamil Nadu 1978 42 S.T.C.121, this Court had held that the mere fact that there is a best

judgment assessment, particularly when the assessment is based on the inference flowing from the inability of the assessee to establish the case

pleaded by him, will not be sufficient for the purpose of imposition of penalty, for the degree of proof required for the imposition of penalty is quite

different from and is of a much higher order than that required for the purpose of making a best judgment assessment. The Full Bench further

observed that though an estimate made on best judgment basis may be legal, for the purpose of imposing penalty something more concrete is

required which would enable the judicial mind to reach the conclusion that the dealer actually had the turnover which was fixed by best judgment.

As we have already pointed out, no such material is available for us to conclude that there was any wilful suppression of the taxable turnover

warranting a penalty u/s 12(3) . Therefore, the order of the Tribunal imposing penalty is not sustainable and accordingly we set aside the penalty

and allow the tax revision case. It may be mentioned that the assessee had only questioned the penalty and not the determination of the turnover or

the tax demanded on the turnover determined. The assessee will be entitled to his costs. Counsel fee Rs. 250.

Petition allowed.