K. Natarajan Chettiar and Another vs The State of Tamil Nadu

V. Ramaswami, J.—The Petitioners were partners of a firm called Karthikeyan and Company. The Partnership was dissolved on 30th April

1966 and in the process of winding up the two Petitioners were given certain hardware goods in satisfaction of their share of capital in the firm.

Later on between 5th May 1966 and 11th August 1966 the two Petitioners sold the stock and realized the money. They stopped the business as

such on 13th June 1966. For the assessment year 1966-1967 they submitted a return in Form A1 on 3rd November 1967 showing a total and

taxable turn-over of Rs. 48,873-96 and 40,241-56 respectively. Though they filed this return thus voluntarily, they claimed that the transactions of

sale of stock which was received by them in satisfactions of their share capital were not commercial transactions, but were only realization sales

and that therefore they were not liable to pay any sales tax. The assessing Officer held that the sale transaction were liable to be taxed under the

Tamil Nadu General Sales Tax Act and that the contention of the Petitioners was not acceptable. This view was confirmed by the Appellate

Assistant Commissioner and the Tribunal. The Assessing Officer also held that, since the return for the assessment year 1966-1967 ought to have

been filed before 1st May 1967, but it was filed only on 3rd November 1967, the Petitioners were also liable to penalty, and, accordingly, he

levied a penalty of Rs. 1,514-27 u/s 12(3) of the Act. The order of penalty also was confirmed by the Appellate Assistant Commissioner. But the

Tribunal took the view that, since the Petitioners had filed voluntarily, though belatedly, on 3rd November 1967, a return which was accepted by

the Assessing Officer, the levy of penalty was excessive. The Tribunal accordingly reduced the penalty to Rs. 500.

In this revision petition the learned Counsel for the Petitioners questions the jurisdiction of the Assessing Officer to levy penalty u/s 12(3) of the

Act, when the return was filed by them voluntarily, though after the prescribed period u/s 12(3) of the Act, if no return is submitted by a dealer

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 assess the dealer to the best of its judgment. In cases where the provisions of Section 12(2) are invoked, the assessing authority can

also levy a penalty which will not exceed one and a half times the amount of tax due on the turnover that was not disclosed by the dealer in his

return in cases where the return submitted by him is considered to be incomplete or incorrect, and at one and-a-half times the tax assessed in the

case of failure to submit the return within the prescribed period. Thus, in order to attract the provisions of Section 12(3), the assessment should be

one of best judgment u/s 12(2). If the return submitted by a dealer beyond the period prescribed was accepted by the Assessing Officer and

assessment made on that basis, the penal provisions of Section 12(3) would not be applicable. In this case, as we have already noticed, though the

return was filed on 3rd November 1967, long after the prescribed period, the Assessing Officer found it to be correct and acceptable. Therefore

the assessment could not be said to be a best judgment assessment falling u/s 12(2). The assessing authority had therefore no jurisdiction to levy

penalty u/s 12(3). The point is also covered by authority. In Bata Shoe Company Private Limited Vs. The Joint Commercial Tax Officer and

Another, this Court held that, even though a return was filed after the period prescribed, if the assessing authority did not reject the return, he had

no jurisdiction to make an assessment on best judgment basis. The jurisdiction to assess by best judgment would arise only in the event of the

Assessee failing to file the return or the return filed being found to be incomplete or incorrect. If the return was filed before the assessment order,

the Assessing Officer was bound to look into the return, and, if he felt that it was complete and acceptable, he was bound to make an assessment

order on the basis of the return and not on best judgment basis. The same learned Judges who decided Bata Shoe Company Private Limited Vs.

The Joint Commercial Tax Officer and Another, again in The National Insulated Cable Co. of India Ltd. Vs. The State of Madras, held that, even

in cases where the return was filed belatedly, if it was accepted by the Assessing Officer and assessment was made on that basis without invoking

best judgment, Section 12(3) would not authorize him to levy penalty.

The order of the Tribunal levying penalty is therefore unsustainable and it is accordingly set aside. The tax revision case is partly allowed in so far

as the penalty is concerned and in other respects it is dismissed. There will be no order as to costs.