State of Tamil Nadu vs P.T. Marimuthu Chettiar

Mishra, J.—The Appellate Tribunal (Additional Bench), Madurai, exercised its discretion in an appeal filed on behalf of the assessee under

the Tamil Nadu General Sales Tax Act, 1959 and held that with respect to certain discrepancies the alleged estimation as regards suppression of

excess stock on February 2, 1977, was not sustainable, but with respect to the turnover taxable u/s 7A of the Act, there was some justification,

but in respect, of quite a few of the allegations even in that regard. It held following the decision in Thvl. Kathiresan Yarn Stores, Salem Vs. The

State of Tamil Nadu, that the penalty is not sustainable. The State has challenged the order with respect to penalty only before us.

In Thvl. Kathiresan Yarn Stores, Salem Vs. The State of Tamil Nadu, (the decision relied upon by the Tribunal), the provision of section 12(3)

of the Act has been considered and it is stated,

An estimate of turnover can be made under various circumstances. More often an estimate or best judgment assessment, whether it be for the

purpose of imposing sales tax or for the purpose of imposing Income Tax under the Income Tax Act, can be based on nothing more than an honest

guess. This is permissible in law and no one at this distance of time can contend that the assessment to tax on such guesses is unsustainable. But the

question then arises whether by virtue of the mere fact that, on the basis of best judgment, the extent of the turnover has been fixed or the income

has been fixed, it automatically follows that the assessee had that income or had really sold the goods for the amount of the turnover. In all cases

this result would not follow. Though for the purpose of assessment the estimate can stand, we consider that 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, or had earned the income which was fixed by the best judgment method. This is because in all cases of imposition of penalty, a greater

degree of proof is insisted upon than in the case of assessments. It is unnecessary to labour this point further, because the matter has been dealt

with in detail by the Supreme Court in Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, . The Supreme Court ruled that

the mere fact that the assessing authority, in assessing a person, was satisfied that the return filed by the assessee did not disclose his correct

income, and proceeded to make a best judgment assessment, and assessed him on that basis, would not by itself lead to the conclusion that the

assessee had concealed the particulars of his income or had furnished inaccurate particulars thereof, in order to attract section 271(1)(C) of the

Income Tax Act, 1961. Though the word ''concealed'' is not used in section 12(3), nor the words ''furnished inaccurate particulars thereof'', it

would not materially alter the situation. Penalty is for not disclosing. In order that it may be said that there was non-disclosure, it has first to be

found that there was turnover or income to disclose. If the existence of the turnover or income is based on the fact that the assessee has not been

able to establish the case that he pleaded, that by itself would not prove the positive that there was income or turnover. But the inability to prove

the case pleaded would be sufficient to assess the dealer or the person liable to pay tax. In this case itself, the decision to assess has been founded

on the principle of the decision in The State of Madras Vs. S. Mohammed Samiulla Sahib and Company, .

...................

All the circumstances of the case will have to be carefully scrutinised and the question whether penalty should be imposed must be considered on

the basis of the judicial determination of the question whether grounds exist for the imposition of such penalty. In order that penalty may be

imposed, it must be possible first to come to the conclusion that there was actually turnover and further that that turnover was not disclosed. The

mere fact of 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.

Although the appellate authority has not proceeded to say in so many words that the alleged suppression having not been established or, if

established, it having been not shown that the assessee actually had such turnover upon which he ought to have been assessed, it was not possible

to impose any penalty, in effect, a perusal of the judgment shows that the Tribunal has gone by that approach only. The Tribunal has said,

The assessing officer in his estimate has taken into account the deficit stock on February 15, 1977. The Appellate Assistant Commissioner

however proceeded to consider the suppression of sales revealed by stock discrepancies on February 2, 1977. The pre-assessment notice does

not refer to the stock discrepancy on February 2, 1977 and of any proposal to estimate the turnover on such discrepancy. In that circumstances,

the Appellate Assistant Commissioner was in error in estimating the suppression by taking into account the stock discrepancy on February 2,

1977. It will be seen that in the computation that has been done by the Appellate Assistant Commissioner there has been an enhancement of

turnover without proper notice to the assessee. The estimation therefore that has been made by the Appellate Assistant Commissioner by taking

into account the stock discrepancy on February 2, 1977, cannot be upheld.

...... The assessing officer had held that the inspection had revealed an excess stock of 3,364 kgs. of gingelly oil and that the same involved

purchase of gingelly seed of 105.60 kgs. each of 70 bags. The assessing officer had also taken into account an excess stock of 70 bags of oil

seeds and 35 bags of nigar seeds found at the time of the inspection and had determined the purchase turnover liable to tax u/s 7A is Rs. 57,568.

The Appellate Assistant Commissioner while confirming the levy u/s 7A had taken into account the excess stock of 35 bags of nigar seeds noticed

on April 2, 1976 and also the excess stock of oil and oil seeds found on February 2, 1977. The excess stock of oil seeds found at the inspection

on April 2, 1976 and on February 2, 1977, does not attract the levy u/s 7A, in the absence of any material to show that such excess stock has

been consumed in the manufacture of oil or that it has been disposed of by any manner other than by way of sale in the State or that it has been

despatched to places outside the State except as a direct result of sale or purchase in the course of inter-State trade. The estimation in this regard

therefore cannot be justified. However in respect of the excess of 1,318 kgs. of oil noticed at the time of the inspection on February 2, 1977,

involving a purchase turnover of 47 bags of oil seeds, the same has been rightly brought to tax levy u/s 7A.

It can thus be seen that the Appellate Assistant Commissioner had committed a serious error in including in his estimation certain alleged

suppression of stock on February 2, 1977, as well as with respect to the purchase turnover u/s 7A of the Act. The penalty imposition was a result

of inclusion of such materials also as art of the turnover of the assessee upon which he was assessed, but, according to the Tribunal, there were

mistakes in it. There were two options open to the Appellate Tribunal, (1) either to set aside the order of the Appellate Assistant Commissioner

and remit the case for rehearing whether the conditions for imposition of penalty exist or not; or (2) to itself go into the question and decide

whether such conditions existed or not. The Appellate Tribunal, however, adopted the third course of making a reference to the judgment of this

Court in Kathiresan Yarn Stores v. State of Tamil Nadu [1978] 42 STC 121 [FB], and decided to hold that the imposition of penalty was not

valid. This, however, happened in the year 1979. Any course adopted, thereof, either to remit the case for a determination of the question whether

conditions for imposition of penalty existed or not, to the Appellate Tribunal or to the Appellate Assistant Commissioner will amount to creating a

proceeding with respect to the assessment year 1976-77, which stood concluded finally by the order of the Tribunal dated August 16, 1979.

Learned counsel for the petitioner has, drawn our attention to two judgments of this Court in State of Tamil Nadu v. V. S. Nalla Ibrahim [1984]

56 STC 110 and Sri Ambika Casting Industrial Works v. State of Tamil Nadu [1985] 58 STC 140. In the former case, this Court found fault with

the order of the Appellate Tribunal in interfering with the imposition of penalty u/s 12(3) of the Act, and after considering the facts of the case

decided to order for the imposition of penalty. In the latter case, the Court came to the conclusion that on the facts and in the circumstances of the

case, levy of penalty was justified and also added,

If penalty should be levied only when there are actual suppressions, the scope of section 12(3) would be considerably restricted, for every

assessee will give some explanation or other to sustain his plea that there are no suppressions and merely on the basis of the explanation given, it

cannot be said that section 12(3) cannot be invoked. In this case admittedly, the assessee is a dealer and slips have been found in its place of

business. Its explanation that the slips belong to somebody else has not been believed and there was an estimate of suppressions by the assessing

authority which has been sustained by the Tribunal.

As we have already noticed, in the instant case, there was/is scope to say that even on the basis of the findings recorded by the Appellate

Tribunal, there were/are materials to hold that conditions to attract section 12(3) of the Act exist. But the course to be adopted in such a situation

will be to remit the case for a rehearing as indicated above or else this Court itself would be required to embark upon an enquiry into the facts. In

either case, in our view, it will be inappropriate, after such an inordinate delay, to decide to reopen the issue of imposition of penalty. The judgment

of this Court in Kathiresan Yarn Stores v. State of Tamil Nadu [1978] 42 STC 121 was challenged before the Supreme Court in SLP No. 9161

of 1982 and it was dismissed on September 28, 1984. The law stated in the said case is the law that must hold the field.

For the reasons aforementioned, we do not find any merit in this tax case. The tax case is accordingly dismissed. There will be no order as to

costs.

Petition dismissed.