State of Tamil Nadu vs Ramshree Payal Bhandar

F.M. Ibrahim Kalifulla, J.—This tax case has been preferred by the State. The challenge is to the order dated December 8, 2000 passed in

C. T. A. No. 60 of 1999 on the file of the Sales Tax Appellate Tribunal (Additional Bench), Coimbatore. The questions of law raised in this case

are as under :

(i) Whether, in the facts and circumstances of the case, the Tribunal was right in having reduced the further addition at Rs. 5,54,800 to Rs. 27,586

on the ground that the assessee had paid huge amount of compounding fee for not carrying the bill is legally sustainable ?

(ii) Whether the reduction of second penalty by the Tribunal is valid in law ?

The assessee was engaged in manufacturing of silver anklets. The assessee reported a total and taxable turnover of Rs. 4,88,592 in form I for

the assessment year 1994 to 1995. As against the assessee, the enforcement wing officials registered a case for transportation of 40.140 kgs of

silver anklets which were not supported by any records and collected tax surcharge and compounding fee. When the enforcement wing officials

inspected the place of business of the assessee on September 7, 1994, various defects were noted, including an excess stock of 4.244 kgs of

silver. Based on the above factors, apart from the taxable turnover reported by the assessee, the actual suppression was determined at Rs.

5,54,800 to which equal addition amount was added towards probable omissions. In all, the total and taxable turnover was determined at a sum of

Rs. 15,98,191. On that basis, tax was assessed along with surcharge and additional sales tax was assessed at Rs. 44,770 and penalty of Rs.

52,476 being 150 per cent of short-fall between the tax and surcharge assessed was levied. As against the proceedings of compounding offence

relating to the transportation of 40.140 kgs of silver, the assessee preferred a revision before the Joint Commissioner, who, by his order dated

September 7, 1997, modified the compounding fee to Rs. 6,000. As against the order of assessment, the assessee preferred an appeal before the

Appellate Commissioner, which was dismissed on January 12,1998. Aggrieved against the same, the assessee preferred further appeal before the

Tribunal. The Tribunal, by the impugned order, dealt with the question of equal addition as issue Nos. (iv) and (v) and held that in the case of the

assessee, there was no other instances of carrying goods without any bill and taken a lenient view by modifying the compounding fee and reduced

the equal addition to a sum of Rs. 27,586 based on the stock discrepancy noted at the time of inspection, which was valued at Rs. 27,586.

Assailing the said order of the Tribunal, the learned Government Advocate appearing for the State contended that compounding fee having not

been reduced by the revisional authority, taking note of the equal addition and the consequent tax liability, there should have been no further

indulgence shown to the assessee in the matter of equal addition. According to the learned Government Advocate, when the assessee failed to

maintain the statutory account books and other records as expected of it, there was only justification for the assessing authority to have made an

equal addition in order to ensure that there was no falsification of the accounts. The learned Government Advocate referred to the decision

reported in The Commissioner of Sales Tax, Madhya Pradesh Vs. H.M. Esufali, H.M. Abdulali, Siyaganj, Main Road, Indore, , (ii) Indo Burma

Stationery and Paper Stores Vs. State of Tamil Nadu, and (iii) P.M. Sundaram & Company v. State of Tamil Nadu [1993] 90 STC 513 (Mad).

As against the above submission, Mr. Lakshmanan, learned Counsel for the respondent/assessee contends by placing reliance upon the decision

of the honourable Supreme Court reported in Raghubar Mandal Harihar Mandal Vs. The State of Bihar, that while applying the concept of best

judgment, the assessing authority shall not act dishonestly, vindictively and capriciously. Moreover, in the absence of any consistent suppression

pattern adopted by the assessee, the application of equal addition by the assessing authority, while making the best judgment assessment, was

totally unwarranted.

We heard the learned Counsel for the petitioner as well as the respondents and perused the order of the assessing authority, Appellate Assistant

Commissioner, the impugned order passed by the Tribunal as well as the decisions placed by the counsel for both sides. In the decision of the

honourable Supreme Court in Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esufali, H.M. Abdulali [1973] 32 STC 77 the Supreme

Court has issued certain guidelines to be followed while making reassessment on the basis of best judgment and what are all the relevant factors to

be kept in mind by the assessing authority while making reassessment in page No. 81. The relevant portion is extracted hereunder :

...While making reassessments on the basis of the information gathered from the bill book seized, the Sales Tax Officer rejected the accounts

maintained by the assessee as unreliable and assessed the assessee on the basis of his ''best judgment''. The distinction between a ''best judgment''

assessment and assessment based on the accounts submitted by an assessee must be borne in mind. Sometime there may be innocent or trivial

mistakes in the accounts maintained by the assessee. There may be even certain unintended or unimportant omissions in those accounts; but yet the

accounts may be accepted as genuine and substantially correct. In such cases, the assessments are made on the basis of the accounts maintained

even though the assessing officer may add back to the accounts price of items that might have been omitted to be included in the accounts. In such

a case, the assessment made is not a ''best judgment'' assessment. It is primarily made on the basis of the accounts maintained by the assessee. But

when the assessing officer comes to the conclusion that no reliance can be placed on the accounts maintained by the assessee, he proceeds to

assess the assessee on the basis of his ''best judgment''. In doing so, he may take such assistance as the assessee''s accounts may afford; he may

also rely on other information gathered by him as well as the surrounding circumstances of the case. The assessments made on the basis of the

assessee''s accounts and those made on ''best judgment'' basis are totally different types of assessments.

In the decision reported in Raghubar Mandal Harihar Mandal Vs. The State of Bihar, the concept of best judgment assessment has been set out

in para 6 which reads as under (page 778 of STC) :

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 him 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.

A reading of the principles set out by the honourable Supreme Court will make it clear that even while rejecting the account placed by the

assessee as unreliable, while at the same time when the assessing officer gather very many details from the accounts as well as from other materials

on which the assessing officer could place his hands, apart from gathering other information relating to the business of the assessee, the assessing

officer is expected to make a honest estimate and must ensure that the same is not vindictive.

The Division Bench of this Court in the decision rendered in P.M. Sundaram & Company v. State of Tamil Nadu [1993] 90 STC 513 has

indicated that on consideration of the nature and pattern of maintenance of anonymous accounts, when suppressions found to be a continuous

process, the same would warrant an addition for probable omissions over the period prior to the relevant assessment year.

Applying the above principles to the facts of the case on hand, we are of the view that the assessing officer, though pointed out certain defects in

maintenance of records and accounts, did not reject the turnover reported by the assessee. The assessing officer, apart from accepting the turnover

as reported by the assessee, proceeded to make an assessment of the suppression by making an estimation. In that process, since the quantity of

excess stock was quantified at 4.270 kgs of silver anklets and the transportation of the silver anklets without bills was also available to the exact

quantity, namely, 40.140 kgs, the assessing officer was able to value those items which worked out to a sum of Rs. 5,54,800. To that extent, the

action of the assessing officer cannot be in any way faulted, but the assessing officer proceeded further and made an equal addition of the

suppression and estimated it at Rs. 5,54,800 and the total suppression was thus arrived at Rs. 11,09,600 to which the taxable turnover reported

by the assessee was added and the total taxable turnover was estimated at Rs. 15,98,191. When the aid action of the assessing officer was

examined by the Tribunal, the Tribunal, at the outset, noted that there was no incident of the assessee carrying goods without any bills in the past.

In other words, the Tribunal found that there was no continuous pattern of suppression adopted by the assessee which warrants imposition of any

additional amount, much less equal addition over and above the estimated suppression made by the assessing officer. In our considered opinion,

such an approach made by the Tribunal was perfectly justified and consequently, the scaling down of the amount towards probable omission from

Rs. 5,54,800 to Rs. 27,586 by the Tribunal does not call for any interference as we do not find any legal or serious irregularity in the said

approach of the Tribunal. The tax case is accordingly dismissed answering the questions of law raised in this case against the State. No costs.