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Commissioner of Sales Tax Vs. Kutubali Noorjibhai and Co. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference No. 44 of 1969
Judge
Reported in[1975]36STC523(Bom)
ActsBombay Sales Tax Act, 1959 - Sections 36(2) and 61(1)
AppellantCommissioner of Sales Tax
RespondentKutubali Noorjibhai and Co.
Appellant AdvocateM.S. Sanghvi, Adv.
Respondent AdvocateB.C. Joshi and ;P.C. Joshi, Advs.
Excerpt:
.....in any event, as messrs. the tribunal pointed out several infirmities in the manner in which the sales tax officer had proceeded to make a best judgment assessment. it is undoubtedly true that a best judgment assessment made by a taxing authority must inevitably involve some guesswork, but its sole basis cannot be imagination. the estimate made by the assessing authority in making a best judgment assessment should not be vindictive or capricious, but it should be a bona fide estimate and arrived at on a rational basis. the supreme court has pointed out that in making a best judgment assessment the assessing authority may take such assistance as the assessee's account books may afford and he may also rely upon other information gathered by him as well as the surrounding circumstances of..........that while examining the account books of one messrs. badrinarayan jamnadas oil mills the sales tax officer found that the account books of the said firm contained entries showing sales of oil of the aggregate value of rs. 20,056.73 entered in the said books in the name of the respondents. the sales tax officer wanted to verify whether these transactions were also entered as purchases in the account books of the respondents and, therefore, paid a surprise visit to the respondents' place of business on 12th november, 1962, and seized the respondents' account books. the sales tax officer, however, did not find any entry with respect to these transactions in the account books of the respondents. the sales tax officer thereupon did not accept the account books of the respondents and.....
Judgment:

Madon, J.

1. The respondents to this reference under section 61(1) of the Bombay Sales Tax Act, 1959, were registered as dealers under the said Act and carry on wholesale and retail business mostly in oil. During the course of their assessment proceedings for the assessment period 9th November, 1961, to 18th October, 1962, it transpired that while examining the account books of one Messrs. Badrinarayan Jamnadas Oil Mills the Sales Tax Officer found that the account books of the said firm contained entries showing sales of oil of the aggregate value of Rs. 20,056.73 entered in the said books in the name of the respondents. The Sales Tax Officer wanted to verify whether these transactions were also entered as purchases in the account books of the respondents and, therefore, paid a surprise visit to the respondents' place of business on 12th November, 1962, and seized the respondents' account books. The Sales Tax Officer, however, did not find any entry with respect to these transactions in the account books of the respondents. The Sales Tax Officer thereupon did not accept the account books of the respondents and enhanced the respondents' turnover of sales as appearing in the respondents' cash-books by Rs. 66,184 and correspondingly enhanced the respondents' turnover of purchases by Rs. 66,168. The total turnover of sales so estimated by enhancement as aforesaid was Rs. 13,80,559 and the total turnover of purchases so estimated by reason of the aforesaid enhancement was Rs. 12,73,130. The Sales Tax Officer also levied penalty on the respondents under section 36(2)(c) of the said Act. The respondents thereupon filed an appeal to the Assistant Commissioner of Sales Tax. In the said appeal they, inter alia, contended that no proper opportunity was given to them to meet the case made against them, that they had not made any such purchases as appearing in the account books of Messrs. Badrinarayan Jamnadas Oil Mills, that the best judgment assessment made against them was not justified and that, in any event, as Messrs. Badrinarayan Jamnadas Oil Mills were a registered dealer, the Sales Tax Officer should have held that all their purchases which he had taken as suppressed were made from registered dealers. It may be mentioned that in the assessment order the Sales Tax Officer treated what he found to be the suppressed purchases from Messrs. Badrinarayan Jamnadas Oil Mills as being purchases from registered dealers, while the remaining part of the enhanced turnover of purchases, namely, the turnover of Rs. 46,131.73 was treated by him as being purchases made by the respondents from unregistered dealers. The Assistant Commissioner rejected all the arguments advanced by the respondents and dismissed their appeal. He observed that they had sufficient opportunity to meet the case made against them and that the respondents should have produced their account books and cash-books and their bank pass-books to show that they had not made the alleged purchases. In the course of his order the Assistant Commissioner of Sales Tax has observed as follows :

'They (that is, the respondents) have also not made any request for calling the accountant or a partner of M/s. Badrinarayan Jamnadas for cross-examination as their witness.'

2. The above observations made by the Assistant Commissioner of Sales Tax leave us wondering - whether the particular Assistant Commissioner of Sales Tax who heard the appeal at all knew what the principles of evidence are and what was meant by a party's own witness and what was meant by cross-examination. We are also equally bewildered by the comment of the Assistant Commissioner of Sales Tax that the respondents should have produced their account books and cash-books and their bank pass-books to show that they had not made the alleged purchases. In making this observation the Assistant Commissioner of Sales Tax seems to have forgotten that the Sales Tax Officer had raided the respondents' premises and had seized all his account books.

3. Against the order of the Assistant Commissioner of Sales Tax the respondents' filed an appeal to the Sales Tax Tribunal. The Tribunal pointed out several infirmities in the manner in which the Sales Tax Officer had proceeded to make a best judgment assessment. It, however, came to the conclusion that it was not necessary to deal further with that aspect of the matter as the presumption drawn by the Sales tax Officer and confirmed by the Appellate Commissioner in appeal, namely, that all the purchases held by the Sales Tax officer to be suppressed purchases except purchases from Messrs. Badrinarayan Jamnadas Oil Mills were purchases made from unregistered dealers, was not justified on the facts of the case. The Tribunal came to the conclusion that the facts and circumstances of the case, on the contrary, could only justify the presumption that all these purchases were made by the respondents from registered dealers. In its judgment the Tribunal has listed the circumstances and the facts from which this presumption should logically have been drawn as the only presumption. The Tribunal has pointed out that the suppressed transaction of purchase which might said to have been proved was one of Rs. 20,056,73 from Messrs. Badrinarayan Jamnadas Oil Mills, who were registered dealers, that out of the turnover of the respondents running into about Rs. 13,00,000 not a single transaction was from an unregistered dealer and that the respondents' accounts were closed and adjusted. The Tribunal has further pointed out that these transaction were said to be purchases of oil and that oil could only be purchased from oil mills which would normally be all registered as dealers under the Bombay Sales Tax Act, 1959, and that there was, therefore, no scope for the respondents to purchase oil from an unregistered dealer, since the respondents were a wholesale dealer with a large turnover of purchases and sales of oil. Accordingly, the Tribunal came to the conclusion that all the enhanced purchases must be held to be purchases made from registered dealers and that, in the circumstances, the levy of penalty on the respondents was not justified.

4. Arising out of this judgment and order of the Tribunal, at the instance of the Commissioner of Sales Tax, the following question has been referred to us under section 61(1) of the said Act for our determination :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the tax liability of the respondents should proceed on the basis that all enhanced purchases were from registered dealers without requiring the respondents to prove that the enhanced purchases were made from registered dealers and that no penalty under section 36(2)(c) should be levied ?'

5. Before us, Mr. Sanghvi, the learned counsel for the applicants, has submitted that there was no basis for drawing the presumption which the Tribunal has drawn, namely, that all the enhanced purchases were purchases made from registered dealers. We are in complete agreement with Mr. Sanghvi that there was no basis for drawing the presumption which was drawn in this case, but, in our opinion, it was the presumption drawn by the Sales Tax Officer and confirmed by the Assistant Commissioner in appeal and not by the Tribunal. A presumption is an inference of fact drawn from other known or proved facts. It is undoubtedly true that a best judgment assessment made by a taxing authority must inevitably involve some guesswork, but its sole basis cannot be imagination. The estimate made by the assessing authority in making a best judgment assessment should not be vindictive or capricious, but it should be a bona fide estimate and arrived at on a rational basis. As held by the Supreme Court in Commissioner of Sales Tax, M.P. v. H. M. Esufali H. M. Abdulali : [1973]90ITR271(SC) , there has to be a reasonable nexus between the basis adopted in estimating the turnover and the estimate made. If the basis adopted is a relevant basis, even though the court may think that it is not the most appropriate basis, the estimate made by the assessing authority cannot be disturbed. The Supreme Court has pointed out that in making a best judgment assessment the assessing authority may take such assistance as the assessee's account books may afford and he may also rely upon other information gathered by him as well as the surrounding circumstances of the case. Bearing these principles in mind let us now turn to the facts of the case. What were the facts upon which the Sales Tax Officer drew the presumption or inference that all enhanced purchases, except purchases made from Messrs. Badrinarayan Jamnadas Oil Mills, were made from unregistered dealers The only fact before the Sales Tax Officer which he found was that a certain purchase which was suppressed was made from a registered dealer. From this fact alone, in complete disregard to all the other facts and circumstances of the case, namely, that oil purchased by the respondents could only be purchased from oil mills which were all registered dealers, that there was not a single transaction of this kind from an unregistered dealer entered in the respondents' account books in the large turnover of purchases made by the respondents, he arrived at the conclusion that if purchases of about Rs. 20,000 made from a registered dealer were suppressed, then it should follow that purchases of the value of over Rs. 46,000 must have been made from unregistered dealers. The irrationality of drawing such an inference from the facts and circumstances of this case has been pointed out by the Tribunal in its judgment. The Tribunal is an appellate body both with respect to the facts and the law. We find here that in arriving at its decision and in drawing the inference, which it did, the Tribunal has acted rationally and logically and that the presumption which it has drawn is one drawn from the facts which were known or proved and not from facts which did not exist, as in the case of the inference drawn by the Sales Tax Officer and the Assistant Commissioner of Sales Tax.

6. Mr. Sanghvi also relied upon a decision of the Nagpur Bench of this High Court, namely, Hirjee v. State of Maharashtra [1966] 18 S.T.C. 460. We find that that case has no application to the present case. In that case, the assessee did not maintain any account books and the Sales Tax Officer made a best judgment assessment by increasing the sales disclosed by the assessee's bill books by a certain percentage. The Sales Tax Officer also granted the assessee certain deductions in respect of the goods exported by him outside the State when he proved that he had done so by producing railway receipts. The assessee's contention that all the remaining sales should also be treated as sales of goods exported by him outside the State was negatived on the ground that he was entitled to deduction only in respect of those sales which were proved to have been exported outside the State. These facts have no relation to the facts of the case before us. The assessee here maintained account books. The only suppressed sale which was found was from a registered dealer. The assessee's business was such that all his purchases would normally be made from registered dealers. These facts cannot give rise to any inference that he must have, therefore, made certain purchases from unregistered dealers which he must have suppressed.

7. In the result, we answer the question submitted to us in the negative.

8. The applicant will pay to the respondents the costs of this reference.

9. Reference answered in the negative.


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