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Sri Mahalakshmi Trading Company Vs. Commissioner of Commercial Taxes in Karnataka, Bangalore and anr. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKarnataka High Court
Decided On
Case NumberS.T.R.P. No. 24 of 1982
Judge
Reported in[1984]57STC53(Kar)
ActsSales Tax Act - Sections 5(4), 12(3) and 12(4)
AppellantSri Mahalakshmi Trading Company
RespondentCommissioner of Commercial Taxes in Karnataka, Bangalore and anr.
Appellant AdvocateE.R. Indrakumar, Adv.
Respondent AdvocateD. Bhoopathy, High Court Government Pleader
Excerpt:
.....no justification for relying upon the books of account of a third party, much less the secret account books, as against persons like the petitioner, without affording an effective opportunity to cross-examine those persons who are supposed to have maintained the secret accounts and from whom they have been discovered. it is common ground that the only material before the said sales tax officer as well as the tribunal, on which reliance has been sought to be placed for coming to the conclusion that the assessees had suppressed sales, was the information furnished by the sales tax officer, enforcement branch, bombay, that from the books of account of the aforesaid bombay dealer it was shown that nine trucks of oil had been despatched by the assessees to the bombay dealer, whereas only..........12,763 bags of groundnuts in all, between 3rd july, 1972, and 2nd february, 1973. but, in the account books maintained by the assessee he had accounted for only 4,798 bags and the rest did not find a place in his account books. the value of the unaccounted bags of groundnuts decorticated, was determined at rs. 3,18,600 and added in the assessment of the assessee as suppressed turnover. the assessing officer issued a proposition notice before making use of that information and adding rs. 3,18,600 to his turnover. this notice is dated 6th june, 1975. it is not disputed that the notice was served on the assessee before the assessment was completed on 12th june, 1975. the relevant portion of the notice issued to the assessee is extracted below : 'the assistant commercial tax officer.....
Judgment:

Rajasekhara Murthy, J.

1. This revision petition arises out of the order of the Appellate Tribunal dated 25th May, 1981, passed in S.T.A. No. 322 of 1980.

2. The petitioner-assesses is a dealer and commission agent in foodgrains, pulses, oil-seeds, horsegram, etc., at Tumkur. For the year ending 31st March, 1973, the assessee filed a return of total and taxable turnovers of Rs. 4,65,740.50 and Rs. 3,44,098.67 respectively. The assessing authority, after verification of the books of account, determined the total and taxable turnover at Rs. 17,83,281.48 under section 12(3) of the Sales Tax Act.

In the appeal filed before the Deputy Commissioner of Commercial Taxes (Appeals), Bangalore, the assessee disputed be addition of purchase turnover of groundnuts worth Rs. 3,18,600 and the levy of penalty of Rs. 750 thereon. The assessee's appeal was dismissed and the farther appeal before the Appellate Tribunal met with the same fate.

3. The only question for our consideration in this petition is the addition of the turnover of Rs. 3,18,600 being the suppressed turnover for the year 1972-73. This represented the turnover of 7,965 bags of groundnuts said to have been decorticated by the assessee by M/s. Jai Bharath Rice and Oil Mills, Tumkur, which was not brought to account. This addition was based on the information furnished by the Assistant Commercial Tax Officer (Vigilance), Tumkur, who raided M/s. Jai Bharath Rice and Oil Mills on 7th March, 1973, and seized some books of account. Those books of account appear to have disclosed that the assessee had got decorticated 12,763 bags of groundnuts in all, between 3rd July, 1972, and 2nd February, 1973. But, in the account books maintained by the assessee he had accounted for only 4,798 bags and the rest did not find a place in his account books. The value of the unaccounted bags of groundnuts decorticated, was determined at Rs. 3,18,600 and added in the assessment of the assessee as suppressed turnover.

The assessing officer issued a proposition notice before making use of that information and adding Rs. 3,18,600 to his turnover. This notice is dated 6th June, 1975. It is not disputed that the notice was served on the assessee before the assessment was completed on 12th June, 1975. The relevant portion of the notice issued to the assessee is extracted below :

'The Assistant Commercial Tax Officer (Vigilance), Tumkur, has inspected Jai Bharath Mill on 7th March, 1973, and seized some accounts. These accounts relate to the period from 3rd July, 1972, to 2nd February, 1973, during which period you have got decorticated 12,763 bags of groundnuts to seeds. Out of this, you have accounted only 4,798 bags; thus 7,965 bags are not accounted. The value of unaccounted groundnuts at Rs. 40 per bag (prevailing market rate) works out to Rs. 3,18,600. I propose to add this as purchase value to your assessment and levy tax under section 5(4) of the Act.

You are also liable for penalty under section 12(4) of the Act. I propose to levy a penalty of Rs. 750 under section 12(4) of the Act.'

4. It is the contention of the assessee that the notice does not disclose full particulars for an effective reply and the information gathered from the books seized by the Vigilance Officer who raided the premises of a third party could not have been relied upon without bringing it on record in the assessment proceedings in accordance with law. In other words, the contention is that the information gathered from the third party cannot form part of the assessment proceedings unless it is brought on record with an opportunity to the assessee to meet it.

5. On the other hand, it is urged for the department that since the assessee did not reply to the proposition notice it must be presumed that he accepted without any objection, the turnover proposed to be added in the proposition notice.

6. It is true that the assessee did not reply to the proposition notice nor did he complain that he did not have sufficient time to furnish an effective reply. In the proposition notice the assessee was given just 5 days' time to reply. The fact that he did nor reply could not however authorise the assessing officer to rely upon the information collected from a third party without due regard to the law. The law, no doubt, does not prevent the assessing officer to collect material from a third party. But, if any such material is to be used against the assessee, that must be brought on record in the assessment proceedings in accordance with law.

7. In M. Appukutty v. State of Kerala [1963] 14 STC 489, the Kerala High Court has observed at page 492 :

'........................

In the first place the assessing authority, in my view, had absolutely no justification for relying upon the books of account of a third party, much less the secret account books, as against persons like the petitioner, without affording an effective opportunity to cross-examine those persons who are supposed to have maintained the secret accounts and from whom they have been discovered.'

In Ramchandra Oil Mills v. Commissioner of Sales Tax, Bombay [1977] 39 STC 493 at 494 and 495, the Bombay High Court observed :

'The question which we are called upon to consider in this case is whether there was any material on record on which it could be held that the assessees had suppressed any sales to the Bombay dealer. It is common ground that the only material before the said Sales Tax Officer as well as the Tribunal, on which reliance has been sought to be placed for coming to the conclusion that the assessees had suppressed sales, was the information furnished by the Sales Tax Officer, Enforcement Branch, Bombay, that from the books of account of the aforesaid Bombay dealer it was shown that nine trucks of oil had been despatched by the assessees to the Bombay dealer, whereas only one truck was accounted for by the assessees. It is significant that neither the books of account of the said Bombay dealer nor any entries therein have been brought on record or shown to the assessees ........ The information furnished in this case might have properly caused the said Sales Tax Officer to examine closely the books of account of the assessees, but that information by itself, without bringing on record the entries in the books of account of the Bombay dealer and without even bringing on record any statement of the Sales Tax Officer, Enforcement Branch, Bombay, could not constitute, in our view, any material at all on which such a conclusion as aforesaid could be founded.'

8. These principles, particularly those observed in Appukutty's case [1963] 14 STC 489, have been approved by the Supreme Court in State of Kerala v. K. T. Shaduliyusuff : AIR1977SC1627 as representing the correct law on the subject.

9. In the present case the assessing officer has relied on some entries in the katcha book seized during the raid in the premises of a third party. We have perused that book. It was not maintained in the regular course of business. That apart, before the assessing officer relied upon the contents of that book, he ought to have brought that material on record in accordance with law. He ought to have communicated to the assessee the full particulars of the material he proposed to use against the assessee with an opportunity for the latter to have his say. That is the minimal requirement of natural justice which ought to have been complied with by the assessing officer.

10. We are, therefore, of the opinion that the assessment regarding the addition of the suppressed turnover of Rs. 3,18,600 should be set aside with liberty to the assessing officer to redo the assessment.

11. In the result, the petition is allowed, the addition of turnover as indicated above, is set aside and the matter is remitted to the assessing officer to redo the assessment in accordance with law and in the light of the observations made in this order.

12. The assessment in other respects is kept undisturbed.

13. The assessee shall appear before the assessing officer on 27th February, 1984, to receive further notice.


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