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Madupalli Anjaneyulu and Co. Vs. the State of Andhra - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAndhra Pradesh High Court
Decided On
Case Number Tax Revision Case No. 3 of 1954
Judge
Reported in[1956]7STC151(AP)
AppellantMadupalli Anjaneyulu and Co.
RespondentThe State of Andhra
Appellant Advocate K. Govinda Rao, Adv.
Respondent Advocate M. Seshachalapathi, The Government Pleader
Excerpt:
.....was issued that the net turnover would be determined to the best of judgment. 6. rule 8 of the sales tax turnover and assessment rules reads as follows :if no return is submitted by the dealer as required by rule 6 or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after making such enquiry as he considers necessary, determine the turnover of the dealer to the best of his judgment, and fix provisionally the annual tax or taxes payable at the rate or rates specified in section 3 or 5 or notified under section 6(1). 7. rule 11(3) of the same rules provides as follows :if no return is submitted or if the return submitted appears to the assessing authority to be incorrect or incomplete, the assessing..........by a majority judgment, the sales tax appellate tribunal held that the addition of 5 per cent, profit would meet the ends of justice and accordingly fixed an addition of rs. 24,534-0-2 in the place of rs. 31,893 estimated by the commercial tax officer. the chairman of the sales tax appellate tribunal, in a dissenting judgment, held that there was no data made available justifying the addition of either 6-5 per cent, by the commercial tax officer or the addition of 5 per cent, instead, by his colleagues.6. rule 8 of the sales tax turnover and assessment rules reads as follows :-if no return is submitted by the dealer as required by rule 6 or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after.....
Judgment:
ORDER

Satyanarayana Raju, J.

1. This is a revision filed by the assessees against the decision of the Sales Tax Appellate Tribunal in T. A. No. 225-A of 1953.

2. The petitioners are a firm of dealers in kirana articles at Eluru. They have two departments of trade, one wholesale and the other partly wholesale and partly retail. For the year of assessment 1952-53, they submitted a total turnover of Rs. 6,35,122 made up of Ks. 1,44,442 from the wholesale department and Rs. 4,90,680 from the partly wholesale and partly retail department. The petitioner's shop was inspected by the Special Assistant Commercial Tax Officer and he found that all the sales were not brought into account. He discovered three sales written on slips of paper in the year 1952-53, which did not find a place in the accounts. For the year 1953-54, he found that such sales written on slips of paper, but which were not brought into account, were more than 70 in number. A notice was issued that the net turnover would be determined to the best of judgment. The petitioners sent their reply to the notice. After the reply was received, it was considered and the Deputy Commercial Tax Officer, in his order of assessment, determined the net turnover finally for 1952-53 as follows :-

Rs. A. P.1. Gross turnover as per the accounts ...9,30,559 13 62. Deduct the sales of taxed tobacco andreturned goods ...2,95,438 0 03. Balance ...6,35,121 13 64. Add the estimated value of 10 bags of sugarwhich were sold and which were notshown as sold at Rs. 87-8-0 a bag ... 875 0 05. Total ...6,35,996 13 66. Add 6-5 per cent, for incorrect maintenanceof the accounts on account of the reasonsstated above ... 41,340 0 07. Net turnover ...6,77,336 13 6

3. The petitioners were finally assessed on this turnover to a sales tax of Rs. 10,583-6-3.

4. The assessees preferred an appeal to the Commercial Tax Officer. The Commercial Tax Officer held that the Deputy Commercial Tax Officer was not justified in utilising the material relating to 1953-54 for enhancing the turnover of 1952-53. He characterised this as both unjust and unwarranted and allowed the appeal in part. While the Deputy Commercial Tax Officer estimated the margin of profit for the business of the petitioners at 12 per cent., the Commercial Tax Officer added the difference of 6-5 per cent, (the difference between the actual profit shown as per the accounts and the estimated profit of 12 per cent.) The Commercial Tax Officer restricted the addition of 6-5 per cent, to the turnover of retail sales and fixed the addition of Rs. 31,893 as against Rs. 41,340 adopted by the Deputy Commercial Tax Officer.

5. By a majority judgment, the Sales Tax Appellate Tribunal held that the addition of 5 per cent, profit would meet the ends of justice and accordingly fixed an addition of Rs. 24,534-0-2 in the place of Rs. 31,893 estimated by the Commercial Tax Officer. The Chairman of the Sales Tax Appellate Tribunal, in a dissenting judgment, held that there was no data made available justifying the addition of either 6-5 per cent, by the Commercial Tax Officer or the addition of 5 per cent, instead, by his colleagues.

6. Rule 8 of the Sales Tax Turnover and Assessment Rules reads as follows :-

If no return is submitted by the dealer as required by Rule 6 or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after making such enquiry as he considers necessary, determine the turnover of the dealer to the best of his judgment, and fix provisionally the annual tax or taxes payable at the rate or rates specified in Section 3 or 5 or notified under Section 6(1).

7. Rule 11(3) of the same Rules provides as follows :-

If no return is submitted or if the return submitted appears to the assessing authority to be incorrect or incomplete, the assessing authority may, after following the procedure prescribed in rules 8 and 9, finally assess the tax according to the best of his judgment.

8. In fixing the amount of Rs. 41,340 by the addition of 6-5 per cent., the Deputy Commercial Tax Officer gave the reason for the addition as 'incorrect maintenance of accounts on account of the reasons stated above', the reasons given above being that the assessees did not show reasonable profit which should be 12 per cent, at least. In appeal, the Commercial Tax Officer disposed of the matter in these words:-

In addition the rate of profit in retail kirana business will be 12 per cent, and the addition in that respect is not excessive. But the Deputy Commercial Tax Officer estimated the profit for the entire turnover. I am restricting it' to the retail business only. The turnover is refixed as below :-

* * * *3. Add 6-5 per cent, of item 2 for the irregularities etc.... ...Rs. 31,893-0-0

9. The material portion of the judgment of the majority of the Sales Tax Appellate Tribunal fixing 5 per cent, may be stated here :-

If the turnover of Rs. 4,90,680-3-3 according to the Commercial Tax Officer is partly wholesale and partly retail, it is difficult to support the addition of 6'5 per cent, for an estimated suppression of the turnover. The appellant has not been in a position to give a detailed analysis of the two types of turnover 'wholesale' and 'retail' involved in this figure of Rs. 4,90,680-3-3. The State Representative also is unable to help us in this analysis. We have therefore no alternative but to fix up a reasonable percentage for an estimated addition. Taking all the facts into consideration, we are of opinion that the addition of 5 per cent, meets the ends of justice. We accordingly fix an addition of Rs. 24,534-0-2 in place of Rs. 31,893 estimated by the Commercial Tax Officer.

10. It is not clear from any of these orders on what material the estimate of profit is based. Rule 8 of the Turnover and Assessment Rules, above set out, provides that 'the assessing authority shall, after making such enquiry as he considers necessary, determine the turnover of the dealer to the best of his judgment.' Rule 9 provides that before taking action under Rule 8, the assessing authority shall issue a notice to the dealer calling upon him to produce his accounts and prove the correctness and completeness of his return. It is true that such a notice has been given in this case. Rule 11(3) provides that after following the procedure prescribed in rules 8 and 9, the assessing authority may finally assess the tax according to the best of his judgment. Under Rule 8, there must be an enquiry and on such enquiry the authority must determine the turnover of the dealer to the best of his judgment. What does the word 'determine' there mean The determination provided under Rule 8 cannot be mere guess-work. There must be some material before the assessing authority which must furnish the basis for the estimate of the profit. The estimate of the gross profit on sales both by the Deputy Commercial Tax Officer and the Appellate Tribunal is based on mere surmise and conjecture. If the estimate of the profit is made on the basis of the profit earned by similar trades, similarly situated and circumstanced, then it is the duty of the assessing authority to intimate the aseessee that the profit earned in trades, similarly situated and circumstanced, is so much and give notice to the assessee why his profit should not similarly be estimated.

11. The learned Government Pleader cited before us Rule 30 of the General Sales Tax Rules as containing a prohibition on the assessing authority from disclosing the particulars furnished by other assessees. Rule 30 provides as follows :-

30. (1) All particulars contained in any statement made, return furnished or accounts or documents produced under the provisions of the Act or of the rules made thereunder, or in any evidence given or affidavit or deposition made in the course of any proceeding under the Act or the rules made thereunder, or in any record of any proceeding relating to the recovery of a demand, prepared for the purpose of the Act or the rules made thereunder, shall be treated as confidential and shall not be disclosed.

(2) Nothing in Sub-rule (1) shall apply to the disclosure-

(i) of any such particulars for the purpose of a prosecution under the Indian Penal Code in respect of any such statement, return, accounts, documents, evidence, affidavit, or deposition or for the purpose of a prosecution under the Act or the rules made thereunder....

12. Nowhere in Rule 30 is there any prohibition against the disclosure of the ultimate order of assessment made on other assessees. What all is prohibited under Rule 30 is the disclosure contained in a statement in the course of any proceeding or any record of any proceeding relating to the recovery of a demand, prepared for the purpose of the Act or the rules made thereunder. The assessment order is not the record of the assessee. We are not convinced that there is any prohibition in Rule 30 from giving intimation to the assessee that trades similarly situated and circumstanced have been taxed on the basis of a particular percentage of profit.

13. The learned Government Pleader relied upon the following passage from the judgment of the Privy Council in Commissioner of Income-tax, United and Central Provinces v. Badridas Ramrai Shop, Akola [1937] 5 I.T.R. 170 :-

The officer is to make an assessment to the best of his judgment against a person who is in default with regard to 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, 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, although there must necessarily be guess-work in the matter it must be honest guess-work. In that sense, too, the assessment must be to some extent arbitrary. Their Lordships think that the section places the officer in the position of a person whose decision as to amount is final and subject to no appeal; but whose decision, if it can be shown to have been arrived at without an honest exercise of judgment, may be revised or reviewed by the Commissioner under the powers conferred upon that official by Section 33.

Their Lordships can find no justification in the language of the Act for holding that an assessment made by an officer under Section 23(4) without conducting a local inquiry and without recording the details and results of that inquiry cannot have been made to the best of his judgment within the meaning of the section. Nor can they find any such justification in the authorities upon which the Judicial Commissioners appear to have relied.

14. Relying upon these observations of Lord Russell of Killowen, the learned Government Pleader contends that there is no duty cast upon the asseesing authority to disclose the information which formed the basis of the estimate of profits made by the assessee. Their Lordships of the Privy Council pointed out that in making an assessment ex parte under Section 23(4), the Income-tax Act imposed no obligation on the Income-tax Officer either to conduct any kind of local enquiry or to record a note of the details and results of that enquiry. But Rule 8 of the Turnover and Assessment Rules makes it obligatory on the assessing authority to make an enquiry before he determines the turnover of the dealer to the best of his judgment. Rule 11(3) also casts a duty on the assessing authority to follow the procedure prescribed in rules 8 and 9 before making a final assessment. Their Lordships of the Privy Council pointed out that although there must necessarily be guess-work in the matter, it must be honest guess-work. Honest guess-work does not mean that the assessing authority can make a dogmatic assertion that there must have been a profit of 12 per cent.

15. It has been pointed out by the Supreme Court in Dhakeswari Cotton Mills v. Commissioner of Income-tax, West Bengal [1954] 126 I.T.R. 775, as follows :-

The estimate of the gross rate of profit on sales, both by the Income-tax Officer and the Tribunal, seems to be based on surmises, suspicions and conjectures. It is somewhat surprising that the Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that that statement had no relevancy whatsover to the case of the mill in question. It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstanced. Not only did the Tribunal not show the information given by the representative of the department to the appellant, but it refused even to look at the trunk load of books and papers which Mr. Banerjee produced before the Accountant Member in his chamber.... We think that both the Income-tax Officer and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion.

16. We hold that in the instant case, both the assessing authority and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure surrtiise.

17. In the result, we allow this revision, set aside the order of the Tribunal and remand the case to it with a direction that in arriving at its estimate of gross profit it should give full opportunity to the assessee to place any relevant material on the point. It will be open to the assessing authority to place any evidence or material to support the estimate made by the Deputy Commercial Tax Officer or by the Tribunal in its judgment. The Tribunal may, if it thinks fit, remit the case to the Deputy Commercial Tax Officer for making a fresh assessment after taking such further evidence as is furnished by the assessee or the Department. The costs of the revision will abide the result of the appeal before the Tribunal. Advocate's fee fixed at Rs. 100.


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