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Pusuluri Satyanarayana Murthy Vs. State of A.P. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAndhra Pradesh High Court
Decided On
Case NumberTax Revision Case Nos. 24 to 29 of 1977
Judge
Reported in[1978]42STC103(AP)
AppellantPusuluri Satyanarayana Murthy
RespondentState of A.P.
Appellant AdvocateS. Dasaratharama Reddi, Adv.
Respondent AdvocateThe Government Pleader for ;Commercial Taxes
DispositionRevision allowed
Excerpt:
.....in paddy and fertilisers, that, as the assessments were not made to the best of judgment of the assessing authority, the penalty proceedings initiated on the basis of the assessments made and the penalties levied are illegal. dasaratharama reddi, learned counsel appearing for the petitioner, contended that except in the case of assessment made for the year 1973-74 there is no best judgment assessment in accordance with the requirement of section 14(3) warranting initiation of penalty proceedings or levy of penalty. -(1) if the assessing authority is satisfied that any return submitted under section 13 is correct and complete, he shall assess the amount of tax payable by 'the dealer on the basis thereof; but if the return appears to him to be incorrect or incomplete, he shall, after..........inspection. in this connection, we may notice the assessment order for the year 1968-69. the gross turnover returned by the assessee was rs. 17,239.57. the assessee did not claim any exemption and, therefore, that was shown as the net turnover. a notice was issued to the dealer to produce accounts for that year other than those that were already before the assessing officer. he did not file any accounts on the ground that he had no other accounts to be filed. so, on the basis of the verification of the slips, etc. and the return filed for that year by the assessee, the deputy commercial tax officer observed in his order thus :the turnover reported by him in the a-l return which was filed after detection of the material has agreed with the turnover in the detected material. the turnover.....
Judgment:

S. Obul Reddi, C.J.

1. These revisions relating to the assessment years 1967-68 to 1973-74 preferred by the same assessee are directed against the order of the Sales Tax Appellate Tribunal in corresponding appeals, dismissing them. The only question that arises in these revisions preferred against the levy of penalty in each of the cases, is whether the assessments in respect of which the penalty proceedings were initiated, were made by the Deputy Commercial Tax Officer, Amalapuram, in accordance with the requirements of Section 14(3) of the A. P. General Sales Tax Act, hereinafter referred to as 'the Act'. It is the case of the petitioner, a proprietary firm carrying on business in paddy and fertilisers, that, as the assessments were not made to the best of judgment of the assessing authority, the penalty proceedings initiated on the basis of the assessments made and the penalties levied are illegal. The ryots of T. Kothapalli also filed the khatha extracts showing the transactions they had with the petitioner. Subsequent to the inspection, the petitioner filed its returns in respect of each of the years in form A-l, showing the turnover in respect of each of the years. The turnover shown by the petitioner in respect of each of the years was what was detected by the Special Commercial Tax Officer at the time of the inspection. In this connection, we may notice the assessment order for the year 1968-69. The gross turnover returned by the assessee was Rs. 17,239.57. The assessee did not claim any exemption and, therefore, that was shown as the net turnover. A notice was issued to the dealer to produce accounts for that year other than those that were already before the assessing officer. He did not file any accounts on the ground that he had no other accounts to be filed. So, on the basis of the verification of the slips, etc. and the return filed for that year by the assessee, the Deputy Commercial Tax Officer observed in his order thus :

The turnover reported by him in the A-l return which was filed after detection of the material has agreed with the turnover in the detected material. The turnover for the year 1968-69 is proposed to be determined as follows :

Turnover found in the material: Rs. 17,239.57Exemption turnover: NilNet turnover at 5 per cent 11,490.07at 3 per cent 5,749.50 Rs. 17,239.57 read with 14(8) of the A. P. G. S. T. Act, 57, on thedetected turnover of Rs. 17,239.57.

2. It is on the basis of the assessment made on the turnover reported by the assessee which tallied with the turnover in the detected material, that assessment proceedings were initiated and penalty was levied on the detected turnover under Section 14(3) read with Section 14(8) of the Act. A penalty equivalent to three times the tax was levied in respect of that year. Identical orders were passed by the assessing authority in respect of each of the assessment years, except for the assessment year 1973-74. For the assessment year 1973-74, the assessee returned a turnover of Rs. 1,03,251.88 and to that, the assessing authority added a sum of Rs. 3,070 and made an assessment on that total turnover. On the basis of that assessment, he levied penalty invoking Sections 14(3) and 14(8) of the Act, equivalent to three times the tax assessed on that turnover.

3. Mr. Dasaratharama Reddi, learned counsel appearing for the petitioner, contended that except in the case of assessment made for the year 1973-74 there is no best judgment assessment in accordance with the requirement of Section 14(3) warranting initiation of penalty proceedings or levy of penalty. We may read the relevant provisions of the Act and the Rules to the extent material. Sections 13 and 14(1) read :

13. Submission of return of turnover by dealer.-Every dealer who is liable to tax under this Act shall Submit such return or returns relating to this turnover, in such manner, within such periods and to such authority as may be prescribed.

14. Assessment of tax.-(1) If the assessing authority is satisfied that any return Submitted under Section 13 is correct and complete, he shall assess the amount of tax payable by 'the dealer on the basis thereof; but if the return appears to him to be incorrect or incomplete, he shall, after giving the dealer a reasonable opportunity of proving the correctness and completeness of the return Submitted by him and making such inquiry as he deems necessary, assess to the best of his judgment, the amount of tax due from the dealer. An assessment under this Section shall be made only within a period of four years from the expiry of the year to which the assessment relates.

(1-A) Where the return Submitted by a dealer includes the turnover or any of the particulars thereof which would not have been disclosed but for an inspection of accounts, registers or other documents of the dealer made by an officer authorised under this Act before the Submission of such return, the assessing authority may, after giving an opportunity to the dealer for making a representation in this behalf, treat such return to be an incorrect or incomplete return within the meaning of Sub-section (1) and proceed to take action on that basis.

(2) * * *(3) Where any dealer liable to tax under this Act-

(i) fails to Submit return before the date prescribed in that behalf, or

(ii) produces the accounts, registers and other documents after inspection, or

(iii) Submits a return Subsequent to the date of inspection, the assessing authority may, at any time within a period of six years from the expiry of the year to which assessment relates, after issuing a notice to the dealer and after making such inquiry as he considers necessary, assess to the best of his judgment, the amount of tax due from the dealer on his turnover for that year and may direct the dealer to pay, in addition to the tax so assessed, a penalty as specified in Sub-section (8).

4. The relevant rule is Rule 15, which deals with Submission of return by a dealer; and this rule, to the extent material, lays down :

15. (1) Every dealer liable to Submit a return under Rule 8 or 9, except those who have elected to be assessed under Rule 17, shall, within thirty days of the close of the year Submit to the assessing authority of the area, in which his principal place of business is situated, a return in form A-l showing the total turnover and net turnover at all places of his business in the preceding year....

(5) Where any dealer fails to Submit a return before the date prescribed in that behalf or produces the accounts, registers and other documents after inspection or Submits a return Subsequent to the date of inspection or if the return Submitted appears to the assessing authority to be incorrect or incomplete, the assessing authority shall, after following the procedure prescribed in Rule 12, finally assess the tax or taxes payable under Section 5, 5-A, 6 or 6-A or notified under Section 9(1) according to the best of his judgment :

Provided that where the returns Submitted by a dealer include the turnover or any of the particulars thereof which would not have been disclosed but for an inspection of accounts, registers or other documents of the dealer made by an officer under the Act before the Submission of such returns, the assessing authority may, after giving an opportunity to the dealer for making a representation in this behalf, treat such returns to be incorrect or incomplete returns and proceed to take action on that basis.

5. Mr. D. V. Sastri, appearing for the State, relying upon the aforesaid provisions, contended that the scheme of the Act and the Rules is such that when a dealer defaults in filing return, not for one or two years, but for several years, the returns filed by him Subsequent to the date of inspection should be ignored as there is no provision for condonation of delay as in the case of income-tax returns. According to him, such returns cannot be looked into and, consequently, any assessment made would be only best judgment assessment under Section 14(3) of the Act. The expression 'best judgment assessment' is not defined in the Act. Section 14 and Rule 15 provide situation for making best judgment assessment by an assessing authority. Section 13 enjoins on every dealer, who is liable to tax, to Submit returns in respect of his turnover in the manner prescribed. Admittedly, no such return, as required under Section 13 or under the Rules prescribed, was filed by the petitioner in any one of the years. Section 14(1), therefore, is not applicable to the case of the petitioner. Section 14(1) deals with a situation of assessment to best judgment when a return filed by a dealer is incomplete or incorrect. It also prescribes the period of limitation for exercising the power to make a best judgment assessment. Sub-section (1-A) is also not applicable to the returns filed for the years other than the return Submitted for 1973-74; and, therefore, T. R. C. No. 29 of 1977 shall be considered separately. So, the relevant section is Section 14(3). Admittedly, the dealer failed to Submit return before the date prescribed in this behalf. But, the best judgment assessment has not been made for the reason that the dealer had failed to Submit a return before the prescribed date. The assessment is also not made for failure to produce the accounts, registers, etc., after the inspection. The assessment has been made invoking Clause (iii) of Sub-section (3). This provision is a mandatory provision and the assessing authority is bound to make a best judgment assessment. The assessee admittedly filed the returns Subsequent to the date of inspection and before the assessments were made. The question is, can these assessments be said to be best judgment assessments ?

6. We are unable to agree with Mr. D. V. Sastri, learned counsel for the State, that the assessments made in respect of the years 1967-68 to 1972-73 fall within the range or sweep of Sub-section (3) of Section 14 and Rule 15. Rule 15 does not lay down anything more than what is stated in Section 14(3). The proviso to Sub-rule (5) of Rule 15 does not say that assessment made accepting the return of the assessee comes within the meaning of best judgment assessment. Mr. Dasaratharama Reddi contended and rightly too, that the expression 'best judgment assessment' implies and involves not mere acceptance of the return filed by a dealer but rejecting the turnover as submitted by the dealer and making an assessment to the best of judgment of the assessing authority. Right from Velukutty's case [1966] 17 S.T.C. 465 (S.C.), the Supreme Court has been of the view that in the case of best judgment assessment, an element of guesswork is involved and that guesswork shall have a nexus to the available material and the circumstances of each case. Velukutty's case1 was one where there was discovery of secret accounts in the head office ; and on the basis of the secret accounts, a best judgment assessment was made. Subba Rao, J., observed:

The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guesswork in a 'best judgment assessment', it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. Though Sub-section (2) of Section 12 of the Act provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard for the available material.

7. This case was again referred to and followed by the Supreme Court in State of Madras v. Jayaraj Nadar & Sons [1971] 28 S.T.C. 700 (S.C.). The learned Judges have categorically stated that where account books are accepted along with other records, there can be no ground for making a best judgment assessment. The impugned orders of assessment are tell-tale. They show that the Deputy Commercial Tax Officer had agreed with the turnover shown by the petitioner in respect of the assessment years 1967-68 to 1972-73. That means he had accepted the returns and he had not taken into consideration the concealment of the accounts and the discovery of the secret accounts maintained by the assessee. Section 14(3) entitles a dealer to Submit return Subsequent to the date of inspection. The assessee in this case was clever enough to show in the return all the transactions noted in the secret accounts and slips. That means the assessing authority accepted those returns as correct and complete. It is for that reason that he had not chosen to add any turnover. The Madras High Court in Ramakutty Nadar v. State of Madras [1973] 31 S.T.C. 44 and Egberts India (P.) Ltd. v. State of Madras [1973] 31 S.T.C. 569 has taken the view that even a mere Submission of an incorrect return will not entail a penalty under Section 12(3) of the Tamil Nadu General Sales Tax Act and to sustain an order of penalty under that Section, there should have been a best judgment assessment by the assessing authority on rejection of the return and the account books Submitted by the assessee. It is not as if the assessing officer in this case was not aware of the provisions of the Act or the Rules, or that he was making assessments for the first time. We are surprised that, in a case of this nature where, for several years, a dealer, who had maintained secret sets of accounts of his transactions, had not chosen to ask for his registration as dealer, the assessing officer could blindly accept the return and then initiate penalty proceedings. We are of the view that, where a return is filed Subsequent to the date of inspection and discovery of secret accounts and such a return is accepted by the assessing authority as complete and correct and assessment made on the basis of the turnover furnished therein, it would be misnomer to term such an assessment as 'best judgment assessment'. The expression 'best judgment assessment' implies a reasonable element of guesswork in making a reasonable addition to the turnover, as pointed out by the Supreme Court; in other words, non-acceptance of the turnover as incomplete or incorrect. We cannot understand how a return so made after several years could be accepted as complete and correct, more so when there were no regular accounts at all to justify the correctness or completeness of the accounts.

8. So far as the penalty proceedings for the year 1973-74 are concerned, we are of the opinion that these proceedings are covered by Sub- Section (1-A) of Section 14 and the penalty has been rightly levied rejecting the entire return filed. The penalty proceedings (in T. R. C. No. 29 of 1977) were initiated pursuant to the best judgment assessments. We, therefore, affirm the order of the Tribunal in so far as its decision in respect of the penalty proceedings for the assessment year 1973-74 is concerned. T. R. C. No. 29 of 1977 is, therefore, dismissed with costs and the other revisions are allowed, but in the circumstances without costs. Advocate's fee Rs. 200 in each.


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