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Allahabad Milling Company Private Ltd. Vs. Sales Tax Officer Ii - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAllahabad High Court
Decided On
Case NumberCivil Misc. Writ No. 1049 of 1965
Judge
Reported in[1965]16STC888(All)
AppellantAllahabad Milling Company Private Ltd.
RespondentSales Tax Officer Ii
Appellant AdvocateS.N. Kakkar, Adv.
Respondent AdvocateThe Standing Counsel
DispositionPetition dismissed
Excerpt:
.....assessment, he must have material in his possession on the basis of which he comes to that belief. the belief must be held in good faith: (3) the production ratio of bran, as shown by the dealer was found to be high, thus the production of costly and taxable wheat products like atta, maida and suji was understated. 15. the facts disclosed by the income-tax officer related to the accounting year 1957, and the question is whether they could form the basis for the sales tax officer believing that what had been done in that year could also have been done in the year 1958-59. it appears clearly from the facts reported by the income-tax officer that a pattern of activity was followed throughout the accounting year 1957 designed for suppressing the sales effected by the petitioner. there..........march, 1964). the petitioner applied for inspection of the records on 20th march, 1965, but as the sales tax officer was out of station no order was passed on the application. on 6th june, 1964, the petitioner received a notice requiring it to produce the relevant account books. on 30th june, 1964, the accountant of the petitioner appeared before the sales tax officer and raised a preliminary objection to the effect that the notice under section 21 was vague and did not disclose the material upon which the sales tax officer had reason to believe that any part of the turnover had escaped assessment. according to the counter-affidavit, the material upon which the notice under section 21 had been issued was disclosed to the accountant. it appears that the sales tax officer of the special.....
Judgment:

R.S. Pathak, J.

1. The petitioner challenges the legality of proceedings under Section 21 of the U.P. Sales Tax Act which are being taken against him for the assessment year 1959-60.

2. The petitioner, which is a private limited company carrying on business as a flour mill, was assessed to sales tax on the turnover of the assessment year 1959-60.

3. Subsequently a notice under Section 21 of the Act was served on the petitioner on 28th March, 1964 (although the petitioner says the service was effected on 30th March, 1964). The petitioner applied for inspection of the records on 20th March, 1965, but as the Sales Tax Officer was out of station no order was passed on the application. On 6th June, 1964, the petitioner received a notice requiring it to produce the relevant account books. On 30th June, 1964, the Accountant of the petitioner appeared before the Sales Tax Officer and raised a preliminary objection to the effect that the notice under Section 21 was vague and did not disclose the material upon which the Sales Tax Officer had reason to believe that any part of the turnover had escaped assessment. According to the counter-affidavit, the material upon which the notice under Section 21 had been issued was disclosed to the Accountant. It appears that the Sales Tax Officer of the Special Investigation Branch, Varanasi, was meanwhile engaged in investigating the affairs of the petitioner for the purposes of the U.P. Sales Tax Act and from time to time directed the petitioner to appear with its account books. One such hearing took place on 17th February, 1965, when the account books for the financial year 1959-60 were produced. The Sales Tax Officer, who had issued the notice under Section 21, served a notice upon the petitioner requiring it to appear on nth March, 1965, before him and with the notice enclosed detailed material pointing to certain discrepancies in the accounts maintained by the petitioner. The petitioner appeared on nth March, 1965, and subsequently filed a written objection on 15th March, 1965, contending that the proceedings were barred by limitation. Various other objections were taken. Upon a request in this behalf by the petitioner, the Sales Tax Officer appointed 23rd March, 1965, for the filing of written arguments. Then on 25th March, 1965, the instant petition for prohibition and certiorari was filed.

4. The only ground raised by the petitioner before me is that the Sales Tax Officer had no material upon which he could have reason to believe that the turnover of the petitioner, or any part of it, had escaped assessment for the year 1960-61.

5. Section 21 of the U.P. Sales Tax Act reads:

If the assessing authority has reason to believe that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for any year, the assessing authority may, after issuing notice to the dealer, and making such enquiry as may be necessary, assess or reassess him to tax....

6. Before the assessing authority can exercise his jurisdiction under Section 21, he must have reason to believe that the whole or any part of the turnover of the dealer has escaped assessment to tax. Incases under the Income-tax Act, it is well-settled that when an Income-tax Officer initiates proceedings for the assessment of escaped income on the basis that he has reason to believe that income has escaped assessment, he must have material in his possession on the basis of which he comes to that belief. He cannot proceed from mere suspicion. He must bana fide and honestly believe that income has escaped assessment, and the belief must be based upon reasons. He must have, as Das Gupta, J., observed, delivering the majority judgment of the Supreme Court in Calcutta Discount Co. v. Commissioner of Income-tax [1961] 41 I.T.R.191, some prima facie grounds for thinking that there had been some non-disclosure of material facts.

7. And employing the language of Shah, J., in the same case Ibid. 382:

The expression ' reason to believe ' postulates belief and the existence of reasons for that belief. The belief must be held in good faith: it cannot be merely a pretence.... The expression therefore predicates that the Income-tax Officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief.... Such a belief, be it said, may not be based on mere suspicion: it must be founded upon information.

8. The reasons must be such as can lead to that belief, though they may not in themselves be sufficient ultimately to form the basis of an assessment. It may also be that during the course of the assessment proceedings the reasons may be found to proceed from facts which turn out to be incorrect. What is essential is that the assessing authority must have material on the basis of which it bona fide and honestly believes that income has escaped assessment. These considerations, which apply to the law of income-tax, apply equally to proceedings under Section 21 of the U.P. Sales Tax Act.

9. What is the material upon which the Sales Tax Officer issued notice under Section 21? On 26th March, 1964, the Sales Tax Officer of the Special Investigation Branch wrote informing him that the account books of the petitioner for the years 1957, 1958 and 1959 along with the challans had been seized and impounded by the Income-tax Department and the case was being investigated by the Special Investigation Circle, Kanpur. He further reported that the Income-tax Officer had, from an examination of the account books for the year 1957, which related to the assessment year 1958-59, found that sales had been suppressed by the petitioner by the adoption of the following methods.

(1) Dealer's stock of pledges with the bank did not tally with the stocks shown in the production and issue register. The entries also did not tally with the delivery memos and for certain sales no delivery memos were issued.

(2) Some goods sold by the dealer and transported by M/s. Bharat Transport Co., were not found incorporated in the dealer's account books and thus the turnover was suppressed.

(3) The production ratio of bran, as shown by the dealer was found to be high, thus the production of costly and taxable wheat products like atta, maida and suji was understated.

10. The Sales Tax Officer, in paragraph 10 of his counter-affidavit,, states:

In view of the afore-mentioned modes of suppression of turnover practised by the petitioner in the accounting year 1957 and his tax evading tendency in the said year, the deponent honestly believed that the same mode of suppressing the turnover must have been followed by the petitioner in the subsequent years also and in these circumstances the deponent had reasons to believe that a part of the turnover of dealer had escaped assessment for the year 1959-60. Consequently the deponent issued the notice under Section 21 to the petitioner.

11. The contention of the petitioner is that the Income-tax Officer had not completed his investigation, and in fact the assessment order was not made by him until 30th January, 1965, and, therefore, the information conveyed by him to the Sales Tax Officer of the Special Investigation Branch was incomplete and no conclusion could legitimately be reached from that information. It is urged moreover that the Sales Tax Officer, who issued the notice under Section 21, was not entitled to proceed on the basis of the information received by the Income-tax Officer, and that he could have reason to believe that turnover had escaped assessment only if he had himself examined the account books and other documents and deduced the inferences which the Income-tax Officer had come to. Finally, it is submitted that whatever may have been found in respect of the accounting year 1957, that could not lead to the conclusion that the petitioner had adopted the same practices during the accounting period 1958-59 pertaining to the assessment year 1959-60.

12. It seems to me that it was not necessary for the Sales Tax Officer to await the final conclusion of the assessment proceedings taken by the Income-tax Officer. The petitioner has not indicated what was the stage at which the assessment proceedings stood. If the Income-tax Officer had completed the examination of the books and of the other material before him, there is no reason why the Sales Tax Officer should have waited to employ the information supplied by the Income-tax Officer until the latter had made the assessment order. Moreover, all that the Sales Tax Officer needed to have was an honest belief upon material before him that the turnover had escaped assessment; the quantum or completeness of that material cannot be agitated here.

13. The Income-tax Officer pointed to certain discrepancies existing in the books of the petitioner. Those discrepancies relate to the realm of pure fact. That the petitioner's stock of pledges with the bank did not tally with the stocks shown in the production and issue register, that the entries did not tally with the delivery memos, that for certain sales no delivery memos were issued, that goods sold by the dealer and transported by M/s. Bharat Transport Co. were not incorporated in the account books, that the production ratio of bran was high, all these are primary facts. They are facts gleaned directly from a perusal of the relevant account books and connected material. What inference can be drawn from these facts is another matter.

14. The facts, being primary facts, could be employed by the Sales Tax Officer for drawing his own conclusions, even though he had not looked into the account books himself.

15. The facts disclosed by the Income-tax Officer related to the accounting year 1957, and the question is whether they could form the basis for the Sales Tax Officer believing that what had been done in that year could also have been done in the year 1958-59. It appears clearly from the facts reported by the Income-tax Officer that a pattern of activity was followed throughout the accounting year 1957 designed for suppressing the sales effected by the petitioner. That pattern was not isolated to particular transactions or classes of transactions which could be confined in their nature and character to the year 1957. The suppression of the turnover from the account books of the petitioner did not relate to transactions, the character and nature of which pertained to that year alone. The activities in which the petitioner was engaged in the year 1957 were not such as could not be continued in the year following it. It must not be forgotten that the facts which had come to light related to a period almost immediately preceding the accounting year 1958-59. The Sales Tax Officer could legitimately presume upon these considerations that the pattern of activities followed by the petitioner, and which was intended for its benefit, would have been continued by it in the year 1958. It is not as if the pattern of activity pertained to a much earlier period far removed from the accounting year 1958-59. In the course of human conduct and having regard to the motives which dominate it, it could be reasonably presumed that the petitioner had continued this pattern of activity. This is probably what the Sales Tax Officer intended to mean when he referred to the petitioner's 'tax evading tendency' in the said year. There was thus, in my opinion, good ground for the Sales Tax Officer honestly and reasonably believing that the mode of suppressing the turnover adopted for the year 1957 had been followed by the petitioner in the subsequent year and, therefore, that a part of the turnover liable to assessment for the year 1959-60 had escaped.

16. It may be emphasised that it was not necessary that the Sales Tax Officer should have before him material referring to transactions for the accounting year 1957-58 in order that he may come to the belief that turnover of that year has escaped assessment. That is a consideration which is relevant when he actually proceeds to make the assessment for that year. The notice under Section 21 is issued at a time when he is merely required to have reason to believe that turnover has escaped assessment, and for that, I think, it is possible for him to rely upon material arising in an earlier or subsequent period. See A.N. Lakshmana Shenoy v. Income-tax Officer [1958] 34 I.T.R. 275 (S.C.). Whether that material can legitimately form the basis for so believing must depend upon the nature of the material in its relationship to the belief that the dealer in the accounting year in question has suppressed his turnover.

17. In this view of the matter, I am unable to hold that the Sales Tax Officer had no reason to believe, when he issued the notice under Section 21, that a part of the petitioner's turnover had escaped assessment.

18. On behalf of the respondents it was urged that upon the facts of this case the petitioner should be left to its alternative remedy under the statute and that this Court should not interfere in its extraordinary jurisdiction. But this consideration must be rejected in view of what the Supreme Court said in the case of Calcutta Discount Co. [1931] 41 I.T.R. 191 (S.C.).

19. The petition fails and is dismissed with costs.


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