Skip to content


Bhagwanjibhai Jairambhai Vs. Commissioner of Sales Tax - Court Judgment

LegalCrystal Citation
Subject Sales Tax
CourtMadhya Pradesh High Court
Decided On
Case Number M.P. No. 103 of 1960
Judge
Reported in[1961]12STC502(MP)
AppellantBhagwanjibhai Jairambhai
RespondentCommissioner of Sales Tax
Appellant Advocate R.K. Pandey, Adv.
Respondent Advocate H.L. Khaskalam, Government Adv.
Cases ReferredHardutt Mull Jute Mitts v. State of Bihar
Excerpt:
.....reduced to period undergone by appellant considering mental agony suffered by him - the sales tax officer did not, therefore, accept the return and proceeded to assees according to his 'best judgment' as provided in section 11(4) of the sales tax act. the assistant commissioner took into consideration the fact that the petitioner was satisfied with the assessment of the income by the income-tax authorities at rs. (4) if a registered dealer- (a) does not furnish returns in respect of any period by the prescribed date, or (b) having furnished such returns fails to comply with any of the terms of a notice issued under sub-section (2), or (c) has not regularly employed any method of accounting, or if the method employed is such that, in the opinion of the commissioner, assessment..........with the return were not properly kept and did not sufficiently disclose the sales made. the sales tax officer did not, therefore, accept the return and proceeded to assees according to his 'best judgment' as provided in section 11(4) of the sales tax act. he held that the sales during the assessment period amounted to rs. 4,50,000 and ordered the dealer to pay tax amounting to rs. 11,371-14-0 only (ex. p-l). the petitioner went up in appeal and the assistant commissioner of sales tax reduced the turnover to rupees four lacs (ex. p-2). the commissioner of sales tax refused to interfere with the order (ex. p-3).3. the sales tax officer had obtained a report from the sales tax inspector and learnt from it that the petitioner had held 'many more contracts than what has been actually.....
Judgment:
ORDER

T.C. Shrivastava, J.

1. By this petition under Articles 226 and 227 of the Constitution the petitioner requests for issue of a writ of certiorari quashing the orders Ex. P-l, Ex. P-2 and Ex. P-3, which have been passed by the Sales Tax Authorities assessing him to pay sales tax for the period 20th October, 1949, to 9th November, 1950.

2. The petitioner had taken some forest contracts during the assessment period and extracted timber for sale. He furnished a return of the timber sold. The accounts produced by the petitioner with the return were not properly kept and did not sufficiently disclose the sales made. The Sales Tax Officer did not, therefore, accept the return and proceeded to assees according to his 'best judgment' as provided in Section 11(4) of the Sales Tax Act. He held that the sales during the assessment period amounted to Rs. 4,50,000 and ordered the dealer to pay tax amounting to Rs. 11,371-14-0 only (Ex. P-l). The petitioner went up in appeal and the Assistant Commissioner of Sales Tax reduced the turnover to rupees four lacs (Ex. P-2). The Commissioner of Sales Tax refused to interfere with the order (Ex. P-3).

3. The Sales Tax Officer had obtained a report from the Sales Tax Inspector and learnt from it that the petitioner had held 'many more contracts than what has been actually stated by him'. It appears that the petitioner had denied that he had taken any more thekas; but this was not believed. Further, considering the fact that the dealings of the petitioner were estimated by the Income-tax Authorities at- Rs. 3,25,000 and also comparing his business with other leading merchants, the Sales Tax Officer concluded that the dealings were to the tune of rupees four and a half lacs. The Assistant Commissioner took into consideration the fact that the petitioner was satisfied with the assessment of the income by the Income-tax Authorities at Rs. 3,25,000 and so his income must have been more than that sum. He reduced the turnover to four lacs for no particular reasons.

4. The grievance of the petitioner is that he was not questioned as regards the information given by the Sales Tax Inspector and the assessment has been based on the assumption that he worked all the thekas and is thus arbitrary. He has given the dates of the various thekas taken by him in paragraph 4 of the petition. Only two of these fall within the period of assessment; one of them was taken just at the end of the period and the remaining are all outside. The petitioner says that he worked only the first two contracts.

5. In the return on behalf of the respondents these allegations have not been denied and so it must be assumed that the thekas were taken on the dates mentioned by the petitioner. The report of the Sales Tax Inspector is not annexed and it is not stated which of the contracts were taken into consideration in assessing the turnover.

6. Section 11(4) of the Sales Tax Act is as follows:

(4) If a registered dealer-

(a) does not furnish returns in respect of any period by the prescribed date, or

(b) having furnished such returns fails to comply with any of the terms of a notice issued under Sub-section (2), or

(c) has not regularly employed any method of accounting, or if the method employed is such that, in the opinion of the Commissioner, assessment cannot properly be made on the basis thereof,

the Commissioner shall in the prescribed manner assess the dealer to the best of his judgment:

Provided that he shall not so assess him in respect of the default specified in Clause (a) unless the dealer has been first given a reasonable opportunity of being heard.

This section corresponds to Section 23(4) of the Indian Income-tax Act. The language of clauses (a) and (b) of Sub-section (4) of Section 11 of the Sales Tax Act follows the language of similar clauses in Sub-section (4) of Section 23 of the Indian Income-tax Act. Clause (c) follows the language of Section 13 of the Income-tax Act in which the power has been given to the Income-tax Officer to assess the income in such manner as he may determine in cases where no method of accounting has been regularly employed, or if the method employed is such that the income cannot be properly deduced therefrom.

7. In Commissioner of Income-tax v. Lakshminarain Badridas [1937] 5 I.T.R. 170 the Privy Council stated the law on 'best judgment assessment' as follows :-

The officer is to make an assessment to the best of his judgment against a person who is in default as regards 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, and 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 though 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.

We agree with the learned Government Advocate, that in making the best judgment assessment, it is open to the Sales Tax Officer or the Income-tax Officer to rely on private sources of information and inquiries made. However, in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, West Bengal [1954] 26 I.T.R. 775 the power of the Income-tax Officer to make assessment under Section 23(3) of the Income-tax Act was considered. This is what their Lordships observed :

In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to make all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing.

In our opinion, these observations equally apply to an assessment made under Sub-section (4) of Section 23 of the Income-tax Act. Although there is nothing specifically mentioned in Sub-section (3) or Sub-section (4) that the material should be disclosed to the assessee, it must now be taken as settled law that whenever the department wants to act upon any information, it should be disclosed to the assessee and an opportunity should be given to him to rebut it. In the instant case, the order of the Sales Tax Officer (Ex. P-1) does not disclose that the facts relied upon to support the assessment were disclosed to the assessee. Although it is stated that the report of the Sales Tax Inspector was filed on record, it is not clear whether it was shown to the assessee. It is vaguely stated in the order that many more contracts were taken by the assessee; but it is not possible to find which of the contracts were considered for the purpose of estimating the sales. It appears that the petitioner was examined and he denied that he had worked the several contracts. It is difficult to say whether he was questioned about the details of the several forest contracts. In paragraph 5 of the return it has been stated by the respondents that it was not necessary to question the petitioner regarding the forest contracts. As we have said, it is clear from the petition that the dates on which three of the forest contracts were taken were beyond the assessment period and the date of taking one of them was very near the end of that period. Thus only two of the contracts were worked by the petitioner. It was necessary for the Sales Tax Authorities to disclose to the petitioner the contracts which he was supposed to have worked and to question him about them. As this was not done, the assessment is vitiated.

8. Another infirmity with which the assessment suffers is that it is impossible to say how the extent of sales has been ascertained. Some circumstances have been vaguely referred to ; but on the face of it the assessment appears to be arbitrary and based on suspicion. The assessment made in appeal (Ex. P-2) also does got give any reasons how the volume of business could be placed at rupees four lacs.

9. Our attention has been drawn to Hardutt Mull Jute Mitts v. State of Bihar [1956] 7 S.T.C. 666 in which the corresponding provision in Section 13(4) of the Bihar Sales Tax Act, 1947, was considered. The view taken in Dhakeswari Cotton Mills' case [1954] 26 I.T.R. 775 was distinguished on the ground that the assessment in that case was on pure guess and the accounts produced by the assessee were not perused by the Income-tax Officer. In the Bihar case the assessee had admitted that he was aware of the contents of the Inspector's report which was relied upon by the Sales Tax Officer. In the instant case, there is no such admission, and it appears that the assessee was not examined with reference to the forest contracts. Further, there was no material before the Sales Tax Officer to show whether the forest contracts were worked or not and care was not taken to see the dates of those contracts. The assessment has been arbitrarily made without any material to support it. From the order of the Commissioner (Ex. P-3) it seems that the figure for the volume of business was arrived at after considering all the eight contracts. The return and the orders Ex. P-1, Ex. P-2 and Ex. P-3 do not disclose that there was any justification for this assumption.

10. Accordingly, the assessment proceedings were held contrary to the fundamental principles laid down in Dhakeswari Cotton Mills' case [1954] 26 I.T.R. 775 and the assessment is, therefore, liable to be set aside. We order that a writ of certiorari shall issue quashing the assessment made by the Sales Tax Authorities in this case. It shall be open to them to proceed again to assess the petitioner in accordance with law. Under the circumstances of this case, we make no order as to costs. The outstanding amount of the security deposit shall be refunded to the petitioner.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //