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Hardayal Govind Prasad Vs. State of Orissa - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtOrissa High Court
Decided On
Case Number Special Jurisdiction Case No. 53 of 1978
Judge
Reported in[1985]58STC77(Orissa)
AppellantHardayal Govind Prasad
RespondentState of Orissa
Appellant Advocate B. Agarwala, ;M.R. Panda, ;R.S. Agarwala and ; K.K. Jena, Advs.
Respondent Advocate The Standing Counsel (S.T.)
Cases ReferredAllied Dealers v. State of Orissa
Excerpt:
.....the tribunal as well as the other two forums it is evident that they have arbitrarily enhanced the gross turnover and the taxable turnover. , power is conferred on the assessing authority in the circumstances mentioned thereunder to assess the dealer to the best of his judgment. 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. though there is an element of guess-work 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. state of orissa) where this court held :once the accounts are discarded, the assessing officer is obliged to complete the assessment according to the best of his judgment...........mohua flowers, seasonal goods and oils of different varieties on wholesale basis. he disclosed gross turnover and taxable turnover at rs. 84,83,065.52 and rs. 7,10,068.38 respectively, which were not accepted to be true and correct. the sales tax officer determined the gross turnover at rs. 89,93,065 and taxable turnover at rs. 11,11,256.60. he rejected the books of account on the following grounds:on detailed verification of his books of accounts, it was revealed that all his local purchases of seasonal commodities like horse grams, black grams, groundnuts and oil-seeds and forest products like mohua flower, etc., are not covered by purchase memos. most of such commodities were purchased from producers and purchase invoices prepared in the dealer's own printed forms of money.....
Judgment:

J.K. Mohanty, J.

1. As directed by this Court, the Member, Sales Tax Tribunal, has stated a case and referred the following question under Section 24(2) of the Orissa Sales Tax Act, 1947 (hereinafter called the 'Act'):

Whether on the facts and in the circumstances of the case the enhancement of the turnover by Rs. 2,50,000 is arbitrary after rejection of accounts

2. This reference relates to the assessment year 1973-74. The assessee carries on business in grocery articles, pulses, oil-seeds, mohua flowers, seasonal goods and oils of different varieties on wholesale basis. He disclosed gross turnover and taxable turnover at Rs. 84,83,065.52 and Rs. 7,10,068.38 respectively, which were not accepted to be true and correct. The Sales Tax Officer determined the gross turnover at Rs. 89,93,065 and taxable turnover at Rs. 11,11,256.60. He rejected the books of account on the following grounds:

On detailed verification of his books of accounts, it was revealed that all his local purchases of seasonal commodities like horse grams, black grams, groundnuts and oil-seeds and forest products like mohua flower, etc., are not covered by purchase memos. Most of such commodities were purchased from producers and purchase invoices prepared in the dealer's own printed forms of money receipts were produced in respect of only some cases. Other such purchases were not covered by any purchase memos. As purchases of seasonal commodities were made from a large numbers of local producers, of interior villagers, the actual volume of purchases made from such purchasers are not verifiable....

Hence he enhanced the gross turnover and taxable turnover as indicated above. The appellate authority confirmed the finding of the Sales Tax Officer arid held:

With regard to enhancement in the turnover, the appellant urges through his Advocate that the quantum is high and excessive. It, however, does not appear to me to be so. The quantum of enhancement of Rs. 5 lakhs, the percentage calculates to six only. I should think that the learned assessing officer has rather leniently handled the matter and I am therefore not inclined to interfere with the assessment to the dealer's favour.

In the appeal preferred by the present petitioner, the Tribunal confirmed the finding that the books of account of the assessee were not acceptable. On the question of enhancement the learned Tribunal held :.Taking the above facts into consideration, I am of the considered opinion that if the enhancement is reduced by 50 per cent it would meet the ends of justice. I would accordingly limit the enhancement to Rs. 2J lakhs.

3. Mr. Agarwala, learned counsel appearing for the assessee, submitted that from the order of the Tribunal as well as the other two forums it is evident that they have arbitrarily enhanced the gross turnover and the taxable turnover. The assessment made has no reasonable nexus to the materials available on record. In support of his contention he relied on a decision of the Supreme Court reported in [1957] 8 STC 770 (SC) (Raghubar Mandal Harihar Mandal v. State of Bihar) wherein it has been held :.Having rejected the returns and the books of account, the assessing authorities proceeded to estimate the gross turnover. In so estimating the gross turnover, they did not refer to any materials at all. On the contrary, they indulged in a pure guess arid adopted a figure without reference to any evidence or any material at all. Let us take, for example, the assessment order for the quarter ending 30th June, 1946. The Sales Tax Officer said : T reject the dealer's accounts and estimate a gross turnover of Rs. 4,00,000. I allow a deduction at 2 per cent on the turnover and assess him on Rs. 3,92,000 to pay sales tax of Rs. 6,125.' For the quarter ending on 30th September, 1946, the Sales Tax Officer said : 'I reject his irregular account and estimate a gross turnover of Rs. 3,00,000 for the quarter and assess him on Rs. 2,94,000 to pay tax of Rs. 4,593-12-0.' These and similar orders do not show that the assessment was made with reference to any evidence or material; on the contrary, they show that having rejected the books of account, the assessing authorities indulged in pure guess and made an assessment without reference to any evidence or any material at all. This the assessing authorities were not entitled to do under Clause (b) of Sub-section (2) of Section 10 of the Act.

Reliance was also placed on another decision of the Supreme Court reported in [1966] 17 STC 465 (SC) (State of Kerala v. C. Velukutty) wherein it has been held :

Under Section 12(2)(b) of the Travancore-Cochin General Sales Tax Act, 1125 M.E., power is conferred on the assessing authority in the circumstances mentioned thereunder to assess the dealer to the best of his judgment. 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 guess-work 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.

4. In reply, learned counsel appearing for the department relied on a decision reported in [1975] 35 STC 335 (New Orissa Traders, Sambalpur v. State of Orissa) where this Court held :

Once the accounts are discarded, the assessing officer is obliged to complete the assessment according to the best of his judgment. In such an assessment, there is bound to be some amount of arbitrariness and guess-work. In a regular assessment the accounts of the assessee provide the basis. But when for , defects in accounts, the books are rejected, that foundation is no more available. The assessing officer has, therefore, to work out a reasonable estimate. As long as the estimate has a nexus to the suppression detected, it is fair and not capricious and there is no scope for interference. The Supreme Court has indicated in the case referred to above that the assessee cannot require the assessing officer to support his estimate by evidence. As rightly indicated in the said decision, if the estimate is to be supported it ceases to be a best judgment assessment. In every best judgment assessment, there is bound to be some amount of arbitrariness and guess-work. But the assessing officer has the obligation to work out an honest estimate and in a manner which is not capricious, dishonest or vindictive. He has obviously to take the assessee's past records, local reputation, opportunities of making clandestine transactions, limitation of the business, nature of the business carried on, et cetera into account. When a best judgment assessment is completed taking these aspects into consideration, and a nexus is maintained between the estimate and the escaped turnover, there is no scope for any interference. The estimate is required to be according to the best judgment of the assessing officer and the High Court in a reference would, therefore, have no jurisdiction to substitute its best judgment for that of the statutory authority. But, where there is caprice or arbitrariness in making the assessment according to the best of judgment, the same becomes vulnerable. A Bench of this Court in the case of Allied Dealers v. State of Orissa [1972] 29 STC 464, relying upon an earlier decision of the Supreme Court has indicated the limitations, which, in our view, are appropriate.

5. After hearing counsel for both sides, keeping the principles referred to above in view and in the facts and circumstances of the case we are of the opinion that the enhancement of the gross turnover by the Tribunal has no rational basis and has no nexus to the materials available on record and the circumstances of this case. Our answer to the question referred to is, therefore, in the affirmative.

Parties to bear their own costs.

B.N. Misra, J.

I agree.


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