TMI Blog1990 (11) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... authority. In a few cases, the assessing authority invoked section 17(3) of the Kerala General Sales Tax Act. In most of the cases, action was initiated under section 19B of the Act. The assessments so made were taken in appeal before the Appellate Assistant Commissioner. He upheld the finding of the assessing authority that there was undervaluation. But, he reduced the rate adopted by the assessing authority in a few cases. The assessees filed appeals before the Sales Tax Appellate Tribunal and sought total deletion of the estimates made by the authorities below. The Revenue filed a few appeals, in cases where the Appellate Assistant Commissioner reduced the rates adopted by the assessing authority, and sought restoration of the assessment orders as a whole in those cases. Before the Sales Tax Appellate Tribunal much focus was laid on section 19B of the Act and the assessments were sought to be sustained placing reliance on the said section. 2.. The Appellate Tribunal considered the appeals filed by the assessees as well as by the Revenue and passed a common order dated 1st December, 1989. Before the Appellate Tribunal Shri A.U. Yacob, Deputy Director, Department of Economics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 19B of the Act was invoked, on a comparison of the price disclosed in the various accounts with the prevailing market price as gathered by the assessing authority, he was satisfied that the assessees had shown in their accounts transactions at price lower than the prevailing market price and that such practice was followed for the purpose of evading payment of tax and nothing else. There is no authentic record or communication of the Statistics Department available in the files to show the rate of four varieties of cured arecanuts dealt with in Kokkalai market. The only material available in the files, and which was brought to our notice by the learned Government Pleader, is the enquiry report dated 2nd August, 1985 of the Additional Sales Tax Officer-III, 4th Circle, Thrissur, which formed the basis for the rejection of the accounts of the dealers or for resorting to section 19B of the Kerala General Sales Tax Act. The assessees were questioning the reliability and authenticity of the figures relied on by the Sales Tax Officer as gathered from the Office of the District Statistical Officer, Thrissur. It seems that request was made by the assessees before the first appellate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial records and would not be divulged even to Sales Tax Department authorities. Only the published details are supplied." 4.. The basic fact to reject the returns of the dealers and to effect the best judgment assessments under section 17(3) of the Act or to invoke section 19B of the Act, is the information obtained by the Additional Sales Tax Officer-III, 4th Circle, Thrissur, as disclosed in his enquiry report dated 2nd August, 1985. In the enquiry report, the officer has stated that the records kept in the Office of the District Statistical Officer, Thrissur, reveal the rates of four varieties of cured arecanuts dealt with in Kokkalai market during the year 1984-85. The basic document or even an authenticated copy thereof of the District Statistical Officer is not available in the files, nor was it produced, at any time, before any of the statutory authorities. It is to bring out the manner and method by which the Statistical Department gathered details of Kokkalai market, further evidence by way of examination of the Deputy Director, Department of Economics and Statistics, Thrissur, was let in before the Appellate Tribunal. We are at a loss to understand as to why the origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant. Appellant also draws an invoice on the purchaser for the price as also for other charges like drying, packing, etc., and brokerage if any and debits the purchaser for this amount. The goods are then transported to the purchasers' places outside the State or in some cases which are very few disposed of in this State itself if such a course is authorised by the purchaser." 5.. The assessees have got a specific case that cured arecanut shandy in Kokkalai market is held only on every Tuesday. Mr. A.U. Yacob, Deputy Director, Department of Economics and Statistics, Thrissur, who was examined before the Sales Tax Appellate Tribunal, has categorically stated that the Price Inspectors gathered the information only on one day in a week, i.e., on Friday. To a specific question, as to whether he could dispute the suggestion that in Thrissur cured arecanut shandy is held on every Tuesday, he stated that he does not know. He did not dispute it. We are highlighting the above aspect only to show that whereas according to the various dealers cured arecanut shandy is held on every Tuesday and so the market price of arecanut could normally be collected only on such days, it has come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hstanding the exercise of due diligence, was not within his knowledge or could not be produced by him at or before the time the order under appeal was passed; or (c) the Tribunal requires any document to be produced or any witness to be examined to enable it to decide the case or for any other substantial cause; the Tribunal may allow such evidence or document to be produced or witness to be examined. ......................... (3) Where additional evidence is allowed or directed to be produced, the Tribunal shall record the reasons for its admission and shall specify the points to which the evidence is to be confined. ......................... (7) The evidence of every witness examined before the Tribunal shall be taken down in writing by or in the presence and under the personal direction and superintendence of the Tribunal." From the papers produced before us, it is not evident that the Tribunal has recorded reasons for the admission of additional evidence; nor has it specified the points to which the evidence is to be confined, as is required by regulation No. 48(3). What is more, the witness alone has signed in the document, at page 287. There is no endorsement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial, but only quasi-judicial. But, he should proceed to decide the matter before him in a fair and reasonable manner upon property ascertained facts and circumstances. In exercising the quasi-judicial function, the assessing authority should conform to the principles of natural justice. He should act fairly and reasonably and afford proper and effective opportunity to the assessee to rebut the case of the department. It is true that the assessing authority has got very wide powers and can rely on any material provided the substance of the material gathered by him is disclosed to the assessee. He is not bound to disclose the source of his information. But, he should communicate the substance of the information obtained by him which will give the assessee sufficient and full particulars of the case he is expected to meet. Above all, the assessing authority has a duty to satisfy himself about the correctness or accuracy of the information which he has obtained before acting upon it. The above aspects should be borne out by the records. 8.. In Chiranji Lal Steel Rolling Mills v. Commissioner of Income-tax [1972] 84 ITR 222 (P H) at pages 227 and 228, the court observed thus: "I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the Income-tax Officer was not justified in giving undue weight to the document obtained from the Sales Tax Department. But, in second appeal, the Income-tax Appellate Tribunal restored the order passed by the assessing authority. A reference was made to the High Court, at the instance of the assessee. It was in the said reference proceedings, the court took the view that a duty is cast on the assessing authority to verify the truthfulness or reliability of the document by independent enquiry, and without doing so, placing reliance on the copy of a document supplied by the Sales Tax Department was uncalled for. We concur with the above decision. 9.. We are of the view that the ratio of the above decision is squarely applicable herein also. In these cases, the assessees were all along disputing the veracity and reliability of the facts culled out by the assessing authority from the books of the District Statistical Office. That is a basic fact which must be shown to exist in order to sustain the assessments under section 17(3) or to invoke section 19B of the Kerala General Sales Tax Act. The basic fact aforesaid could have been established by causing the original records ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms dealt with by each assessee. This is another vitiating factor. Ad hoc average rate is adopted for the 19 items, for which details were not gathered. This is unfair. 11.. The Appellate Tribunal has casually stated that the sales tax authorities detected offences of tax evasion by means of "undervaluation' in the case of a few similarly placed dealers in Kokkalai market, and the assessees admitted the "detected undervaluation". There is no basis for this statement. The learned Government Pleader could not substantiate the said plea. When questioned, about the basis of the aforesaid observation, the Government Pleader placed before us, the files in T.R.C. No. 109 of 1990-T.A. No. 229 of 1987 (pages 87 to 89) and T.R.C. No. 124 of 1990T.A. No. 280 of 1987 (pages 37 and 38). In the said two cases, on surprise inspection, unaccounted stocks and irregularities or omissions in the accounts were found out. The compounding by the dealers related to such omission. They have stated so, only. We could not find any admission regarding "undervaluation" in the above cases. We are at a loss to know as to how the Appellate Tribunal surmised that the sales tax authorities detected tax evasion by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of tax, and the assessing authority is 'satisfied' about the same, on the basis of 'materials', then resort may be made to section 19B of the Act." Section 52 of the Income-tax Act, 1961, is a kindred provision. It is as follows: "52. (1) Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer. (2) Without prejudice to the provisions of sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent, of the value so declared, the full value of the consideration for such capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the transfer is not truly declared or disclosed by him but is shown at a different figure." Concluding the discussion, at pages 614 and 615 of the Report, the court stated the law thus: "..........it is not enough to attract the applicability of subsection (2), that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeds the full value of the consideration declared in respect of the transfer by not less than 15% of the value so declared, but it is furthermore necessary that the full value of the consideration in respect of the transfer is understated or, in other words, shown at a lesser figure than that actually received by the assessee. Subsection (2) has no application in the case of an honest and bona ride transaction where the consideration in respect of the transfer has been correctly declared or disclosed by the assessee, even if the condition of 15% difference between the fair market value of the capital asset as on the date of the transfer and the full value of the consideration declared by the assessee is satisfied. If, therefore, the revenue seeks to bring a case within subsection (2), it must show not only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market prices of such goods, it may, at any time within a period of four years from the date on which any order of assessment was served on the dealer, assess or reassess the dealer to the best of the judgment on the turnover of such sales or purchases after making such enquiry as may be necessary and after giving the dealer a reasonable opportunity to show cause against such assessment. (2) The provisions of section 14 including penalty shall apply to assessment and reassessment of escaped turnover under this section." The said provision came up for consideration before a Bench of the Andhra Pradesh High Court in Delux Wines v. State of Andhra Pradesh [1990] 77 STC 373. In the said case, a plea was put forward on behalf of the assessees that for invoking section 14-B(1) of the Act, the Revenue should show that the assessee collected more than the ostensible sale consideration charged in the bill, with a view to evade payment of sales tax. Placing reliance on the decision of the Supreme Court in K.P. Varghese v. Income-tax Officer [1981] 131 ITR 597, the Division Bench observed as follows: "..........principle laid down by the Supreme Court equally governs section 14-B(l) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reflect the market price of the commodity in question which was dealt with on Tuesdays in market, that an average market price based on the said insufficient data is not what is contemplated by section 19B of the Act and these aspects were totally ignored by the Appellate Tribunal in sustaining the assessments under section 19B of the Act. 16.. It is not necessary for us to finally adjudicate the various pleas, put forward by the assessees. Suffice it to say that these are arguments which necessarily fall to be considered in applying section 19B of the Act. Since in this batch of cases we are setting aside the common order of the Appellate Tribunal on the broad aspects, about the absence of prerequisites to invoke section 17(3) or 19B of the Act, to hold that the purchases of the assessees were undervalued with a view to lessening tax liability, we are not pronouncing on the various other pleas that were urged before us. 17.. The tax revision cases are allowed. The common order of the Tribunal dated 1st December, 1989, is set aside. A few other points, other than those based on section 17(3) or section 19B of the Act, were also argued. We have annulled the common order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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