1970 (8) TMI 77 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Relevance of the survey dated 7th December, 1965, for the assessment year 1964-65.
2. Validity of the estimate of turnovers for the assessment years 1964-65 and 1965-66.

Issue-Wise Detailed Analysis:

1. Relevance of the Survey Dated 7th December, 1965, for the Assessment Year 1964-65:

The primary question was whether the survey conducted on 7th December, 1965, could be considered relevant for the assessment year 1964-65. The court found that the survey date falls within the assessment year 1965-66. The critical factor is the dates and nature of the suppressed transactions discovered during the survey. The exercise book, deemed a duplicate account book, contained transactions from 18th November, 1965, to 6th December, 1965, all within the assessment year 1965-66. There was no evidence or finding that any transactions in the exercise book related to the assessment year 1964-65, nor was there any indication of balances carried over from an earlier year.

The judge (Revisions) had held the survey relevant for 1964-65 based on the assumption that the assessee likely had a habit of maintaining duplicate accounts. However, the court found this conclusion to be based on conjecture without material evidence. Even a best judgment assessment requires some material support, either direct or circumstantial. The court concluded that the survey of 7th December, 1965, was not relevant for the assessment year 1964-65, and no suppression could be presumed for that year based on the survey.

The court distinguished this case from the decision in Jagannath Baboo Lal, where a survey outside the assessment year was relevant due to the discovery of a different method of account-keeping. In the present case, there was no finding that the method of accounting during the survey differed from what was disclosed in the preceding year, nor was there evidence of disproportionately high stock levels in 1964-65.

2. Validity of the Estimate of Turnovers for the Assessment Years 1964-65 and 1965-66:

Assessment Year 1964-65:
Given the court's conclusion on the first issue, the enhancement of the turnover for the assessment year 1964-65, based on the survey of 7th December, 1965, could not be upheld. The court answered the question regarding the estimate of the turnover for 1964-65 in the negative, in favor of the assessee and against the department.

Assessment Year 1965-66:
For the assessment year 1965-66, the court evaluated whether the estimate of the turnover was legally valid. The assessee argued that the addition of Rs. 6,00,000 was arbitrary, pointing out that the suppressed turnover of Rs. 88,000 related only to a period of one month and 17 days. The Sales Tax Officer had extrapolated this suppressed turnover to the entire year. The court noted that the Sales Tax Officer did not strictly apply "the rule of three" and had already allowed a reduction considering the seasonal nature of the business in gur. The Appellate Assistant Commissioner had further reduced the turnover by Rs. 75,000 for gur.

The assessee also contended that suppression was discovered only at the branch office and could not be presumed at the head office. The court found this argument fallacious, noting that the Sales Tax Officer had enhanced the total turnover based on the suppression discovered, not separately for the head office.

The court dismissed the argument that earlier surveys, which did not detect irregularities, implied no prior evasion. The exercise book showed continuous suppression over a significant period, indicating it was not a stray instance. Considering the magnitude of the assessee's business, the court found the turnover estimate reasonable and not arbitrarily high.

The court concluded that once circumstances justify a best judgment assessment, the estimate of turnover is a factual question, and the judge (Revisions) is the final fact-finding authority. The estimate was supported by cogent materials and consistent with the business's scale.

Conclusion:
- For the assessment year 1964-65, the court answered in the negative, favoring the assessee.
- For the assessment year 1965-66, the court upheld the turnover estimate, favoring the department.

Both parties succeeded in part, and no order as to costs was made. The fee for the department's counsel was assessed at Rs. 200.