1993 (3) TMI 329 - HC - VAT and Sales Tax

Summary

Issues: Assessment order based on best judgment, reclassification of turnover, revisional authority's power to substitute judgment, legality and propriety of assessing authority's order, determination of gross profit percentage, scope of revisional authority under section 21 of the Act.

Analysis:
The judgment pertains to a revision petition filed by an assessee challenging an assessment order made for a specific period. The assessing authority reclassified the turnover of the sale of goods, leading to a revised taxable turnover amount. Subsequently, the Deputy Commissioner proposed a revision of the assessment order, suggesting a higher gross profit percentage be applied to determine the turnover. The assessee objected, asserting that the gross profit did not exceed 5%, although the Deputy Commissioner insisted on a 15% gross profit rate. The Karnataka Appellate Tribunal upheld the Deputy Commissioner's order.

The key argument raised by the petitioner's counsel was that the revisional authority cannot replace the assessing authority's best judgment unless there is illegality or impropriety in the original order. The revisional authority's power under section 21 of the Act is to ensure the legality and propriety of the subordinate authority's order. It was contended that the assessing authority's acceptance of a 10% gross profit should not be substituted with 15% without specific material to support the change. The Government Advocate argued that a 10% gross profit was not acceptable in the business line and that a businessman would typically aim for a 15% profit margin.

The High Court emphasized that unless the assessing authority's best judgment is arbitrary or capricious, it cannot be deemed illegal or improper. The revisional authority can intervene if relevant principles or facts were not considered by the assessing authority. In this case, it was noted that there was no indication that a 15% gross profit was standard in the business line, and the proposition notice lacked a basis for the 15% profit assertion. Therefore, the Deputy Commissioner's order and the Tribunal's decision were set aside, and the revision petition was allowed.

In conclusion, the judgment highlights the importance of adherence to legal principles and the necessity for the revisional authority to demonstrate the illegality or impropriety of the assessing authority's order before substituting their judgment. It underscores the requirement for clear reasoning and factual basis in assessment decisions to withstand scrutiny under the law.