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2016 (10) TMI 785 - ALLAHABAD HIGH COURT

2016 (10) TMI 785 - ALLAHABAD HIGH COURT - TMI - Tax liability - assessment proceedings - Entry tax - Best judgement assessment - tax evasion - survey of premises - rejection of books - discrepancies in the recorded quantities of raw material and finished products - entries in the RG-1 Register did not match with what was actually found during the course of the survey operations - Held that: - Section 28 of the Act empowers the assessing authority to reject the books of account of an assessee wh .....

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to be rejected - the authority must come to a conclusion that the books of accounts as maintained and as a whole cannot be relied upon or held worthy of confidence. - The difference itself was of only 0.67 per cent. This, in the opinion of the Court, did not form sufficient ground to come to a conclusion that the books maintained by the assessee were not worthy of credence or that the transactions were not faithfully or dutifully recorded in the account books. Pausing here, it becomes relev .....

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- Estimation of turnover - the Court finds that although the Tribunal accepts the submission of the revisionist that all the thirty eight machines were not functioning in May 2008, it has proceeded to estimate the escaped turnover to be ₹ 1,40,00,000/-. On what basis this figure has been arrived at is neither noted nor elaborated upon by the Tribunal. While it is true that a best judgment assessment would necessarily entail a certain degree of guess work, the guess itself which is arrive .....

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course of the survey operations. On both scores, therefore, this Court is unable to sustain the orders passed by the assessing authority as well as the Tribunal. - The assessment under the Entry Tax enactment is based solely upon the assessment undertaken under the Act. For the reasons recorded above, the same must also necessarily fall. - Revision allowed - decided in favor of assessee. - Sales/Trade Tax Revision No. 941, 942 of 2011 - Dated:- 5-10-2016 - Hon'ble Yashwant Varma, J .....

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. 941 of 2011 relates to the consequential assessment undertaken with reference to the entry tax liability of the revisionist under the provisions of U.P. Tax on Entry of Goods Act, 2008. The Tribunal in terms of the order impugned has proceeded to uphold the action of the assessing authority which had proceeded to reject the books of account as maintained by the assessee and has consequently undertaken a best judgement assessment coming to hold that turnover of ₹ 2,35,00,000/- had escaped .....

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siness premises of the assessee are said to have been surveyed on 5 May 2008 and 12 August 2008 and it is the material gathered during the course of the survey so undertaken which formed the bedrock of the proceedings subsequently taken by the assessing authority. From a reading of the order of the Tribunal the following facts emerge. During the course of the survey undertaken, it was found that the difference in the quantity of raw material as actually found and duly recorded, was of 227.24 Kgs .....

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ertain documents or records which may have been demanded were not produced. The Tribunal then proceeds to record that apart from the relevant books of account which were demanded and so shown to the survey team other relevant material also appears to have been presented to the survey team and there is no certification by the members of the survey team that any document which may have been called for was not produced. Sri Rahul Agarwal, learned counsel for the revisionist has assailed both the re .....

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he books of account maintained by the assessee. Sri Agarwal, learned counsel then submits that the explanation which was proffered by the assessee for the discrepancy in quantity was neither adverted to nor considered either by the assessing authority or the Tribunal. This, he submits, is evident from the explanation advanced that the discrepancy in the quantity of finished products was on account of the day's production having been added by the survey team as also its failure to note that p .....

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ly be no advantage to a dealer to suppress the quantity of raw material while declaring the entire quantity of the final product. This he submits in light of the provisions of the Act which enables a dealer to claim Input Tax Credit (ITC) and thus claim a set off of tax already paid on goods which have been utilized in the manufacture of the final product. Assailing the estimation of escaped turnover, Sri Agarwal submits that the case of the revisionist was that all the thirty eight machines whi .....

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awn the attention of the Court to the fact that although the Tribunal does accept the explanation of the assessee that the thirty eight machines were not actually functioning at the time of survey, it has not given any benefit to the assessee on this score. He lastly submits that although the Tribunal has reduced the escaped turnover as assessed by the assessing authority, even this estimation of the Tribunal is not based on any empirical exercise nor is it referable to any material or record th .....

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oduct, was based upon facts which were actually gathered in the course of the survey operations and therefore there was no occasion for this Court to interfere with the same. Sri Pandey, lays stress upon the fact that the Tribunal has reduced the escaped turnover to a large extent and therefore contends that there is no occasion for the Court to interfere with the ultimate imposition of additional tax as mandated in terms of the order of the Tribunal. A best judgment assessment is undertaken by .....

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udgment. The issue which therefore falls for consideration is whether the facts and figures which were gathered and collected during the course of survey operations, were sufficient for the assessing authority to form an opinion or arrive at the conclusion that the books of account as maintained by the assessee were not worthy of credence. Now, it is not disputed and in fact, the Tribunal so records, that all account books, records and material, were produced and placed before the survey team. T .....

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nificance of these discrepancies, it was incumbent upon the assessing authority to come to a conclusion that the discrepancies themselves were sufficient to warrant the formation of an opinion that the books of accounts and records were not being faithfully maintained by the assessee. The other aspect which should have necessarily fallen for consideration of the assessing authority was whether the explanation so proffered by the assessee was reasonable and plausible or of a nature or character w .....

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y team had proceeded to add the quantity of finished product which was manufactured on the said date itself. The explanation so advanced on behalf of the assessee is not disputed by learned standing counsel in the course of his oral submissions nor did he refer the Court to any material which may have even remotely tended to indicate that the same was factually incorrect or unsustainable. This is liable to be viewed bearing in mind the fact that neither the assessing authority nor the Tribunal c .....

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ty they were liable to be accepted. Applying the reasonable person test it clearly follows that the explanation advanced could not have been outrightly rejected or be termed as wholly implausible. This more so when the respondents did not rest their case against the assessee on any material which may have established that the explanation offered was not liable to be believed. Section 28 of the Act empowers the assessing authority to reject the books of account of an assessee where it finds that .....

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he word 'credence' has been defined in the Oxford English Dictionary (Second Edition) as follows: ".....3. The condition of being worthy; or of being held worthy, of confidence; trustworthiness; credit, repute 4. Something, usually a document (see b) which gives claim to credit or confidence; credentials......" From the above, it is clear that the authority must come to a conclusion that the books of accounts as maintained and as a whole cannot be relied upon or held worthy of .....

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se where the difference itself was of only 0.67 per cent. This, in the opinion of the Court, did not form sufficient ground to come to a conclusion that the books maintained by the assessee were not worthy of credence or that the transactions were not faithfully or dutifully recorded in the account books. Pausing here, it becomes relevant to clarify that this Court does not intend to lay down as a broad proposition that a singular transaction cannot in all situations be sufficient to reject the .....

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