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PETITIONER: STATE OF MADRAS

       Vs.

RESPONDENT: S.   G. JAYARAJ NADAR & SONS

DATE OF JUDGMENT16/09/1971

BENCH: GROVER, A.N. BENCH: GROVER, A.N. HEGDE, K.S.

CITATION:  1971 AIR 2405            1972 SCR  (1) 751

ACT: Madras  General Sales Tax Act, 1959-Penalty under s.  levied only when best judgment assessment is made under s.12(3).

HEADNOTE: The assessee was a dealer in motor vehicles and spare  parts and cartain other goods.  During the assessment  proceedings under  the Madras General Sales Tax Act, 1959 it  was  found inter alia that the assessee had not included in the monthly return  in  Form  A-2,  three  items  of  turnover,  namely, delivery charges relating to motor vehicles purchased by the assessee  from Calcutta dealers, sales of motor  parts,  and sales  of  firewood.  Assessment was  made  overlooking  the assessee’s  objections in respect of the inclusion of  these items  in  the turnover.  The Commercial  Tax  Officer  also imposed  penalty on the assessee.  The  Appellate  Assistant Commissioner  reduced the penalty to a nominal figure.   The Board of Revenue set aside the appellate order holding  that assessee did not deserve lenient treatment.  The High  Court in reference held that penalty was leviable only in  respect of  the  second  item in respect of which  a  best  judgment assessment had been made but not in respect of the first and third items in respect of Which the figures in the books had been accepted.  In appeal by the Revenue, HELD : The High Court came to the correct conclusion because sub-ss.  (2).  and (3) of s. 12 have to  be  read  together. Sub-section  (2) empowers the assessing authority to  assess the  dealer to the best of its judgment in the events :  (i) if  no return has been submitted by the dealer under  sub-s. (1)  within  the prescribed period and (ii)  if  the  return submitted  by  him appears to be incomplete  and  incorrect. Subsection (3) empowers the assessing authority to levy  the penalty  only when it makes an assessment under sub-s.  (2). In  other  words when the assessing authority has  made  the assessment to the best of its judgment it can le a  penalty. When  account  books are accepted along with  other  recordr there   can  be  no  ground  for  making  a  best   judgment assessment. [753 C-G] State of Kerala v. C. Velukutty, 17 S.T.C. 465, referred to. In  the present case the High Court rightly found  that  the turnovers  involved  in the first and third items  were  not determined  on  the basis of any estimate of  best  judgment since  the  quantum of turnovers in respect  of  both  these

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items were based on the assessee’s books.  The penalty  thus could  not be levied in respect of these two items. [753  H- 754 B] The appeal must accordingly fail.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1404  of 1969. Appeal  by special leave from the judgment and  order  dated July 4, 1967 of the Madras High Court in Tax Case No. 210 of 1964. 752 S.   T.  Desai,  A.  V. Rangam and  A.  Subashini,  for  the appellant. T.   A’. Ramachandran, for the respondent. The Judgment of the Court was delivered by Grover,  J. This is an appeal from a judgment of the  Madras High  Court  in a matter arising out of the  Madras  General Sales Tax Act 1959, hereinafter called the "Act". The  assessee is a dealer in motor cars,  trucks,  scooters, motor  spare parts and certain other goods.  He  returned  a turn,.over of Rs. 42,09,912.12 for the assessment year 1961- 62.   The  Commercial Tax Officer on  scrutiny  of  accounts determined  the  turnover at Rs.  68,06,331.49.  During  the assessment  proceedings it was found that the  assessee  had not included in the monthly return in Form A-2, three  items of  turnover.   The  first  was a  sum  of  Rs.  1,95,311.21 relating to delivery charges which the assessee had paid  to certain Calcutta dealers from whom he had made purchases  of cars,  trucks,  scooters etc.  The second item  was  of  Rs. 2,21,247.97 which related to the sales of motor parts.   The third item was of Rs. 1,56,539.25 being the aggregate of the sale proceeds of firewood.  The assessing authority served a notice on the assessee to show cause why these items  should not be brought to tax.  The assessee filed objections  which were  rejected.   The  assessing authority  found  that  the delivery  charges paid by the assessee were included in  the cost price when the cars, trucks, scooters etc. were sold by it and sales tax at 7% had been collected by the assessee on the  delivery  charges.  As regards the second item  it  was held  that  the  assessee had failed  to  maintain  separate accounts contrary to the rules in respect of the first sales of  parts and as it was not possible to separate  the  first sales  from the general entries in the account books it  was necessary   to  make  assessment  on  last  judgment.    The assessment  was completed but certain penalty was levied  On the,  assessee.   The  assessee appealed  to  the  Appellate Assistant Commissioner who took the view that the failure of the assessee to disclose the taxable turnover in the monthly returns was due to a bona fide impression on the  assessee’s part  that  it would be sufficient if correct  figures  were furnished  at  the  time  of  the  final  assessment.    He, therefore, imposed a nominal penalty.  The Board of  Revenue in  exercise of its power under S. 34 of the Act  set  aside the   order   of  the  Appellate   Assistant   Commissioner. According  to  the  Board’s  findings  the  failure  of  the assessee to disclose the turnover in question was deliberate and  called for no lenient treatment.  An appeal  was  filed against the order of the Board of Revenue to the Madras High Court.   The  High Court allowed the appeal so  far  as  the first and third items were concerned.  As regards the second item it decided against the assessee. 753

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Section 12(2) of the Act is in the following terms               "If no return is submitted by the dealer under               subsection  (1) within the prescribed  period,               or if the return, submitted by him appears  to               the  assessing authority to be  incomplete  or               incorrect,  the  assessing  authority   shall,               after  making such enquiry as it may  consider               necessary,  assess the dealer to the  best  of               its judgment :               Provided that before taking action under  this               subsection   the  dealer  shall  be  gives   a               reasonable   opportunity   of   proving    the               correctness  or  completeness  of  any  return               submitted by him". The  question is whether penalty can be levied while  making the assessment under sub-s. (2) of the above section  merely because an incorrect return has been filed.  The High  Court was of the view that it is only if the assessment has to  be made, to the best of the judgment of the assessing authority that  penalty can be levied.  It seems to us that  the  High Court came to the correct conclusion because sub-ss. (2) and (3)  have to be read together.  Subsection (2) empowers  the assessing authority to assess the dealer to the best of  its judgment in two events; (i) if no return has been  submitted by the dealer under sub-s. (1) within the prescribed  period and  (ii)  if  the return submitted by him  appears  to  be- incomplete  or  incorrect.   Sub-section  (3)  empowers  the assessing  authority to levy the penalty only when it  makes an  assessment  under sub-s. (2).  In other words  when  the assessing  authority has made the assessment to the best  of its judgment, it can levy a penalty.  It is well known  that the best judgment assessment has to be on an estimate  which the assessing authority has to make not capriciously but  on settled and recognised principles of justice.  An element of guess  work  is  bound  to  be  present  in  best   judgment assessment  but  it  must have a reasonable  nexus,  to  the available material and the circumstances of each case.  (See The  State  of Kerala v. C. Velukutty)  (1)   Where  account books are accepted along with other records there can be  no ground for making a best judgment assessment. In the present case the High Court found that the  turnovers involved  in  the  first  and  the  third  items  were   not determined  on the basis of any estimate of  best  judgment. The quantum of turnovers in respect of both these items were based  on the assessee’s account books.  It has almost  been conceded  on  behalf  of  the Revenue  before  us  that  the determination of the turnovers relating to the aforesaid two items was made from the entries in the books (1) 17 S.T.C. 465. 14-L3SupCI/72 754 ,of account of the assessee.  The true position,  therefore, was  that ,certain items which had not been included in  the turnover  shown  in the returns filed by the  assessee  were discovered  from  his own account books  and  the  assessing authority  included those items in his total turnover.   For these  reasons the High Court was justified in holding  that the assessment of the first and the third items could not be regarded as based on best judgment.  The penalty thus ,could not be levied in respect of those two items. In  the  result the appeal fails and it  is  dismissed  with costs.  G.C. Appeal dismissed. 755

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