JUDGMENT
J. Gupta, Judicial Member
1. The main issue calling for decision here is whether depreciation in plant and machinery can be taken into consideration for calculation of investment of a small-scale industrial unit for the purpose of benefit of tax exemption under Rule 41 of the West Bengal Sales Tax Rules, 1995 or under Rule 3(116) of the Bengal Sales Tax Rules, 1941. The applicant Nos. 2 and 1 are respectively a partnership-firm and one of its partners. The firm is engaged in manufacture of fruit juice, jam jelly, fruit sarbat and another food products at its small-scale industrial unit which is registered with the Directorate of Cottage and Small-scale Industries, Government of West Bengal. According to the applicant-firm (hereinafter referred to as “the firm”) its investment in the said unit in plant and machinery during the period from April 1, 1995 to April 30, 1995 and from May 1, 1995 to March 31, 1996 was less than Rs. 5 lakhs and it was accordingly entitled to get the tax exemption under Rule 3(116) of the 1941 Rules during the first period and under Rule 41 of the 1995 Rules during the other period. The firm alleges that the Assistant Commissioner of Commercial Taxes, Barasat Charge, District : North 24-Parganas (respondent No. 1) assessed the firm for the period from April 1, 1995 to April 30, 1995 fixing Rs. 3,14,500 as tax including turnover tax (TOT) of Rs. 25,500 and also assessed interest of Rs. 2,26,440. For the period of May 1, 1995 to March 31, 1996 tax was assessed at Rs. 24,87,374 and an interest of Rs. 13,62,557 was levied. The firm alleges that in making such assessment the respondent No, 1 rejected its (firm’s) claim for tax exemption under Rule 3(116) of the 1941 Rules and Rule 41 of the West Bengal Sales Tax Rules, 1995. According to the firm, the turnover tax should have been at 1 per cent and not at 1.5 per cent because the turnover during the relevant periods did not exceed Rs. 1 crore and that the said respondent erred in rejecting the books of accounts of the firm and in assessing the firm’s gross turnover at Rs. 17 lakhs for the first period under the Bengal Finance (Sales Tax) Act, 1941 (in short, “the 1941 Act”) and Rs. 1,18,00,000 for the next period under the West Bengal Sales Tax Act, 1994 (in short, “the 1994 Act”), The firm alleges that such assessments are totally perverse and cannot be sustained. It preferred two appeals against the said assessments. By a combined order the respondent No. 2 disposed of both the appeals affirming the assessments. Against this appellate order the firm has filed the instant application before this Tribunal. Since the dispute involves a substantial question of law relating to interpretation of the two Rules mentioned above, the application has been admitted though the firm did not move the West Bengal Commercial Taxes Appellate and Revisional Board (in short, “the Board”) against the appellate order. The firm’s main contention is that though the initial value of the plant and machinery was more than Rs. 5 lakhs, on account of successive yearly depreciations in their values, the total value of the plant and machinery was much less than Rs. 5 lakhs during the said periods of assessment and hence it (the firm) is eligible to the benefit under the said Rules.
2. The respondents in their affidavits-in-opposition dispute all material averments of the firm. According to them, in considering the investment in plant and machinery of an industrial concern, the depreciation in the value of such plant and machinery cannot be taken into account. It is the further case of the respondents that the firm having failed to produce the essential registers meant to contain manufacturing accounts, the assessing officer was justified in rejecting the books of accounts of the firm and in making assessment according to his best judgment. As regards the levy of interest, the respondents aver that the firm not having paid the tax due on account of its sales, the firm is liable to pay interest on such unpaid tax. The respondents however, concedes that the assessing officer committed mistake in regard to the turnover tax.
3. Since the 1994 Act came into force with effect from May 1, 1995 repealing the 1941 Act the assessment for the disputed period was split up into two parts, one for the period from April 1, 1995 to April 30, 1995 under the 1941 Act and the other part under the 1994 Act. Though in its application the firm has raised several points, in regard to the legality and correctness of assessments, Mr. M.L. Bhattacharyya, learned Senior Counsel for the firm, has concentrated his argument on the applicability of Rule 41 of the 1995 Rules and Rule 3(116) of the 1941 Rules. According to him, the investment in plant and machinery of an industrial unit in a particular year is the same as the depreciated value of the plant and machinery as it stands in that year. He points out that the assessing officer gave allowance for depreciation in the value of the plant and machinery in fixing the value of such plant and machinery, as it stood on March 31, 1980, at Rs. 2,27,148.78 and then took into consideration the cost of new additions to the plant and machinery up to the accounting year 1986-87 ; but without allowing the benefit of the depreciation for these years. He contends that once the said officer deemed it proper to give allowance for depreciations for some period, there is no ground why such benefit should not be allowed for other periods.
4. If Mr. Bhattacharyya’s contention is accepted, investment in plant and machinery for a particular period becomes synonymous with their depreciated value, as it stood during the period. But in our opinion, the two expressions connote different things. “Investment” in a business is the money or the money’s worth actually put into the business of the concern. Such “investment” in the business continues to remain the same till new amount of money or money’s worth, if any, is put into the business. “Investment” made in a business does not dwindle with passage of time, on account of change in the saleable value of the plant and machinery. On the other hand, “depreciation” in plant and machinery is a part of the modern accounting system whereby in the profit and loss account an amount is set apart to build up a fund to replace or to supplement the plant and machinery so that the manufacturing activity of the concern does not come to a halt when the existing plant and machinery are no more in workable condition due to natural wear and tear. The depreciated value of a plant at any point of time is not necessarily the actual saleable price of the same at such point of time. Actual saleable price depending on the working condition of the plant and machinery may be more than the depreciated value if the market price of a similar new plant has shot up for any reason. Similarly, saleable value may be less than its depreciated value if such plant suffers wear and tear disproportionately high in comparison of its normal life span. Thus, depreciated value is not necessarily the real value of a plant. For an accounting period the depreciation in the value of an installed plant, according to the modern accounting system, is a fixed percentage (usually 10 per cent) of the actual purchase price of the same by which the actual price is reduced each year in assessing the hypothetical value of the plant in a particular year with intent to create a fund as stated above. In the context it may be noted that this Tribunal in the case of Bani Polymers v. Commercial Tax Officer, Ballygunge Charge [1991] 80 STC 181 has held that “investment connotes purchase or capital expenditure on purchase”. Whereas depreciated value of a plant in a particular year is the plant’s value reached after deducting from its purchase price a fixed percentage of the same per year since its purchase. The Tribunal’s observation equating investment with purchase expenditure still holds good, though the final decision of the Tribunal in that case has been set aside on a different ground by the Supreme Court. When a person speaks of his investment in a venture, he refers to the money initially put in by him into such venture together with what he might have subsequently put into augment the magnitude of the venture. Let us take a hypothetical case where a person builds a house investing a sum, say Rs. 4 lakhs. If at some point of time, after a couple of years, due to price escalation, the price of the building goes up to Rs. 14 lakhs (without new investment being made), the person is not expected to say that his investment in the building is Rs. 14 lakhs. Thus price escalation or reduction due to passage of time alone has nothing to do with investment unless investment itself is augmented in the meantime by new investment. Very pertinent is the expression “investment by such dealer in plant and machinery” as appearing in Rule 41 of the 1995 Rules as well as in Rule 3(116) of the 1941 Rules. This clearly indicates that investment within the meaning of these Rules is what actually the dealer has put in for plant and machinery as industrial unit and this has nothing to do with the depreciation in the plant and machinery envisaged in the accounting system mentioned above. That being the position the quantum of “investment” in plant and machinery is not subjected to annual reduction at a fixed percentage, or otherwise.
5. The appellate authority (respondent No. 1) has rightly pointed out that the firm’s contention, if accepted, will lead to a result never intended by the Legislature in making provisions like the Rules referred to above. The very purpose of providing the benefit under these provisions is to provide some sort of financial support by way of tax exemption to the financially weak small-scale industrial unit, having a low investment not exceeding Rs. 5 lakhs in plant and machinery, so that it is protected from the onslaught of the competition from bigger industrial units who have greater financial resources to introduce cost-efficient manufacturing system and for publicity, to survive. Therefore, if the concept of “investment” in plant and machinery is made subject to their depreciation according to the prevailing accounting norms, a big industrial unit, deserving no such protection, at some point of time, will acquire the eligibility to such exemption because the depreciation in the value of plant and machinery will bring down the investment to the eligible limit. Such position is never intended by the Legislature and is against the principle of the Rules mentioned above. Moreover, because-of such annual reduction in the value of investment taken along with the new investment as may be made, an industrial unit will intermittently enjoy those benefits and will then go beyond the investment limit of Rs. 5 lakhs to lose the benefit. Therefore, each year the position of the unit vis-a-vis the benefit will remain uncertain till the end of the period. We are, therefore, of the opinion that the expression “investment in the plant and machinery” is not subject to the impact of depreciation in the value of the plant and machinery. Hence, the applicant’s investment being much more than Rs. 5 lakhs before the periods in question and since the investment continues to remain unchanged, the firm is not entitled to the benefit under Rule 3(116) under the 1941 Rules or under Rule 41 of the 1995 Rules.
6. Next we come to the question of rejection of the books of accounts. In rejecting the books of accounts the assessing officer in his assessment order (vide annexure “A” to the application) for the period from April 1, 1995 to April 30, 1995 has mentioned that since no manufacturing account was produced, the books of accounts could not be accepted. Even in their grounds for appeal (vide annexure “D” at page 34 of the application) the applicant has not disputed this. The only plea in this regard is that “had the assessing authority taken the burden of applying his mind to purchase and sale vouchers and production particulars, he could have ascertained the correctness of the books of accounts of the applicant-petitioner”. This plea is wholly against the basic principle of accounting system. The books of accounts are to contain a systematic classification and analysis of the figures relating to sale, purchase, manufacture, etc., available from relevant vouchers and other documents. Such figures, contained in the vouchers and documents, when cast into the books of accounts, give out the true picture of the business activity of the concern. No doubt these vouchers and documents are necessary for verification of the correctness of the entries in the books of accounts. But in the absence of relevant registers maintained according to the accounting system, it is not possible to make out, from the bunch of vouchers and documents, the real state of the business activity of the concern. By not providing the assessing officer with the manufacturing accounts, the firm deprived the officer from the opportunity of making cross-checking of the manufacturing accounts with reference to such documents. According to Mr. K.K. Saha, withholding of registers essential for a manufacturing concern is guided by motive to keep the assessing officer guessing at the real state of affair of the business of the firm and in the absence of such registers the bunch of vouchers and documents could not be cross-checked to ascertain their correctness. Hence, the assessing officer had to go for an assessment of his own after rejecting the books of accounts since books of accounts, as made available, were only a part of the whole accounting process. In regard to the period from May 1, 1995 to March 31, 1996 the firm does not stand on a better footing. It did not produce any quantitative analysis of the opening stock of purchase, consumption of raw materials, sales and closing stock of finished products. No production register which is an essential register for every manufacturing concern was also produced. What crowns all is that the firm filed two reconciliation statements showing mistake of Rs. 1,71,000 in the second quarter and Rs. 2,999.98 in the third quarter without any explanation how and wherefrom these mistakes arose. There was no supporting document in regard to such alleged mistakes. The respondent No. 1 had thus reason to believe that the books of accounts are unreliable and fit to be rejected. The firm cannot be permitted to take advantage of its own lapse in the matter of production of reliable books of accounts by creating confusion just by production of a large number of vouchers and documents.
7. To assail the best judgment assessment as arbitrary, Mr. Bhattacharyya refers to the decisions of this Tribunal in the case of Bangashree Bastralaya v. Commercial Tax Officer, Bhowanipur Charge [1996] 102 STC 221 and Radhanath Patra v. State of West Bengal [2001] 123 STC 75 ; (1998) 31 STA 212. In the first case the Tribunal held that–
“…………although the assessing officer has the jurisdiction and power to make a best judgment assessment in an appropriate case, while making such assessment he cannot make a wholly arbitrary estimation.” And that “the best judgment assessment should be based on something or some material which has nexus with the amount arrived at as gross turnover”. With reference to the expression “judgment” in Section 11(1) of the 1941 Act this Tribunal has held in the second reported case that “the expression dispels the idea of capricious or arbitrary conclusion and indicates that in making an assessment under this section [i.e., Section 11(1)] the assessing authority must apply his mind, must come to a logical conclusion giving an express reasoning leading to the decision”. In both the cases the respective assessing officer fixed the gross turnover of their respective assessee much higher than the gross turnover admitted by the assessee, without any rhyme or reason. In the second reported case, the assessing officer had before him the past assessment figures which could have served as the logical basis for assessing the trend of the business in arriving at the gross turnover. In that case the assessee brought to the notice of this Tribunal the assessment of gross turnover in three previous years and the Tribunal found that the gross turnover fixed by the assessing officer in the impugned assessment was abnormally high in comparison to the assessed gross turnover of the self-same assessee for the said previous years and the impugned order did not furnish any reason for the same. But in the case before us, no attempt has been made by the firm to show that the assessed figures of gross turnover for any previous period were much lower than the assessed gross turnover for the impugned period. In the context of the unreliability of the books of accounts placed before the respondent No. 1, the said officer has enhanced the gross turnover by less than 4 per cent of the admitted figure of the gross turnover. We do not consider the same to be abnormally high justifying interference.
8. As regards the turnover tax (TOT) the applicant does not dispute that during the period from April 1, 1995 to April 30, 1995 the turnover tax was payable. The applicant claims that rate of tax should be 1 per cent while the assessing officer has assessed at 1.5 per cent. Mr. Saha has conceded that the rate should be 1 per cent. Again, in the 1994 Act, effective from May 1, 1995, there is no provision for TOT. Therefore, TOT is to be recalculated for the period from April 1, 1995 to April 30, 1995.
9. As regards the interest it may be mentioned that the firm having been found ineligible to the benefit of tax exemption the sale of its products are liable to be taxed. Since the firm, on an assumption that it is entitled to exemption from tax, did not make payment of sales tax due, it is liable to pay interest according to the provisions of the relevant statute for such unpaid sales tax. It is not in dispute that in the matter of calculating interest the assessing officer fell into an error because interest has also been levied on account of non-payment of turnover tax at a rate of 1.5 per cent which, however, is not payable by the firm. Interest should, therefore, be recalculated.
10. The firm made delay of about 8 months in filing at least its return for the fourth quarter of 1995-96 (vide assessment order at page 26 of the application). A penalty of Rs. 10,000 has been imposed on the firm. In our opinion, a penalty of Rs. 5,000 for such delay would meet the ends of justice.
11. As regards the export sale by the firm the respondent No. 1 has observed in his assessment order that no document in support of such sale was produced. This has not been disputed before us.
12. In the above circumstances, the application is allowed in part. The impugned assessment order and the appellate order are set aside. The matter is remanded back to the assessing officer for reassessment in the light of the observation made above. He shall recalculate the interest and TOT and shall fix the penalty at Rs. 5,000. We make no order as to costs.
D. Bhattacharyya, Technical Member
13. I agree.