JUDGMENT
R.C. Lahoti, J.
1. The petitioner is engaged in the business of building of bus bodies. It is a dealer registered under the Delhi Sales Tax Act, 1975 and the Central Sales Tax Act, 1956. For the period of assessment 1983-84 the
returns were filed on 22.3.88. At the time of assessment, the dealer did not produce cash book and purchase vouchers. The Assessing Officer discarded the figure of sales as returned and proceeded to make best judgment assessment.
2. As per returns the total turnover was Rs. 56,95,150/-. The Assessing Officer took the year 1982-83 as the basis for assessment, in which year the figure of total turnover was Rs. 98,52,500/-. The Assessment Officer determined the total turnover for 1983-84 at Rs. 1,25,00,000/-.
2.1. The relevant part of the order of assessment under the Local Act is extracted and reproduced hereunder:
In response to ST 13, Shri Anil Verma, Advocate appeared for the last time with the aforesaid books on 29.3.88. The dealer did not produce cash book. When purchase vouchers were demanded from the dealer, the same were also not produced. One purchase voucher which is for Rs. 17,181.15 was also not entered in the books. Hence the sales disclosed in the returns are not acceptable.
As per returns the total turnover comes to Rs. 56,95,150/-. The same is not acceptable in the absence of books/purchase invoices. Hence 1982-83 is regarded as the basis for assessment. In 1982-83 total turnover was Rs.
98,52,500/-. Hence for this year total turnover is determined as Rs. 1,25,00,000/-, ail local sale is taxable @ 10%, hence there being no adverse material, assessment is as under:
G.T.O. 1,25,00,000/-I.S.S. 50,55,050/-
Taxable 10% 74,44,950/-
Tax assessed 7,44,495/-
2.2. The Assessing Officer also imposed a penalty of Rs. 5,000/- and interest Rs. 44,639/-.
2.3. Assessment order was framed under the Central Act as under:
Tax @ 10%
under the
Central Act 5,05,505/-
Penalty 5,000/-
Interest 1,41,541/-
2.4. Thus a demand of Rs. 7,94,134/- under the Delhi Act and of Rs.
6,52,046/- under the Central Act were created.
2.5. The assessee preferred revision petitions which were dismissed. An application seeking review of the revisional orders was also dismissed.
3. Aggrieved petitioner has approached this Court under Articles 226/227 of the Constitution of India.
4. Two submissions have been made by the learned Counsel for the petitioner at the time of hearing. Firstly, it is submitted that a best judgment assessment cannot be a wild assessment; and secondly, the interest on tax cannot be charged under the Central Act. On these grounds the orders of assessment and the orders in revision and review confirming the same are sought to be set aside.
5. During the course of hearing Mr. S.K. Dholakia, the learned Senior Counsel for the petitioner pointed that for the years preceding and succeeding the year in question the turnover of the petitioner assessee has been assessed as under:
DEEPAK INDUSTRIES
A.Yr. Turnover Remarks
(Rs.) assessed
1980-81 39,13,855 Assessment framed as
per books of accounts.
1981-82 97,79,550 Assessment framed on
the basis of sales
figures given by the
petitioner at the
time of assessment.
Book version of
sales accepted.
1982-83 98,52,500 Assessment framed on
the basis of sales
figure given by the
petitioner to the
Sales Tax officials
on 6.4.83. Sales
enhanced by
Rs. 10,000/- per
quarter only.
1983-84 1,25,00,000 Turnover enhanced by
Rs. 70,00,000/-.
(THE YEAR OF DISPUTE)
1984-85 33,29,445 Book version of
sales accepted.
1985-86 34,31,769 Book version of
sales accepted.
1986-87 - Business closed down.
RC surrendered for
cancellation.
The above said factual position is not disputed on behalf of the respondents.
6. By reference to the copy of order sheets, showing the record of proceedings before the Assessment Officer filed as Annexure P-1, the learned Counsel for the petitioner pointed out that several dates of hearing were appointed between 22.4.87 and 15.3.88, but the Assessing Officer did nothing to make any progress in the matter of assessment. The hearings were simply adjourned. However, since 15.3.88, the Assessing Officer suddenly swung into swift action possibly foreseeing the time barring date approaching fast. On 24.3.88, the ASTO who was dealing with the matter sent the same to the STO, the case being ‘A – category case’ which only the STO could deal with. Before the STO the petitioner appeared on 25.3.88 and without affording an adequate opportunity of hearing and participation in the assessment proceedings, the same were hurriedly closed. However, we do not deem it necessary to enter into and adjudicate upon this part of the controversy as the impugned order of assessment, in our opinion is liable to be set aside on other grounds as stated hereinafter.
7. The leading authority on the principles relevant to best judgment assessment is the Privy Council decision in Commissioner of Income Tax, Central and United Provinces Vs. Lakshmi Narain Badri Dass, (1937) (5) ITR 170,180, their Lordships have held:
“He (the Assessing Authority) must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard, to the assessee’s circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork. In that sense, too, the assessment must be to some extent arbitrary.”
8. In Raghubar Mandal Harihar Mandal Vs. State of Bihar, ,
dealing with Section 10(2) of Bihar Sales Tax Act, 1944, their Lordships have held:
“The Assessing Authorities under Section 10(2)(b) are not entitled, after rejecting the returns and books of accounts of the assessee, proceed to estimate the gross turnover and made an assessment without reference to any evidence or any material at all, indulging in pure guess work.”
9. In State of Kerala Vs. C. Velukutty, (1966) 17 STC 465 SC, their Lordships have held :
“The limits of the power are implicit in the expression “best of his judgment.” Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guesswork in a best judgment assessment, it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. Though subsection (2) of Section 12 of the Act provides for a summary method because of the default of the
assessee, it does not enable the Assessing Authority to function capriciously without regard for the available material.”
10. The following principles laid down by their Lordships of the Supreme Court in State of Orissa Vs. Maharaja Shri B.P. Singh Deo, (1970) 76 ITR 690, though in the context of income tax, are apposite here at also:
“The mere fact that the material placed by the assessee before the Assessing Authorities is unreliable does not empower those authorities to make an arbitrary order. The power to levy assessment on the basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment. In other words, that assessment must be based on some relevant material. It is not a power that can be exercised under the sweet Will and pleasure of the concerned authorities.”
11. In Commissioner of Sales Tax, MP Vs. H.M. Eusfali H.M. Abdulali, (1973) 32 STC 77 (SC), their Lordships have held that once the Assessing Officer has found that assessee had dealings outside the accounts then it was not possible to find out precisely the turnover suppressed and only an estimate thereof can be made “on the basis of the material before him”. So long as the estimate made by the Assessing Officer was not arbitrary and had a reasonable nexus with the facts discovered, it could not be questioned, though material cannot be expected to be available before the
Assessing Officer to prove the exact turnover suppressed. Their Lordships have further held :
“In estimating any escaped turnover, it is inevitable that there is some guesswork. The Assessing Authority while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate by the Assessing Authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the Assessing Authority is the best Judge of the situation. It is his best judgment and not
any one else’s. The High Court cannot substitute its best judgment for that of the Assessing uthority.”
12. A Division Bench of our own High Court has held in Chowdhary Chemical Works Vs. Commissioner of Sales Tax, New Delhi, (1992) 84 STC 156, that best judgment assessment has to be based on some relevant material which can be utilised for estimating the gross turnover. An increase of about 15% in the turnover of a business in the absence of any adverse circumstances was considered to be reasonable and fair where two decisions of Financial Commissioner were available to support the view that such was the normal percentage of increase in turnover in that class of business.
13. So is the view taken by several High Courts of the country [See Dwijendra Kumar Bhattacharjee Vs. Superintendent of Taxes, Government of Tripura, (1990) 78 STC 393 (Gauhati); Bhagwandas Khandelwal v. The Commissioner of Sales Tax, Madhya Pradesh, Indore & Ors, (1971) 27 STC 388 MP; Jhagru Shah & Ors. Vs. CCT & Ors., 1966 (17) STC 130 (Cal.); M. Apukutty Vs. S.T.O. Kozhikode, 1966 (17) STC 380 (Kerala)]. In Dwijtendra Kumar Bhattacharjee (supra), after rejection of the books of accounts an assessment made on “mere guesses and surmises without reference to any evidence or materials at all” was held to be unsustainable.
14. To sum up, the principles governing a best judgment assessment are:
i) A best judgment assessment is not a wild assessment. Exclusion of arbitrariness and caprice is an obligation implicit in the power to assess to the best of judgment.
ii) Assessment to the best of judgment must be founded upon some rational basis, relevant material and logic so that nexus between such basis or material and the figure of assessment arrived at can be objectively seen though some amount of guess work or estimation is to be allowed like a play in the joint.
iii) It is not necessary that evidence in the nature of good proof should be available on record to support the estimates.
iv) Power to make best judgment assessment exercised bona fide, reasonably and rationally shall not be open to interference in judicial review.
15. Testing the order of best judgment assessment impugned herein, on the principles set out hereinabove, it is clear that having discarded the figure of turnover returned for failure of the assessee to substantiate the same by books/purchase invoices the Assessing Officer determined the figure of turnover at Rs. 1,25,00,000/- as against Rs. 98,52,500/-just by a stroke of pen. The Assessing Officer has nowhere applied his mind to the figures of turnover for any other previous or subsequent years or to the graphs of the business generally or by taking into consideration the increase or decrease in the figures of sales of similarly situated traders. Though the order refers to the figure of turnover for 1982-83 but does not say a word about the basis whereon the figure for the year at hand was arrived at.
What was the nexus between the two figures and how it was arrived at? The assessment is thus arbitrary and cannot be sustained.
16. As to the amount of interest charged under the Central Sales Tax Act the learned counsel for the petitioner has invited the attention of the Court to the recent decision delivered by the Supreme Court of India in the case of India Carbon Ltd. Vs. State of Assam, (1997) 106 STC 460 SC, wherein their Lordships have held that there being no substantive provision in the Central Sales Tax Act requiring the payment of interest on Central Sales Tax, the Sales Tax Authorities of the State cannot, for the purpose of collecting and enforcing payment of Central Sales Tax, charge interest thereon.
17. For the foregoing reasons, the petition is allowed. The impugned orders of assessment dated 28.3.88 (Annexure P-2) made under Delhi Sales Tax Act, 1975 and the one made under Section 9 of the Central Sales Tax Act, 1956 for the period 1983-84 are both set aside. The orders passed in revision and review sustaining the above said orders are also set aside. The Assessment Officer shall be at liberty to take up the assessment and frame an order afresh consistently with the principles of law laid down hereinabove and after affording the petitioner-assessee an opportunity of hearing. No order as to costs.
