JUDGMENT
S.C. Mohapatra, J.
1. This is an application under Section 24(1) of the Orissa Sales Tax Act, 1947 (for short “the Act”) at the instance of the dealer. The following question of law has been referred to this Court by the Member, Additional Sales Tax Tribunal, for decision of this Court.
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that rejection of the accounts and completion of assessment on the basis of best judgment were proper, notwithstanding the report of the inspecting officer that there was no excess stock of ammonia sulphate on 16th September, 1974 and that the sale, purchase, stock accounts maintained are up to date and no defect noticed ?
2. The dealer is registered under the Act. In respect of the year 1974-75, the Sales Tax Officer assessed him to the best of judgment under Section 12(4) of the Act which reads as follows :
12. Assessment of tax.-(1) to (3)….
(4) If a registered dealer does not furnish returns in respect of any period by the prescribed date, the Commissioner shall, after giving the dealer a reasonable opportunity of being heard, assess, to the best of his judgment, the amount of tax, if any, due from the dealer.
(5) to (8)…
3. The Sales Tax Officer issued notice to the dealer for production of his books of accounts and other materials. On consideration of the same and the enquiry report by an inspecting officer, he rejected the books of accounts and enhanced the gross turnover of the dealer by 10 per cent of the returned figure. In appeal by the assessee, the Assistant Commissioner and the Tribunal confirmed the assessment. The assessee filed an application under Section 24(1) of the Act for referring the question of law arising out of the order to this Court for decision. In the application, it was alleged that the inspecting officer has recorded that there was no discrepancy in the stock but the Tribunal has held that the inspecting officer reported discrepancy which is contrary to record and thus, the finding is vitiated. In the statement of case to this Court the Member, Additional Sales Tax Tribunal has stated :
On going through the record, I find that the inconsistencies as pointed out, are not untrue.
On such finding, the question of law as extracted earlier has been referred to this Court.
4. The question deals with the justification of rejection of the accounts as well as the propriety of the best judgment assessment. There can be no divergent opinion that rejection of accounts on the basis of erroneous finding on materials contrary to record would not be justified. The first part of the reference is therefore, to be answered in favour of the assessee that the Tribunal was not justified in rejecting the books of accounts. In other words, the accounts of the dealer had no defect.
5. The second part of the question relates to propriety of the best judgment assessment in spite of the correctness of the books of account. As the language of Sub-section (4) of Section 12 of the Act provides, the mode of assessment under that sub-section is “to the best of judgment”. The scheme of assessment under the Act as provided in the various sub-sections of Section 12 would indicate that the assessing authority may assess the amount of tax due from the registered dealer on the basis of return furnished by him without requiring his presence where the return furnished is found to be correct and complete, as provided in Sub-section (1). Where the assessing authority is not satisfied that the return is correct or complete, Sub-section (2) is attracted. The assessing authority in that case is required to call upon the dealer to produce the evidence on which the dealer may rely in support of his return and on examination of the same, he may, complete the assessment of the amount of the tax due from the dealer. Where the registered dealer fails to comply with all the terms of the notice under Sub-section (2), the assessing authority is required to complete the assessment to the best of his judgment. While proceeding to assess under Sub-section (2), the assessing officer may find some mistakes in the accounts maintained by the assessee. The mistakes sometimes may be innocent or trivial in nature. There may, even be some unimportant or unintended omissions in the accounts. Yet, the assessment is to be completed on the basis of accounts maintained where the assessing officer is to add back to the accounts, the price of the items which might have been omitted to be included in the accounts. The assessment under Sub-section (2) is thus, not to the best of judgment of the assessing officer.
6. As stated earlier, the non-compliance with all the terms in the notice would lead to assessment to the best of judgment. Thus, assessment on the basis of accounts and assessment to the best of judgment are totally different of assessment. Having not complied with the terms of the notice, the dealer cannot complain that the assessment should have been on the basis of his accounts.
7. Notice under Sub-section (2) and Sub-section (4) is given to the assessee in a statutory form under Rule 28 of the Rules made under the Act. It is a composite form. The language of Sub-section (4) makes it clear that in case a dealer does not furnish the return on a due date, the only method of the completion of the assessment is to the best of judgment of the assessing authority. Having made the default, a dealer cannot complain of the assessment to the best of judgment in spite of correct maintenance of his accounts. This is a legislative mandate in a taxing statute and equity has no role to play therein. Therefore, in the present case, completion of assessment of the amount of tax payable by the dealer to the best of judgment of the assessing authorities under Section 12(4) of the Act cannot be said to be improper.
8. The ambit and scope of the assessment to the best of judgment is no longer res integra. In the decision under the Income-tax Act reported in [1937] 5 ITR 170 (PC) at page 180 (Commissioner of Income-tax v. Laxminarain Badridas), Lord Russell of Killowen, speaking for the Judicial Committee, observed the assessing officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. While exercising that power the officer must not act dishonestly, 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 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 guess-work in the matter, it must be honest guess-work. In that sense too, the assessment must be to some extent arbitrary.
9. The observation to the aforesaid effect has been approved by the Supreme Court in the decision reported in [1957] 8 STC 770 at page 778 (SC) (Raghubar Mandal Harihar Mandal v. State of Bihar) under the Bihar Sales Tax Act, 1944, and again in [1973] 32 STC 77 (Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esufali H.M. Abdulali) under the Madhya Pradesh General Sales Tax Act, 1958.
10. In [1973] 32 STC 77 (SC) (Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali) it has been observed that the assessments made on the basis of assessee’s accounts and those made on “best judgment” basis are totally different types of assessments. If the Sales Tax Officer was compelled to apply a rule of thumb, the assessee was entirely responsible for that situation.
11. In view of the language of Section 12(4) of the Act, the assessee has no scope to plead or establish any justifiable reason for accepting his books of accounts. When the legislative mandate is to complete the assessment to the best of judgment, it is not possible for the Sales Tax Officer to assess on the basis of accounts and he is to make an estimate of the turnover of the dealer on the basis of materials before him. So long as the estimate made by him is not arbitrary and has nexus for determination of the amount of turnover, the same cannot be questioned. When the assessing officer is empowered to make an estimate, there may be some over-estimate or under-estimate. What would be the proper estimate is not a question for consideration in exercise of jurisdiction under Section 24 of the Act. In “best judgment assessment” there is no scope to expect the assessing authorities to prove the exact turnover suppressed. As has been held by the Supreme Court in [1973] 32 STC 77 (SC) (Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali) in the estimation of the turnover there is bound to be some guess-work and in making the assessment to the best of his judgment, he should arrive at the conclusion without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made is bona fide and based on rational basis, the fact that there is no good evidence in support of that estimate is immaterial. In such a position, the only consideration would be whether the basis adopted in estimating the turnover has reasonable nexus with the estimate made.
12. No objection has been raised before the assessing authorities that addition of Rs. 7,000 to the returned turnover of Rs. 71,326.15 paise which is nearly ten per cent for the turnover is not a reasonable basis. It is also not alleged that the Tribunal was vindictive or capricious. There is also no allegation of bias. In the circumstance, the “best judgment assessment” by the Tribunal cannot be said to be improper.
13. In the result, the question is to be answered against the assessee. No costs.
H.L. Agrawal, C.J.
14. I agree.