JUDGMENT
Veeraswami, J.
1. This is an appeal by the assessee from an order of the Board of Revenue by which it restored an order levying penalty on the assessee of a sum of Rs. 32,036. The assessment related to 1961-62. The assessee, a dealer in motor cars, trucks, scooters, motor spare parts and certain other goods at Ammayanayakanur and at other branches, returned a turnover of Rs. 42,09,912.12. The turnover was, however, on a scrutiny of accounts, determined at Rs. 68,06,331.49 of which Rs. 36,28,976.64 was chargeable at seven per cent., Rs. 10,237.41 at six per cent. and Rs. 3,60,643.73 at five per cent. During the assessment proceedings it was found that the assessee had not included in his monthly returns in Form A-2 three items of turnover: (1) a sum of Rs. 1,95,311.21 relating to delivery charges the assessee had paid to certain Calcutta dealers from whom he had made purchases of cars, trucks, scooters etc., (2) Rs. 2,21,247.97 (the figure given in the assessment order, as we are told, is a mistake) which pertained to first sales of motor parts, and (3) Rs. 1,56,539.25 which represented the aggregate proceeds of sales of firewood. The first two items are each chargeable at seven per cent, and at the stage of the first sale in the State and the last at two per cent. To a notice of the assessing authority proposing to bring these items to tax, the assessee filed objections, which were overruled. The assessing authority found that actually the delivery charges paid by the assessee were included in the cost price when the cars, trucks, scooters, etc., were sold by them and sales tax at seven per cent, had been collected by the assessee on the delivery charges. On the second item, the assessing authority considered that inasmuch as contrary to the rules, the assessee failed to maintain separate accounts for first sales of spare parts, and it was not possible to separate the first sales from the general entries in the account books mixing up without details the first and second sales in spare parts, it was necessary to apply best judgment and estimate the turnover of first sales of spare parts. As regards the last item, sales of firewood attract multi-point tax and there was no explanation from the assessee why he did not include the turnover in the return apart from saying that in the previous years he did not do so and the assessing authorities made no point of it, knowingly or unknowingly. The assessment was completed on that basis and the assessing authority, taking a lenient view of the laches on the part of the assessee, levied a penalty equal to the tax due on the chargeable turnover. There was an appeal which was substantially allowed, the penalty being reduced to Rs. 500. The Appellate Assistant Commissioner noted that there was no dispute about the fact that the assessee failed to disclose the taxable turnovers on the three items in their monthly returns, but he felt that the failure on the part of the assessee was under the bona fide impression that it would be sufficient if correct figures were furnished at the time of the final assessment. On this view, he thought that the failure would constitute but a technical offence and a nominal penalty of Rs. 500 would meet the ends of the case. The Board of Revenue in exercise of its powers under Section 34 set aside the order of the Appellate Assistant Commissioner and, as we said, restored that of the assessing authority. In doing so, it practically adopted the reasoning of the assessing authority.
2. Before us, it has been strenuously contended for the assessee that the assessment was not one under Section 12(2) of the Act and so the levy of penalty under Sub-section (3) of the section was in excess of jurisdiction. The argument is put also in a slightly different way. Mr. Srinivasan says that before the final order of assessment the assessing authority on a scrutiny of the accounts was in possession of all the facts and that the position could well be equated to a case where before the final order is made a true and correct final return is made to the officer, in which case the authority was bound to take note of it and proceed on that basis, and not on the monthly returns considered to be incorrect or incomplete. We do not think that the second line of argument in the form in which it is addressed to us can be accepted. No doubt, if actually a final return which was correct and complete was filed before the final assessment was made, it would not be open to the assessing authority to ignore it and insist on proceeding on what he considered to be incorrect and incomplete monthly returns. This principle was laid down by this Court in The State of Madras v. M. S. K. Shahul Hameed [1967] 19 S.T.C. 288. But in this case no such final return at all was filed and what was worse was the assessee tried to justify the monthly returns and in the case of the second item of turnover he even invited the assessing authority to apply Ms best judgment following the practice in his case in the earlier years.
3. It seems to us, however, that there is some substance in the other line of argument for the assessee. Its effect is to confine the power to levy penalty under Section 12(3) to a limited class of cases strictly falling within the purview of Sub-section (2) of Section 12. The power to levy penalty can be exercised only if the assessment falls within the purview of Section 12(2). In other words, it is not sufficient to attract Sub-section (3) that no return has been filed, or if one is filed, it is incomplete or incorrect. After making enquiry as the assessing authority may consider necessary he should, as a result, find reason to apply best judgment in determining the correct turnover. These requirements appear to be implicit in the language of Sub-section (2) of Section 12. That sub-section is applicable where there is no return or the return submitted is incomplete or incorrect and on enquiry, the turnover has to be determined on an estimate. Such a case will arise only where the enquiry contemplated by the sub-section shows that account books and the other records of the assessee cannot be accepted as reliable or true or complete. Where account books are accepted along with the other records, obviously, there can be no room or justification for applying best judgment. Best judgment is applied to find out the correct turnover on estimate and estimate will arise only if the accounts are not accepted, either in whole or in part. Even then best judgment, we may observe in passing, cannot be a wild guess, but a reasonable and justifiable guess based on some material at least.
4. In this case so far as the turnovers involved in the first and third items are concerned, they are not based on any estimate or best judgment. The quantum of turnovers in respect of those two items are just those based on the assessee’s account books. The assessment on those two items cannot, therefore, be regarded as based on best judgment for no estimate was necessary, or was made in respect of them. When that is the position it is not possible to say that the assessment on those items falls within the purview of Sub-section (2).
5. The case of the second item is, however, different, for, as we said, the assessee himself invited the Revenue to arrive at the correct turnover by best judgment and, in fact, it was arrived at on that basis. This item will literally, therefore, fall within the ambit of Sub-section (2) and it would follow therefrom that ipso jure the jurisdiction to levy penalty under Sub-section (3) becomes available. The whole of the assessment as we read Section 12, need not necessarily be only under Sub-section (2) of that section. The assessment may be partly under Sub-section (1) and partly under Sub-section (2). In any case, where part of the assessment is not based on estimate or best judgment, it is clearly not within the purview of Sub-section (2) and, therefore, in respect of such part of the assessment, there will be a bar to levy penalty under Sub-section (3).
6. On that view, we allow the appeal so far as items 1 and 3 are concerned, but dismiss it in regard to the , second item and the penalty in respect of it. In view of the fact that the assessee has partly succeeded and partly failed before us, we make no order as to costs.
