Initiation of proceedings under section 21 import of reason to believe upheld; assessing authoritys initiation justified on available turnover and nonproduction evidence

Interpretation of the phrase reason to believe in relation to initiation of proceedings under section 21: the presence of contemporaneous materialcomparative turnover figures for adjacent years, quota fixation based on past averages, and failure to produce account bookscan constitute valid grounds for forming an honest belief that part of turnover escaped assessment; such material is germane to the assessing authoritys belief and supports initiation of proceedings within its statutory powers, with the consequence that initiation under section 21 was justified and the departmental appeal succeeded.

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Issues: (i) Whether the assessing authority had an honest belief (reason to believe) that part of the dealer's turnover for 1957-58 had escaped assessment so as to justify initiation of proceedings under section 21 of the U.P. Sales Tax Act; (ii) Whether the notices dated September 13, 1961 and memorandum dated March 13, 1962 amounted to notices under section 21 so as to render the subsequent reassessment time-barred.

Issue (i): Whether the assessing authority had reason to believe that turnover had escaped assessment for 1957-58.

Analysis: The assessing authority possessed account-book figures showing substantially higher turnover in 1955-56 and 1958-59 compared with the ex parte estimated turnover for 1956-57 and 1957-58, information about quota fixation based on past grinding averages, and the dealer's repeated failure to produce account books despite notices and summons. These materials were germane to forming a prima facie inference that part of the turnover had escaped assessment. The court's role is limited to examining existence and good faith of the belief and whether reasons have a rational nexus to the formation of that belief; sufficiency of the grounds is not justiciable.

Conclusion: In favour of Revenue. The assessing authority had an honest belief that part of the turnover had escaped assessment and was entitled to initiate proceedings under section 21.

Issue (ii): Whether the notices of 13 September 1961 and the memorandum of 13 March 1962 were notices under section 21, thereby triggering the one-year period for reassessment.

Analysis: The communications of 13 September 1961 and 13 March 1962 were preliminary calls for production of account books and warnings of possible action; they did not constitute formal notices issued under section 21. The first express notice under section 21 was served on 26 March 1962, and the reassessment order dated 19 March 1963 was within one year of that service.

Conclusion: In favour of Revenue. The preliminary communications were not section 21 notices and the reassessment was within the statutory one-year period from the section 21 notice.

Final Conclusion: The appeal is allowed on the merits concerning both the existence of a bona fide reason to believe escaped turnover and the timeliness of the section 21 notice; the reassessment under section 21 was valid and within limitation.

Ratio Decidendi: Where the assessing authority possesses relevant material that bears a rational nexus to the possibility that turnover has escaped assessment and the belief is held in good faith, the authority has jurisdiction under section 21 to issue notice and re-assess; preliminary inquiries or warnings to produce books do not themselves constitute notice under section 21 for limitation purposes.

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