Reason to believe for escaped turnover requires bona fide material; preliminary account demands do not start reassessment limitation.
Reopening an assessment for escaped turnover under section 21 of the U.P. Sales Tax Act requires relevant material giving the assessing authority a bona fide reason to believe that turnover has escaped assessment; the court may examine whether such belief existed and had a rational basis, but not the sufficiency of the material. On the stated facts, prior turnover data, later disclosures, the wheat quota basis, and repeated non-production of accounts were treated as enough to justify initiation. A preliminary notice or memorandum seeking account books did not amount to a statutory section 21 notice, so the one-year period for reassessment ran from the later formal notice and the reassessment was timely.
Issues: (i) Whether the assessing authority had reason to believe that part of the turnover had escaped assessment so as to validly initiate proceedings under section 21 of the U.P. Sales Tax Act. (ii) Whether the earlier notice and memorandum calling for production of accounts could be treated as notices under section 21 so as to attract the one-year limitation for completion of reassessment.
Issue (i): Whether the assessing authority had reason to believe that part of the turnover had escaped assessment so as to validly initiate proceedings under section 21 of the U.P. Sales Tax Act.
Analysis: The expression "reason to believe" requires relevant material having a rational connection with the formation of belief that turnover has escaped assessment. The existence of some reasonable grounds is sufficient to confer jurisdiction, while the adequacy or sufficiency of those grounds is not for judicial scrutiny. The belief must, however, be genuine and formed in good faith, and not be a mere pretence. On the facts, the assessee's past turnover, the later disclosed turnover, the wheat quota basis, and the repeated failure to produce account books constituted relevant material.
Conclusion: The assessing authority had a valid and honest belief that part of the turnover had escaped assessment, and initiation of proceedings under section 21 was justified, in favour of the Revenue.
Issue (ii): Whether the earlier notice and memorandum calling for production of accounts could be treated as notices under section 21 so as to attract the one-year limitation for completion of reassessment.
Analysis: The earlier communication was merely preliminary and was intended to secure production of account books. It did not itself commence proceedings under section 21, though it contained a warning that action might follow upon non-compliance. The statutory notice under section 21 was served later, and the reassessment was completed within one year from that service.
Conclusion: The earlier notice and memorandum were not notices under section 21, and the reassessment was not barred by limitation, in favour of the Revenue.
Final Conclusion: The reassessment proceedings were lawfully initiated and timely completed, and the High Court's answer on jurisdictional belief was set aside.
Ratio Decidendi: For reopening assessment on escaped turnover, the assessing authority must possess relevant material giving rise to a bona fide belief of escapement; the court may examine the existence of such belief and its rational basis, but not the sufficiency of the material, and a mere preliminary demand for accounts does not amount to the statutory notice commencing reassessment proceedings.