1993 (6) TMI 222 - HC - VAT and Sales Tax

Court deems best judgment assessment arbitrary, overturns based on lack of reasonable nexus with material.

PP. Raju & Others Versus State of Kerala

The court found the best judgment assessment lacking a reasonable nexus with the material, deeming it arbitrary. The estimation of turnover for the entire ... - Issues Involved:1. Validity of the best judgment assessment based on material.2. Justification of the turnover estimation for the entire year based on a single day's stock difference.3. Appropriateness of the lump sum addition made by the Appellate Assistant Commissioner.4. Evaluation of the Appellate Tribunal's decision to restore the assessing authority's order.Detailed Analysis:1. Validity of the Best Judgment Assessment Based on Material:The petitioner, an assessee under the Kerala General Sales Tax Act, 1963, faced a best judgment assessment due to six defects in their accounts, including unproduced sub-shop accounts, missing expenditure vouchers, and undisclosed turnover of soda, soft drinks, and arishtam. The assessing officer added Rs. 6,66,025.83 for omissions and suppression, representing a 17% addition to the turnover returned, based on a stock variation found during a surprise inspection. The court acknowledged that while a best judgment assessment is warranted, it must be based on material, and the estimate should have a reasonable nexus with the materials on record. The court found that the assessment lacked such a nexus and was arbitrary and capricious.2. Justification of the Turnover Estimation for the Entire Year Based on a Single Day's Stock Difference:The court scrutinized the assessing authority's method of using a 17% stock difference found on one day to estimate the turnover for the entire year for all shops. It was held that this approach was not permissible, as it did not account for variations across different days and shops. The court cited the Supreme Court decision in State of Kerala v. C. Velukutty, which emphasized that an assessment should not be based on arbitrary assumptions without relevant material. The court concluded that the estimate made by the assessing authority was unreasonable.3. Appropriateness of the Lump Sum Addition Made by the Appellate Assistant Commissioner:The Appellate Assistant Commissioner reduced the assessing authority's addition to a lump sum of Rs. 1,50,000 for arrack and Rs. 75,000 for soda, cola, and arishtam. The Commissioner argued that the original addition was excessive and lacked a reasonable relation to the suppressed turnover. The court agreed, noting that the suppression detected for seven months amounted to only Rs. 17,760, making the original addition excessive. The court found the Commissioner's lump sum addition to be more just and reasonable.4. Evaluation of the Appellate Tribunal's Decision to Restore the Assessing Authority's Order:The Appellate Tribunal restored the assessing authority's order, dismissing the Commissioner's modifications. The court criticized the Tribunal for ignoring the Supreme Court's precedent in Velukutty's case and for overstating the law regarding best judgment assessments. The court emphasized that the Tribunal must provide valid and cogent reasons for overturning the first appellate authority's decision. The Tribunal's failure to do so rendered its order infirm and not in accordance with law.Conclusion:The court set aside the Appellate Tribunal's order and remitted the matter for reconsideration in accordance with the law and the observations made. The tax revision cases were allowed, with no order as to costs.