Reassessment notices require bona fide material showing escaped turnover; unsupported suspicion and fishing enquiry cannot satisfy the statutory belief test.
Reassessment under escaped-assessment provisions requires the assessing authority to have bona fide, relevant material creating a rational belief that turnover has escaped assessment, and the existence of such material is open to judicial scrutiny. Applying that principle, the Court held that a Sales Tax Officer could initiate proceedings under section 21 despite the original assessment having been made by an Assistant Sales Tax Officer, so that jurisdictional objection failed. However, the impugned notices were invalid because the affidavits and survey material did not disclose a definite, recorded basis for reason to believe; the alleged stock discrepancy and suspicious entries were unsupported and amounted to a fishing enquiry. The reassessment notices were quashed.
Issues: (i) Whether the Sales Tax Officer could initiate reassessment proceedings under section 21 of the U.P. Sales Tax Act even though the original assessment for the same years had been made by the Assistant Sales Tax Officer. (ii) Whether the impugned notices under section 21 were valid when the existence of reason to believe that turnover had escaped assessment was challenged.
Issue (i): Whether the Sales Tax Officer could initiate reassessment proceedings under section 21 of the U.P. Sales Tax Act even though the original assessment for the same years had been made by the Assistant Sales Tax Officer.
Analysis: The question had already been answered in the connected reference by the larger Bench, which held that reassessment proceedings under section 21 could be initiated by the Sales Tax Officer notwithstanding that the original assessment had been completed by the Assistant Sales Tax Officer. The earlier assessment by another officer did not oust jurisdiction for action under the escaped-assessment provision.
Conclusion: The challenge to the jurisdiction of the Sales Tax Officer on this ground failed and was rejected against the assessee.
Issue (ii): Whether the impugned notices under section 21 were valid when the existence of reason to believe that turnover had escaped assessment was challenged.
Analysis: Section 21 of the U.P. Sales Tax Act was treated as in pari materia with section 34(1)(a) of the Income-tax Act, 1922, so the assessing authority had to possess relevant material giving rise to a bona fide belief that turnover had escaped assessment. The Court examined the affidavits and the survey material and found no definite, relevant, or recorded basis for the belief. The alleged stock discrepancy was unsupported by inventory or coherent material, and the supposed suspicious entries were not identified with particulars. The Court held that the notices were issued on insufficient and extraneous material and amounted to an impermissible fishing enquiry.
Conclusion: The notices under section 21 were invalid because the statutory condition of reason to believe was not satisfied, in favour of the assessee.
Final Conclusion: The reassessment notices were quashed and the respondent was restrained from acting upon them, so the petitions succeeded on merits.
Ratio Decidendi: A reassessment notice under escaped-assessment provisions can be sustained only if the assessing authority has bona fide, relevant material creating a rational belief that turnover has escaped assessment, and such belief is open to judicial scrutiny for the presence of material though not for its sufficiency.
TaxTMI 
AI Drafter ✕
TaxTMI 
