High Court overturns penalty under section 12(3) for lack of best judgment assessment

Egberts India (P.) Ltd. Versus The State of Madras

Egberts India (P.) Ltd. Versus The State of Madras - [1973] 31 STC 569 (Mad) Issues:
1. Assessment of omitted turnover in the return
2. Imposition of penalty under section 12(3) of the Act

Analysis:
The judgment pertains to a case where the assessing authority discovered that the assessee, a dealer in chicory, had omitted to include sales made to the Coffee Board in the return. The assessing officer included the omitted turnover of Rs. 3,71,844.45 in the assessment, along with levying a penalty of Rs. 27,850 under section 12(3) of the Tamil Nadu General Sales Tax Act. The assessee contended that the turnover could not be taxed as the accounts with the Coffee Board were not finalized. The Appellate Assistant Commissioner and the Tribunal upheld the inclusion of turnover and the penalty, albeit reducing it to Rs. 10,000. The assessee challenged the penalty imposition before the High Court.

The High Court considered the submissions and relied on precedents to determine the legality of the penalty. The court referred to the decision in State of Madras v. Jayaraj Nadar and Sons, emphasizing that penalty under section 12(3) can only be imposed when there is a best judgment assessment by the assessing authority after rejecting the return. It was noted that in the present case, the assessing officer did not make a best judgment assessment but relied solely on the figures from the account books. The court highlighted that there was no suppression of the disputed turnover in the account books. Citing the Supreme Court's interpretation in a similar case, the High Court concluded that the penalty under section 12(3) cannot be justified in the absence of a best judgment assessment. The court distinguished a previous decision where penalty was upheld due to a best judgment assessment being conducted. Consequently, the High Court allowed the tax case, setting aside the penalty imposition.

In summary, the judgment addressed the issues of assessing omitted turnover and the imposition of penalty under section 12(3) of the Act. The High Court ruled in favor of the assessee, highlighting the necessity of a best judgment assessment for penalty imposition and emphasizing the absence of such assessment in the case at hand.