Unauthorized retention of seized records and failure to apply tax liability timing under section 6(2) vitiated the assessment.

Retention of seized exercise books beyond the statutory period without the Commissioner's prior approval was unauthorized, and the best judgment assessment founded on those books could not stand. Section 6(2) also required the Assessing Authority to determine when tax liability arose after the turnover first exceeded the taxable quantum; no such date was fixed, so the assessment failed to apply the provision correctly. The Tribunal was required to entertain this jurisdictional question of law under its appellate powers even though it had not been raised earlier. The assessment and appellate orders were therefore quashed, with liberty to proceed afresh in accordance with law.

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Issues: (i) Whether the retention of seized exercise books beyond the statutory period without prior approval of the Commissioner vitiated the best judgment assessment. (ii) Whether the Assessing Authority was required to determine the date on which liability to tax arose under section 6(2), and whether the Tribunal could refuse to entertain that legal contention at the second appellate stage.

Issue (i): Whether the retention of seized exercise books beyond the statutory period without prior approval of the Commissioner vitiated the best judgment assessment.

Analysis: Section 36(3) of the Act required seized books to be returned within the prescribed period, and retention beyond that period by an authority other than the Commissioner could continue only if reasons were recorded and the Commissioner's approval was obtained. The approval in the case was granted only after the assessment order had already been passed. The assessee was thus denied access to the books and the opportunity to give a detailed explanation to the notice issued on the basis of those books.

Conclusion: The retention was unauthorized and the assessment founded on such retention could not stand, in favour of the assessee.

Issue (ii): Whether the Assessing Authority was required to determine the date on which liability to tax arose under section 6(2), and whether the Tribunal could refuse to entertain that legal contention at the second appellate stage.

Analysis: Section 6(2) made the liability to tax arise only after expiry of thirty days from the date on which gross turnover first exceeded the taxable quantum, so determination of that date was necessary. No such date had been fixed in the assessment order. The objection was a question of law touching the authority to assess, and the Tribunal had jurisdiction under section 39(6) to entertain and decide such a contention even if it had not been raised earlier before the lower authorities.

Conclusion: The Assessing Authority failed to apply section 6(2), and the Tribunal wrongly declined to consider the legal point, in favour of the assessee.

Final Conclusion: The assessment and the appellate orders were unsustainable and were quashed, leaving the authorities free to proceed afresh in accordance with law.

Ratio Decidendi: Where seized records are retained beyond the statutory period without valid prior approval, and where a jurisdictional legal objection affecting the legality of assessment is raised, the assessment is vitiated and the appellate tribunal must entertain the objection notwithstanding that it was not urged earlier.

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