Best judgment sales estimation fails where books are accepted and no statutory defects are recorded

Best judgment assessment under the Andhra Pradesh General Sales Tax Act cannot be made merely because separate accounts for taxable and exempt turnover were not maintained. The assessing authority had accepted the books, purchases and turnover bifurcation, but recorded no finding that the return was incorrect or incomplete, no defect in the accounts, and no statutory basis for adding gross profit to the purchase value. In the absence of those preconditions, the estimated addition to sales turnover lacked legal foundation and was deleted in favour of the assessee.

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Issues: Whether, in the absence of separate accounts for taxable and exempt turnover, the assessing authority could estimate the sales turnover by adding gross profit to the purchase value without first rejecting the books of account or recording defects in the returns.

Analysis: The dealer's purchases and sales were identifiable, and the assessing authority accepted the books, purchases, and the bifurcation between local and outside purchases. The only lapse found was the non-maintenance of separate accounts for taxable and exempt goods. Section 14 of the Andhra Pradesh General Sales Tax Act, 1957 permits assessment to best judgment only when the return is incorrect or incomplete or when accounts are not produced. In the present case, no finding was recorded that the returns were incorrect or incomplete, no material defect in the books was pointed out, and no basis was shown for adding 10 per cent gross profit merely because separate accounts were not maintained. The estimated addition therefore lacked statutory foundation.

Conclusion: The estimated addition to the sales turnover was unsustainable and was liable to be deleted; the revision was allowed in favour of the assessee.

Ratio Decidendi: Best judgment estimation cannot be made merely because separate accounts for different categories of turnover were not maintained, unless the statutory preconditions for rejecting the return or accounts are satisfied and supported by recorded reasons.

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