Stock account failure justifies proportional best judgment assessment for second sales exemption when taxable and exempt turnover cannot be segregated.

Where a dealer required to maintain stock accounts fails to do so, and the available records do not permit reliable segregation of taxable and exempt turnover, the assessing authority may apply a reasonable proportionate formula in best judgment assessment to determine the extent of second sales exemption. The absence of a proper stock register made the accounts unreliable for identifying the nature of the sales and the goods that had suffered tax. On that factual basis, the court upheld the restricted exemption and sustained the revisional authority's approval of the formula-based approach.

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Issues: Whether, on the assessee's failure to maintain the required stock account, the authorities were justified in applying a formula and sustaining a proportionate restriction on second sales exemption.

Analysis: The assessee carried on business in hides and skins, purchased raw and tanned skins from different sources, effected local sales and export sales, but did not maintain the stock account contemplated by the Rules. In such circumstances, the turnover relating to first sales and second sales could not be accurately segregated on the basis of the books alone. The absence of a proper stock register rendered the accounts unreliable for verifying the nature of the sales and the extent of tax suffered goods included in the claim for exemption. The Court held that, given the factual matrix and the difficulty in identifying taxable and exempt turnover, the Assessing Officer was justified in resorting to a proportionate formula for best judgment assessment, and the revisional authority rightly sustained that approach.

Conclusion: The restriction of second sales exemption by adoption of the formula was upheld and the assessee's challenge failed.

Ratio Decidendi: Where a dealer who is required to maintain stock accounts fails to do so, and the available materials do not permit a reliable segregation of taxable and exempt turnover, the assessing authority may lawfully adopt a reasonable formula in best judgment assessment to determine the extent of exemption.

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