Best judgment assessment needs independent scrutiny; assessed turnover tax can count in the compounding base.

Best judgment assessment must rest on an independent evaluation of the books, returns and sales materials; mere reliance on an intelligence report or a stray high-profit instance is insufficient where the core gross profit issue requires fresh scrutiny. The 2008-09 assessment was therefore set aside and remanded for de novo consideration. For compounding under Section 7(b), the expression covering the highest turnover tax paid for the previous three years is wide enough to include tax finally assessed in completed proceedings, including amounts altered in appeal or revision. The later compounding base was thus held to include assessed tax, favouring the Revenue.

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Issues: (i) Whether the best judgment assessment for 2008-09 could stand when the assessing authority adopted the intelligence report without independent evaluation of the books and sales records; and (ii) whether, for compounding under Section 7(b), the highest turnover tax payable for the previous three years includes tax assessed in completed assessments.

Issue (i): Whether the best judgment assessment for 2008-09 could stand when the assessing authority adopted the intelligence report without independent evaluation of the books and sales records.

Analysis: The books and returns had been rejected on multiple grounds, but the assessment order disclosed no independent reasoning on the core question of gross profit. Reliance placed wholly on the intelligence proceedings could not substitute for a fresh assessment on the materials before the assessing authority. The inspection materials were relevant, but they were not conclusive, and a stray high-profit instance could not by itself justify adoption of the same rate for the entire turnover. The assessment therefore required a fresh and thorough scrutiny of the accounts and invoices.

Conclusion: The assessment for 2008-09 could not be sustained in its existing form and had to be remanded for de novo consideration, in favour of the assessee.

Issue (ii): Whether, for compounding under Section 7(b), the highest turnover tax payable for the previous three years includes tax assessed in completed assessments.

Analysis: The compounding provision referred not merely to the tax conceded in the return or accounts but also to the turnover tax paid for the previous three consecutive years. That expression was wide enough to include tax ultimately assessed, since completed assessments may be confirmed, modified, reduced, or set aside in appeal or revision, and the final liability relates back to the relevant assessment year. The earlier decision on a different statutory provision was distinguished because the wording there did not include the additional phrase covering turnover tax paid.

Conclusion: The highest turnover tax for compounding could include assessed tax as modified in appellate or revisional proceedings, in favour of the Revenue.

Final Conclusion: The revisions were disposed of by setting aside and remanding the 2008-09 assessment while upholding the inclusion of assessed tax in the compounding base for the later years, resulting in a mixed outcome.

Ratio Decidendi: Materials from inspection may inform assessment, but a best judgment assessment must rest on an independent application of mind; and where a compounding provision includes turnover tax paid for prior years, the expression encompasses assessed tax as finally determined in assessment proceedings.

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