2020 (6) TMI 684 - HC - VAT and Sales Tax

Court sets aside assessment order solely based on electricity consumption, emphasizing natural justice and proper verification. Remanded for fresh consideration.

The Court set aside the revised assessment order for the assessment year 2004-05, which was solely based on electricity consumption without proper ... Best judgment assessment - use of electricity consumption as basis for assessment - principles of natural justice - requirement of material to doubt accounts before resorting to best judgment - actual test check in assessee's factory - comparative data from similar units - arbitrariness in estimationUse of electricity consumption as basis for assessment - requirement of material to doubt accounts before resorting to best judgment - arbitrariness in estimation - Validity of revised assessment founded solely on electricity consumption without additional supporting material - HELD THAT: - The Court held that electricity consumption cannot be adopted as the sole basis for rejecting the assessee's accounts and making an estimate of taxable turnover. The law requires that the assessing authority possess material to doubt the correctness or genuineness of the entries in the account books before proceeding to a best judgment assessment on the basis of power consumption. Further, in the absence of actual test check and comparable data, adopting a particular rate of consumption for estimation would be arbitrary and such a best judgment assessment cannot be legally upheld. [Paras 7, 9]Revised assessment based solely on electricity consumption is legally unsustainable and arbitrary.Principles of natural justice - actual test check in assessee's factory - Whether the assessee was afforded reasonable opportunity and whether books of accounts were verified before passing the revised assessment - HELD THAT: - The Court found as an admitted fact that the respondent did not verify the books of accounts maintained by the petitioner for the relevant year when passing the revised assessment. Although the respondent contended that the petitioner failed to produce the books despite summons, the petitioner pleaded that they were not afforded reasonable opportunity to furnish those records. Having regard to the requirement of fair opportunity for production and verification of accounts before making a best judgment assessment, the failure to verify the books and the dispute over opportunity rendered the procedure infirm. [Paras 7, 8, 9]The failure to verify books and the lack of an established, reasonable opportunity to produce them vitiate the revised assessment.Best judgment assessment - principles of natural justice - Remedial direction following setting aside of the impugned order - HELD THAT: - In view of the legal infirmities in the impugned revised order, the Court set aside the order and remanded the matter to the respondent for fresh consideration. The petitioner was permitted to file objections afresh and produce the books of accounts within a limited period. The respondent was directed to consider the material and pass appropriate orders on merits and in accordance with law after affording a personal hearing, within specified timeframes. [Paras 10, 11]Impugned order set aside and matter remanded for fresh consideration with opportunity to produce records and for hearing.Final Conclusion: The revised assessment for assessment year 2004-05, being founded solely on electricity consumption without verification of books and without ensuring a proper opportunity to the assessee, was set aside; the matter is remitted for fresh consideration permitting the assessee to produce accounts and for the authority to pass a fresh order on merits in accordance with law. Issues:Challenging a revised assessment order for the assessment year 2004-05 based on electricity consumption as the sole basis for rejecting income tax returns and estimating taxable turnover, violation of principles of natural justice, and the need for providing a reasonable opportunity to produce books of accounts.Analysis:1. The petitioner, a manufacturer of sago and starch, challenged a revised assessment order for the assessment year 2004-05, claiming exemption on a reported turnover of Rs. 76,07,110. The respondent alleged suppression of sales turnover based on electricity consumption, leading to a revised assessment order without due notice or opportunity for the petitioner to produce relevant documents.2. The respondent contended that the revised assessment was based on the best judgment due to the petitioner's failure to produce books of accounts for verification. The petitioner argued against using electricity consumption as the sole basis for assessment, citing legal precedents like Kalyani Oil Mills v. State of Madras, emphasizing the need for proper verification and consideration of objections before passing revised orders.3. The Court noted that the revised assessment solely based on electricity consumption without verifying the petitioner's books of accounts was arbitrary and against the principles of natural justice. Referring to legal principles from Kalyani Oil Mills and Madurai Soft Drinks (Private) Limited v. State of Tamil Nadu, the Court emphasized the importance of material doubt in account entries, actual test checks, and comparable data for estimation, highlighting the arbitrariness of using arbitrary figures for best judgment assessments.4. Considering the legal position and admitted facts, the Court set aside the impugned revised order and remanded the matter back to the respondent for fresh consideration. The petitioner was given the opportunity to file objections afresh along with necessary documents within two weeks, with the respondent directed to pass appropriate orders within four weeks after affording a personal hearing to the petitioner.5. The writ petition was allowed, no costs were imposed, and the connected miscellaneous petition was closed, concluding the judgment regarding the challenges to the revised assessment order for the assessment year 2004-05 based on electricity consumption and the violation of principles of natural justice.