2020 (12) TMI 280 - HC - VAT and Sales Tax

High Court revises assessment based on one fake invoice as arbitrary, sets evaded sales at 10% of disclosed sales.

The High Court partially allowed the revision, finding the assessment solely based on one fake invoice as arbitrary. It determined evaded sales at 10% of ... Best judgement assessment - estimation of turnover - rejection of books of account - assessment based on single fake invoice - proportionality between undisclosed transaction and estimation - quantification of evaded sales - 10% guideline for estimation of suppressed salesBest judgement assessment - rejection of books of account - assessment based on single fake invoice - proportionality between undisclosed transaction and estimation - Validity of taking recourse to best judgment assessment and rejecting books of account solely on the basis of a single recovered tax invoice - HELD THAT: - The Court held that the Assessing Authority's power to make a best judgement assessment is not unfettered and must be exercised on the basis of an intelligent, well grounded estimate rather than mere surmise. Where only one recovered invoice of small value (Rs. 11,970/-) was the sole material against the assessee, there was no rational basis to determine evaded sales equal to the assessee's entire disclosed turnover. Reliance on precedent establishes that estimation must bear a reasonable nexus and be proportionate to the evidence of undisclosed turnover; an assessment that is speculative, whimsical or wholly disproportionate to the available material cannot stand.Assessment made by rejecting books and determining evaded sales equal to full disclosed turnover on the basis of a single invoice was arbitrary and unsustainable.Estimation of turnover - quantification of evaded sales - 10% guideline for estimation of suppressed sales - Proper quantification of evaded sales in the circumstances and consequent tax liability - HELD THAT: - Applying the principle that estimation must be reasonable and in proportion to the material on record, and having regard to precedents which have accepted a ten per cent approach in comparable circumstances, the Court held that the appropriate quantification of evaded sales is 10% of the disclosed turnover. On that basis the evaded sales were fixed at 10% of the disclosed sales and the tax liability was to be computed accordingly. The Court therefore reduced the assessment to the quantified figure and directed that liability be calculated for the year specified by the order.Evaded sales quantified at 10% of disclosed turnover; tax liability to be computed treating evaded sales at that quantification.Final Conclusion: Revision partly allowed: the ex parte best judgement assessment and enhancement equating evaded sales to full disclosed turnover on the basis of a single invoice set aside; evaded sales quantified at 10% of disclosed turnover and tax liability to be computed accordingly for the year directed by the Court. Issues:Assessment proceedings based on disclosed turnover, rejection of Books of Accounts, best judgment assessment, legality of enhancement of taxable turnover, imposition of tax without input tax credit benefit.Assessment Proceedings and Best Judgment Assessment:The case involves assessment proceedings for the Assessment Year 2013-14 where the revisionist disclosed turnover of purchases and sales. The Assessing Authority rejected the Books of Accounts based on two tax invoices collected by the Mobile Squad. The assessment was done through a 'best judgment assessment' under Section 28(2)(ii) of the U.P. Value Added Tax Act, 2008. An ex-parte order was initially passed, later recalled, and a final order was issued determining evaded purchases and sales, leading to a tax liability for the assessee.Appellate Authority and Tribunal Decisions:The revisionist appealed against the order, arguing that the best judgment assessment was arbitrary and illegal. The Appellate Authority upheld the assessment based on maintaining parallel bill books. However, it set aside the demand for evaded Central Sales due to lack of evidence. The Tribunal affirmed the Appellate Authority's decision, relying on precedents and rejecting the revisionist's arguments.Substantial Questions of Law and Legal Arguments:The revisionist raised substantial questions of law challenging the legality of enhancing taxable turnover, arbitrary assessment, and imposition of tax without input tax credit benefit. The revisionist's counsel argued that the Assessing Authority's powers under Section 28(2)(ii) should be exercised cautiously and not arbitrarily. They cited relevant judgments emphasizing the need for assessments to be based on evidence and proportionate to the undisclosed turnover.Judgment and Conclusion:The High Court analyzed the arguments and legal precedents cited by both parties. It held that the assessment based solely on one fake invoice was arbitrary. Considering the principles governing best judgment assessments, the Court determined the evaded sales at 10% of the disclosed sales, amounting to &8377; 2,61,500. Consequently, the tax liability for the year 2014-15 was calculated based on this revised assessment. The Court partly allowed the revision, answering the substantial questions of law in favor of the revisionist.This detailed analysis of the judgment covers the issues involved, the legal arguments presented, and the High Court's decision based on the principles of law and relevant precedents.