Penalty for entry tax defaults requires adverse material and proper notice; mere stock register lapses do not justify best judgment assessment.

Penalty under the Orissa Entry Tax Act cannot be sustained where the books of account were accepted, no adverse material was found, and the only defect was non-maintenance of a stock register for some goods. Mere absence of a stock register, by itself, is insufficient to reject accounts or justify best judgment assessment. Penalty in tax law is not automatic and ordinarily requires a wilful or contumacious breach, which was not shown here. The record also did not establish proper initiation of proceedings or compliance with the notice and opportunity requirements. On that basis, both the best judgment assessment and the penalty were held unsustainable in favour of the assessee.

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Issues: Whether penalty under Section 7(5) of the Orissa Entry Tax Act could be sustained when the books of account had been accepted, no adverse material was found, and the assessment was made by resort to best judgment without proper notice and opportunity.

Analysis: The assessment record showed that the books of account were not found to be or unreliable on any adverse material. Mere non-maintenance of a stock register for certain goods, by itself, was not a sufficient basis to reject the accounts or to invoke best judgment assessment. Penalty, in tax law, is not automatic and ordinarily follows only where there is a wilful or contumacious violation of statutory obligations. The record also did not show proper initiation of proceedings under the entry tax regime or compliance with the notice procedure contemplated by the rules. In the absence of a valid foundation for best judgment assessment and in the absence of legally sustainable reasons for penalty, the order could not stand.

Conclusion: The penalty and the best judgment assessment were unsustainable, and the question was answered in favour of the assessee.

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