2023 (10) TMI 671 - HC - VAT and Sales Tax

Taxable Turnover Revised to Rs. 25 Lakh; Court Finds Flaws in Tribunal's Single Day Survey Estimation

The HC found merit in the revisionist's arguments against the Commercial Tax Tribunal's estimation of taxable turnover at Rs. 35.51 lakh. The Court noted ... Estimation of taxable turnover - restaurant - unaccounted sale only for one day previous to the date of search - Whether on the facts and circumstances of the case the Commercial Tax Tribunal were legally justified in estimating the taxable turnover at Rs. 35.51 lakh especially when in the previous and in subsequent assessment year accepted sales of the applicant of Rs. 2098,250/- and Rs. 21,42,450/-? HELD THAT:- On perusal of the record, it reveals that the revisionist has disclosed turnover at Rs. 20,05,100/- and admitted the tax liability of Rs. 2,83,917/-. The books of account were rejected on various grounds and the Assessing Authority has fixed the same at Rs. 65,05,100/-, against which a first appeal was filed, which was rejected. Still feeling aggrieved, the revisionist preferred second appeal, which was partly allowed fixing taxable turnover to Rs. 4,51,648/-. The only basis of enhanced taxable turnover was the survey dated 25.02.2016, where some bills were found pertaining to the last night, i.e., 24.02.2016. It is categorically argued before the Tribunal that the previous day of survey being a festival day, therefore, the said sale found at the time of survey, which cannot be the only determining factor as held by this Court in the case of M/s Bhagwati. It is also noticed that in the business of restaurant, there is always fluctuation in sale and therefore, the same cannot be on a higher side throughout the year as fixed by the authorities below. The revision is partly allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal was legally justified in estimating the taxable turnover at Rs. 35.51 lakhs based primarily on a single-day survey showing high sales on a festival day. 2. Whether an estimate of taxable turnover based on a one-day observation can be sustained when the dealer's disclosed turnover and accepted turnovers in the preceding and succeeding years are materially lower. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of estimating taxable turnover from a single-day survey (festival day) Legal framework: The assessment regime permits estimation of taxable turnover where books of account are rejected or not reliable; however, such estimation must be based on relevant, representative material and conform to principles of reasonableness and fairness. Precedent Treatment: This Court's prior decisions have held that an isolated survey conducted on a festival/public holiday, which records abnormally high sales, cannot alone be the determinative basis for fixing annual or periodical turnover without regard to variability and other evidence. Interpretation and reasoning: The Tribunal's estimate relied primarily on bills seized from a survey conducted on 25.02.2016 that reflected sales of the previous night (a festival day). The Court accepted the submission that restaurant trade is inherently fluctuating and that festival days produce atypical peaks. Given the singularity of the survey and absence of corroborative accounts or multiple representative observations, elevating a one-day festival sale into a year-wide turnover estimate was found to be unreasonable. The Assessing Authority and first appellate authority had earlier taken higher figures, but those figures derived from the same deficient evidentiary base. Ratio vs. Obiter: Ratio - An estimate of taxable turnover cannot rest solely on a one-day sale recorded during a festival/public holiday; such isolated data is not a reliable basis for annualization absent supporting records or adjustments reflecting typical fluctuations. Obiter - Observations on the nature of restaurant trade and its inherent ups and downs serve as contextual guidance. Conclusions: The Tribunal was not legally justified in relying primarily on the festival-day survey to fix taxable turnover at Rs. 35.51 lakhs. The Court modified the turnover to reflect a figure that accounts for the non-representative nature of the survey. Issue 2 - Weight to be accorded to prior and subsequent year turnovers and disclosed turnover in assessment by estimation Legal framework: In best judgment assessments, comparators such as disclosed turnover, accepted turnovers in adjacent assessment years, and other consistent documentary evidence are relevant and material. Estimations must be consonant with available historical and contemporaneous data unless there is cogent contrary material. Precedent Treatment: Earlier rulings of this Court have emphasized that where the department has accepted materially lower turnovers for preceding and succeeding years, and the dealer's own disclosure is substantially lower than the estimate, the assessing authorities must justify any significant departure from those figures with convincing evidence. Interpretation and reasoning: The record showed the dealer disclosed turnover substantially lower than the estimate, and turnovers for the previous and subsequent year accepted by the department were around Rs. 21 lacs each. There was no reliable accounting evidence produced at the time of survey; while non-production of books can permit estimation, it does not license estimation that is inconsistent with established patterns without adequate justification. The Tribunal's figure of Rs. 35.51 lakhs diverged markedly from both disclosed and adjacent-year accepted turnovers. Balancing the departmental right to estimate against the probative value of historical accepted turnover and the non-representative nature of the survey, the Court found downward modification warranted and fixed turnover at Rs. 25 lakhs as a reasonable corrective estimate. Ratio vs. Obiter: Ratio - Prior and subsequent accepted turnovers and the dealer's own disclosure are relevant benchmarks; a best-judgment estimate that materially departs from these benchmarks requires clear justification. Obiter - The method of arriving at the specific compromise figure (Rs. 25 lakhs) is an exercise of judicial moderation rather than a prescribed formula. Conclusions: The Tribunal should have given significant weight to the disclosed turnover and the accepted turnovers in adjacent years. In absence of reliable, representative evidence justifying the higher estimate, the Court was justified in reducing the estimated taxable turnover to a figure consistent with the broader evidentiary matrix. Cross-reference The conclusions on Issue 1 and Issue 2 are interrelated: the non-representative festival-day survey (Issue 1) loses probative force when contrasted with the dealer's disclosure and accepted turnovers in adjacent years (Issue 2), and both considerations combined warranted judicial modification of the estimated turnover. Disposition and Nature of the Decision Ratio - The impugned estimate based predominantly on a single festival-day survey is unsustainable where books are rejected yet prior and subsequent accepted turnovers and the dealer's own disclosure point to materially lower sales; a best-judgment assessment must harmonize with such contemporaneous and historical data. Outcome - The Tribunal's order was modified by reducing the taxable turnover to a sum reflecting a fairer estimate (fixed at Rs. 25 lakhs), and the revision was partly allowed.