1957 (5) TMI 28 - SC - VAT and Sales Tax

Supreme Court overturns assessment orders lacking evidence, emphasizes need for proof in tax matters.

Raghubar Mandal Harihar Mandal Versus The State of Bihar  

The Supreme Court allowed the appeal, set aside the High Court's judgment, and answered the question referred in the negative. The assessment orders made ... Whether the Sales Tax Officer is entitled under section 10(2)(b) of the Act to make an assessment on any figures of gross turnover with- out giving any basis to justify the adoption of that figure? Held that:- The High Court was in error in answering the question referred to it. The appeal is accordingly allowed and the judgment and order of the High Court are set aside. The answer to the question referred to the High Court is in the negative. Appeal allowed. Issues Involved:1. Correctness of the High Court's answer to the question of law regarding the Sales Tax Officer's authority under section 10(2)(b) of the Bihar Sales Tax Act, 1944.2. Validity of the assessment orders made by the Sales Tax Officer.3. Interpretation of section 10(2)(b) of the Bihar Sales Tax Act, 1944.4. Comparison of section 10(2)(b) of the Bihar Sales Tax Act, 1944 with section 23 of the Indian Income-tax Act.5. Legal principles governing the assessment of tax based on rejected books of account.Detailed Analysis:1. Correctness of the High Court's Answer:The main contention of the assessee was that the High Court incorrectly answered the question of law referred to it. The Supreme Court clarified that the High Court's jurisdiction in income-tax references is advisory, and its duty is to start with the statement of the case as the final statement of the facts. The High Court should answer the question of law with reference to that statement. The question referred related specifically to assessments made under section 10(2)(b) of the Bihar Sales Tax Act, 1944, and not to assessments made under section 10(4) of the Act. The High Court's answer was found to be incorrect because it did not properly interpret the scope and effect of section 10(2)(b).2. Validity of the Assessment Orders:The Sales Tax Officer rejected the returns and books of account filed by the assessee for all seven quarters and assessed the tax under section 10(2)(b) for four quarters and under section 10(4) for three quarters. The Supreme Court found that the assessment orders did not refer to any materials and were based on pure guesswork. The orders did not show that the assessment was made with reference to any evidence or material, which was a requirement under section 10(2)(b). Therefore, the assessment orders were invalid.3. Interpretation of Section 10(2)(b) of the Bihar Sales Tax Act, 1944:Section 10(2)(b) requires the Commissioner to assess the amount of tax due from the dealer after hearing the evidence produced by the dealer and any other evidence required by the Commissioner. The Supreme Court held that the assessing authority could not make an assessment arbitrarily or without basing it on any materials. The assessment must be related to some evidence or material and must be more than mere suspicion.4. Comparison with Section 23 of the Indian Income-tax Act:The provisions of section 10(2)(b) of the Bihar Sales Tax Act, 1944, are similar to section 23 of the Indian Income-tax Act. The Supreme Court referred to its earlier decision in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, which stated that the Income-tax Officer is not entitled to make a pure guess and must base the assessment on some material or evidence. This principle was applied to the case under consideration, and the Court found that the High Court's comparison and reliance on section 10(4) were misplaced.5. Legal Principles Governing Tax Assessment:The Supreme Court emphasized that while the assessing officer must make an estimate when the books of account are rejected, the estimate must be based on some material or evidence. The Court referred to several decisions, including those of the Privy Council and various High Courts, to support this principle. The Court reiterated that an assessment based on pure guesswork without reference to any material is not permissible.Conclusion:The Supreme Court allowed the appeal, set aside the judgment and order of the High Court, and answered the question referred to the High Court in the negative. The appellant was entitled to costs both in the Supreme Court and in the High Court. The judgment clarified that the assessing authorities must base their assessments on some material or evidence and cannot make arbitrary assessments.