TaxTMI 
TaxTMI 
2012 (4) TMI 552
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....lared margin of profit and closing stock. During the assessment years 1991-92, 1992-93 and 1993-94 margin of profit declared by the dealer was at 8.87 per cent, 9.87 per cent and 10.87 per cent., respectively, but for the assessment year in question, the margin of profit was declared to be 6.25 per cent, which was also far below the profit margin declared by other dealers in the locality. The second ground was that closing stock was much higher to the closing stock declared in the earlier years. On best judgment assessment addition equal to four per cent of the turnover was made. The relevant observations are: "8. On examination of the books of accounts produced by the dealer and returns of turnover furnished by the dealer the following defects/inconsistencies have come to light which induce a suspicion in my mind that the books of accounts are unreliable or/and incorrect or/and incomplete: (i) The closing stock of the dealer as on March 31, 1995 is calculated as at 37.67 per cent of the total turnover returned which is much higher side in comparison of the same dealer for the assessment year 1993-94 which was at 17.90 per cent of the turnover returned for the said assessm....
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....es like highly inconsistent variation of margin of profit, non-maintenance of stock book in a classified manner and number of inconsistencies in the final account strongly indicates that the books of accounts of the assessee is quite unreliable. The facts and materials upon which the learned assessing authority has estimated the turnover by enhancing the disclosed turnover by four per cent is based on strong facts and materials. So, I consider the estimation of turnover as quite fair and justified." On further appeal, the Tribunal also upheld the said view as follows: "10. After rejection of the books of accounts, the learned assessing authority estimated the turnover of the dealer by enhancing it by four per cent computed on the basis of the average profit earned by the dealer in the previous years of 1991-92, 1992-93 and 1993-94, which I consider to be fair and reasonable and hence upheld the order of the learned assessing authority as endorsed by the learned Additional Commissioner of Taxes. In the premises, the appeal petition is rejected and the order dated May 31, 1996 of the learned assessing authority and that dated October 31, 1996 of the learned Additional Commissio....
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....earned single judge was not justified in interfering with the orders of the assessing authorities. Section 9 of the Act provides for making assessment of the taxable turnover. If the assessing authority, in the course of assessment, is not satisfied that the returned turnover is correct, he can issue notice to the assessee and thereafter proceed to make assessment. The assessee is required to maintain proper accounts under section 34 of the Act. However, the assessing authority can declare that the return furnished was not correct or complete only for valid and rational reasons and not arbitrarily. If such satisfaction is validly reached, some guess work has to be allowed to be made and that such assessment cannot be interfered with by this court under article 226 of the Constitution. In the present case, admittedly, the assessee had shown lesser margin of profit compared to the last three years and other similar dealers and also declared disproportionately higher closing stock. These two observations appearing in the books of accounts of the assessee have neither been factually disputed nor could be held to be irrelevant to determine the question whether the turnover declare....
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.... not sit in appeal over the decision of the statutory authorities and does not interfere unless the same are arbitrary or irrational. Reference may be made to some of the settled legal principles in this regard. In Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esufali, H.M. Abdulali, Siyaganj, Main Road, Indore [1973] 32 STC 77 (SC); [1973] 2 SCC 137, the honourable Supreme Court observed as follows (pages 82-84 in 32 STC): "8. . . . The assessing authority while making the 'best judgment' assessment, no doubt, should arrive at its conclusion without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his 'best judgment' and not of anyone else. The High Court could not substitute its 'best judgment' for that of the assessing authority. In the case of 'best judgment' assessments, the courts will have to first see whether the accounts maintained....
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....aw relating to 'best judgment' assessment was examined at length by this court. Therein S.K. Das, J., speaking for the court, observed: 'No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess; but the estimate must be related to some evidence or material and it must be something more than mere suspicion. To use the words of Lord Russell of Killowen again, "he must make what he honestly believes to be a fair estimate of the proper figure of assessment" and for this purpose he must take into consideration such materials as the assessing officer has before him, including the assessee's circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him in arriving at a fair and proper estimate.' Proceeding further the learned judge quoted with approval the observations of Din Mohammad, J., in Ganga Ram Balmokand v. Commissioner of Income-tax [1937] 5 ITR 464 (Lahore): 'It cannot be denied that there must be some material before the Income-tax Officer on which to base his estimate, but no hard a....