# M/S Kartikey Ispat Pvt. Ltd v. The Commissioner Of Trade Tax U.P. Lucknow

- **Citation:** (2016) 7 ILRA 42
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2016-07-25
- **Bench:** Yashwant Varma
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-kartikey-ispat-pvt-ltd-v-the-commissioner-of-trade-tax-u-p-lucknow-44079
- **Pages:** 4

## Text

42 INDIAN LAW REPORTS ALLAHABAD SERIES

ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 25.07.2016

BEFORE

THE HON'BLE YASHWANT VARMA, J.

Sales/Trade Tax Revision No.- 1468 Of 2005

M/S Kartikey Ispat Pvt. Ltd. ...Applicant
Versus
The Commissioner Of Trade Tax U.P. Lucknow ...Opposite Party

Counsel for Applicant:
Ashok Kumar

Counsel for Opposite Party:
S.C.

Held

The Tribunal recorded a categorical finding that the Assessing Authority was unjustified in estimating
undisclosed turnover for four months when the material related only to two months.
The Tribunal also found that there was no material indicating intention to evade tax beyond the survey date
(27 July 2001).
However, despite holding the estimation for four months unsustainable, the Tribunal arbitrarily reduced the
escaped turnover to ₹12,50,000 (purchases) and ₹11,50,000 (sales) without disclosing any basis or
reasoning.
An assessment made to the "best of judgment" must:
Be based on relevant material,
Have reasonable nexus with available evidence,
Not be arbitrary, capricious, or based on mere conjecture.
Since the Tribunal failed to indicate the material or reasoning forming the basis of its modified estimate, its
order was legally unsustainable.
The revision was allowed.
The Tribunal's order was set aside and the matter remanded for fresh decision in accordance with law.

CASE LAW CITED

State of Kerala v. C. Velukutty
CIT v. Laxminarain Badridas
1937 5 ITR 170 (Privy Council)
Jagadish Prasad Pannalal v. Member, Board of Revenue, West Bengal
1951 2 STC 27 (Calcutta High Court)
Doma Sahu Kishun Lal Sao v. State of Bihar
1951 2 STC 37 (Patna High Court)
State of Orissa v. Maharaja Shri B.P. Singh Deo
7 All. M/S Kartikey Ispat Pvt. Ltd. Vs The Commissioner Of Trade Tax U.P. Lucknow

43
(Delivered by Hon'ble Yashwant Varma, J.)

1. This revision is directed against an order of the Tribunal dated 23 February 2005 which
has proceeded to modify an order of assessment made against the revisionist in the course of
proceedings taken and relating to the assessment year 2001-02.

2. The case of the revisionist was that it was engaged in the manufacture and sale of iron
steel sheets and was duly exempted under section 4-A of the U.P. Trade Tax Act 1948. The
assessing authority pursuant to a survey of the premises of the revisionist found as many as eight
documents which did not appear to have been accounted for in the books. During the course of
assessment, assessing authority proceeded to accept the explanation of the revisionist in respect of
the material so gathered except in relation to Exhibit-4. As is described in the order of assessment,
Exhibit-4 is stated to evidence a sale of 72 tons during the period 1 June 2001 to 19 July 2001. This
sale valued at Rs. 4,58,327/- was found by the assessing authority to have not been accounted for.
The assessing authority accordingly preceded to take the basis of the sales and purchases alleged to
have been effected in this two month period and which had admittedly not been accounted for as a
ground for rejection of the books of accounts. Taking these very undisclosed sales as the basis, the
assessing authority proceeded to employ the same figures for the months of April, May, June and
July. It accordingly proceeded to undertake a best judgment assessment and estimated the purchase
for these four months to be Rs. 23,00,000 and the sale in these four months to be Rs. 25,00,000.
Not finding success before the first appellate authority, the revisionist preferred a second appeal
before the Tribunal which has proceeded to reduce the value of undisclosed purchases to Rs.
12,50,000/- and sales to Rs. 11,50,000/-.

3. What this Court however, finds is that the Tribunal has recorded a categorical finding
that the act of the assessing authority in proceeding to estimate undisclosed turnover of sales and
purchases for four months to be wholly unjustifiable. It records that admittedly the undisclosed
purchase and sales were restricted to a period of two months. It therefore, held that the assessing
authority was unjustified in enhancing the turnover of purchases and sale for a period of four
months. It further took note of the fact that the assessing authority had not found any material
which may have tended to indicate an intention to evade tax in any period after the date when the
survey was undertaken namely on 27 July 2001. On this score also, the Tribunal found that the
order of the assessing authority and its estimation of escaped purchases and sales was
unsustainable. Having arrived at this conclusion, the Tribunal however, proceeded to reduce the
escaped turnover of purchases and sales to Rs. 12,50,000/- and Rs. 11,50,000/- The order of the
Tribunal is totally silent on the basis of which this was arrived at. The principles applicable to an
assessment taken to the best of judgment are no longer res integra. One may in this connection only
note what the Supreme Court held in State of Kerala v. C. Velukutty1,

9. What is the scope of Section 12(2)(b) of the Act? The expression "to the best of
his judgment" in the said clause is presumably borrowed from Section 23(4) of the Income Tax
Act. The said expression in the Income Tax Act was subject of judicial scrutiny. The Privy Council
44 INDIAN LAW REPORTS ALLAHABAD SERIES

in CIT v. Laxminarain Badridas [ 1937 5 ITR 170, 180] has considered those words. Therein it
observed:

"He (the assessing authority) must not act dishonestly, or vindictively or capriciously
because he must exercise judgment in the matter. He must make what he honestly believes to be a
fair estimate of the proper figure of assessment, and for this purpose he must, Their Lordships
think, be able to take into consideration local knowledge and repute in regard to the assessee's
circumstances, and his own knowledge of previous returns by and assessments of the assessee, and
all other matters which he thinks will assist him in arriving at a fair and proper estimate; and
though there must necessarily be guess work in the matter, it must be honest guess work. In that
sense, too, the assessment must be to some extent arbitrary."

The Privy Council, while recognizing that an assessment made by an officer to the
best of his judgment involved some guess work, emphasised that he must exercise his judgment
after taking into consideration the relevant material. The view expressed by the Privy Council in
the context of the Income Tax Act was followed when a similar question arose under the Sales Tax
Act. A Division Bench of the Calcutta High Court in Jagadish Prosal Pannalal v. Member,
Board of Revenue, West Bengal [1951 2 STC 27] confirmed the assessment made by the Sales
Tax authorities, as in making the best judgment assessment the said authorities considered all the
available materials and applied their mind and tried their best to come to a correct conclusion. So
too, a Division Bench of the Patna High Court in Doma Sahu Kishun Lal Sao v. State of Bihar
[1951 2 STC 37] refused to interfere with the best judgment assessment of a Sales Tax Officer as
he took every relevant material into consideration, namely, the situation of the shop, the rush of the
customers and the stock in the shop and also the estimate made by the Assistant Commissioners in
the previous quarters.

10. Under Section 12(2)(b) of the Act, power is conferred on the assessing authority
in the circumstances mentioned thereunder to assess the dealer to the best of his judgment. The
limits of the power are implicit in the expression "best of his judgment". Judgment is a faculty to
decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice
of a Judge, but on settled and invariable principles of justice. Though there is an element of guess
work in a "best judgment assessment", it shall not be a wild one, but shall have a reasonable nexus
to the available material and the circumstances of each case. Though sub-section (2) of Section 12
of the Act provides for a summary method because of the default of the assessee, it does not enable
the assessing authority to function capriciously without regard for the available material.

4. The principles laid down find resonance in State of Orissa v. Maharaja Shri B.P.
Singh Deo2,

"4. Apart from coming to the conclusion that the materials placed before him by the
assessee were not reliable, the Assistant Collector has given no reason for enhancing the
assessment. His order does not disclose the basis on which he has enhanced the assessment. The
mere fact that the material placed by the assessee before the assessing authorities is unreliable does
7 All. M/S Jay Tech. Printing Systems (Pvt.) Limited Vs Commissioner, U.P. Trade Tax,
 Lucknow

45
not empower those authorities to make an arbitrary order. The power to levy assessment on the
basis of best judgment is not an arbitrary power; it is an assessment on the basis of best judgment.
In other words that assessment must be based on some relevant material. It is not a power that can
be exercised under the sweet-will and pleasure of the concerned authorities. The scope of that
power has been explained over and over again by this Court."

5. In the light of the law so laid down, it is clear that the order of the Tribunal is rendered
unsustainable.

6. Accordingly, this revision shall stand allowed. The order of the Tribunal is hereby set
aside and the matter is remanded to it for decision afresh and in light of the observations made
hereinabove.
----------
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 22.07.2016

BEFORE

THE HON'BLE YASHWANT VARMA, J.

Sales/Trade Tax Revision No.- 1568 Of 2006

M/S Jay Tech. Printing Systems (Pvt.) Limited ...Applicant
Versus
Commissioner, U.P. Trade Tax, Lucknow ...Opposite Party

Counsel for Applicant:
Krishna Agarwal, Pawan Shree Agarwal

Counsel for Opposite Party:
S.C.

Held

The power of seizure under Section 13-A(1-A) and the power of penalty under Section 13-A(4) of the
U.P. Trade Tax Act operate in distinct and separate spheres.
For seizure under Section 13-A(1-A), two contingencies must exist:
(a) Goods are not traceable to a bona fide dealer; or
(b) There is a doubt that goods have not been properly accounted for.
However, for imposition of penalty under Section 13-A(4), the authority must record a clear satisfaction that:
The goods were omitted from being shown in the accounts, registers, or other documents
maintained by the dealer.
Mere doubt is insufficient for penalty; a positive finding of non-accounting is mandatory.
In the present case:
The goods were traceable to bona fide registered dealers.