# COMMISSIONER OF SALES-TAX, MADHYA PRADESH v. M/S. H.M. ESUFALI, H. M. ABDULALI, SIYAGANJ.- INDORE

- **Citation:** [1973] 3 S.C.R. 1005
- **Court:** Supreme Court of India
- **Decided:** 1973-04-18
- **Bench:** K. s. HEGDE, H. R. Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-sales-tax-madhya-pradesh-v-m-s-h-m-esufali-h-m-abdulali-5940
- **Pages:** 11

## Headnote

Madhya l'rad~sh SG!ks T~ A.ct a. 19-Reassess~IJt of est:dped
turnover whether C{JIJ be nlizde on barfs of 'best Judgl'lti1J(-'Best }lldgrMnf what is-Estimate of turnover in 'best judgmenf assess~mnt-lnter
ference by court when justified.
The asseS8ee was a deater in Iron and Steel in Madhya . Pradesh.
The Sales Tax Officer m making the original as!lelllDent for the. period
November I, 1959 to October 20, 1960 accepted the gr018 turnover
disclosed by the 'IISsesaee's accounts. Later the Flying Squii(J inspeckd
the :business premises of the 9ssessee and found . a bill 6ook for the
period September 1, 1960 to September 19, 1960. The bill book sho~d
that the assessee had dected sales of iron and steel during that period
ot the value of Rs. 31,171.28 P. Those sales had not been entered
in the books of a~unt maintained by the essessee. On the basis of
the lofurmation provided by the said bill book the Sales Tax Officer
initiated proceedings under s. 19( 1) of the Madhya Pradesh General
Sales Tax Act 1958 as elso under the Central Sales Tax
A~ 1956
against the assessee, After. hearing the assessee he made teassessments
on best judgment basis and in estimating the asse8See's turnover took
~
consideration the fact that the assessee had dealings outside his
accounts of the value of Rs. 31.171.28 P. during a ~od of 19 days.
After the disposal of appeals filed by the assessee under the
Act a
refetenoe was made to the High Court.
lnt~r alia the High Court held
that the estimate. of taxable turnover under the local Act and the Central
Act made by the assessing authority for the period from November 1,
1959' to October 20, 1960 on the basis of Rs. 31,171.28 P as the eactp·
ed turnover for a _period of 19 days was illegal and unjustified. According to the High Court the only moved escapement was Rs. 31,171.28
11ie
penalty
imposed on the
assessee in respect of the tumoveJ
under the State Act was also set aside by the High Court. In appeal
by the Revenue,
HElD: (i) The distinction between a 'best judgment' assesiment
and assessment based on accounts submitted by an assessee must be borne
in mind.
Sometime there may be innocent or trivial mistakes in the
accounts maintained by the assessee. There may be even certain uniBtended or unimportant omissions in those accounts, but yet the accounts may
be· accepted as genuine and substantialJy corr.ect. In such cases, the assessments are made on the basis of the accounts maintained even thoqh
the assessing officer may add back to the account price of items that
might have been omitted to be included'- in the accounts. In such •
case, the assessment made ·is not a 'best-judgment' assessment. It is
pr"unarity ma~e on the basis of the a~unts maintained by the UMIIOe.
But when the assessing officer comes . to the conclusion that no reliaDce
CBD be placed on the accounts maintained by the asseaaee, he pfoceede
to a8aess the assesaee on the basis of his 'beat-judgment'. lo d~ .0,
.he. may take such asaiatanoe as the assessee's accounts mav atrord, he
may also rely on other information& gathered by .him u well u on tbe
surrounding circumstances of the case: 'The assessment made on
the'·
1006
SUPREME COURT REPORTS
[1973] 3 S.C.R.
basis of assessee's accounts and those made on 'best-judiiDcnt' buis arc
totally different types of assessments. [1009 G]
In the present case it was proved as well as admitted
that
the
asasee'a dealings outside his accounts durini a period of 19 days were
of the nature of Rs. 31, 171. 28. From this circumst11nce it was open
to the Sales·tax Officer to infer that the assesseee had large scale dealiPS~ outside his accounts. It was obvious that he
was
maintainina
f'lbe accounu to evade payment of sales-tax. In such a situation it
wu not possible for .the Sates-tax Officer to find out precisely the turnowr euppressed. He could only make an est'imate of the suppressed
tunaover on the b11is of the material before him. So long
aa
the
e1timate made by him wa• not arbitrary •nd has nexus with

## Text

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1005
COMMISSIONER OF SALES-TAX, MADHYA PRADESH
v.
M/S. H.M. ESUFALI, H. M. ABDULALI, SIYAGANJ.-
INDORE
April 18, 1973
[K. s. HEGDE AND H. R. KHANNA, JJ.]
Madhya l'rad~sh SG!ks T~ A.ct a. 19-Reassess~IJt of est:dped
turnover whether C{JIJ be nlizde on barfs of 'best Judgl'lti1J(-'Best }lldgrMnf what is-Estimate of turnover in 'best judgmenf assess~mnt-lnter
ference by court when justified.
The asseS8ee was a deater in Iron and Steel in Madhya . Pradesh.
The Sales Tax Officer m making the original as!lelllDent for the. period
November I, 1959 to October 20, 1960 accepted the gr018 turnover
disclosed by the 'IISsesaee's accounts. Later the Flying Squii(J inspeckd
the :business premises of the 9ssessee and found . a bill 6ook for the
period September 1, 1960 to September 19, 1960. The bill book sho~d
that the assessee had dected sales of iron and steel during that period
ot the value of Rs. 31,171.28 P. Those sales had not been entered
in the books of a~unt maintained by the essessee. On the basis of
the lofurmation provided by the said bill book the Sales Tax Officer
initiated proceedings under s. 19( 1) of the Madhya Pradesh General
Sales Tax Act 1958 as elso under the Central Sales Tax
A~ 1956
against the assessee, After. hearing the assessee he made teassessments
on best judgment basis and in estimating the asse8See's turnover took
~
consideration the fact that the assessee had dealings outside his
accounts of the value of Rs. 31.171.28 P. during a ~od of 19 days.
After the disposal of appeals filed by the assessee under the
Act a
refetenoe was made to the High Court.
lnt~r alia the High Court held
that the estimate. of taxable turnover under the local Act and the Central
Act made by the assessing authority for the period from November 1,
1959' to October 20, 1960 on the basis of Rs. 31,171.28 P as the eactp·
ed turnover for a _period of 19 days was illegal and unjustified. According to the High Court the only moved escapement was Rs. 31,171.28
11ie
penalty
imposed on the
assessee in respect of the tumoveJ
under the State Act was also set aside by the High Court. In appeal
by the Revenue,
HElD: (i) The distinction between a 'best judgment' assesiment
and assessment based on accounts submitted by an assessee must be borne
in mind.
Sometime there may be innocent or trivial mistakes in the
accounts maintained by the assessee. There may be even certain uniBtended or unimportant omissions in those accounts, but yet the accounts may
be· accepted as genuine and substantialJy corr.ect. In such cases, the assessments are made on the basis of the accounts maintained even thoqh
the assessing officer may add back to the account price of items that
might have been omitted to be included'- in the accounts. In such •
case, the assessment made ·is not a 'best-judgment' assessment. It is
pr"unarity ma~e on the basis of the a~unts maintained by the UMIIOe.
But when the assessing officer comes . to the conclusion that no reliaDce
CBD be placed on the accounts maintained by the asseaaee, he pfoceede
to a8aess the assesaee on the basis of his 'beat-judgment'. lo d~ .0,
.he. may take such asaiatanoe as the assessee's accounts mav atrord, he
may also rely on other information& gathered by .him u well u on tbe
surrounding circumstances of the case: 'The assessment made on
the'·
1006
SUPREME COURT REPORTS
[1973] 3 S.C.R.
basis of assessee's accounts and those made on 'best-judiiDcnt' buis arc
totally different types of assessments. [1009 G]
In the present case it was proved as well as admitted
that
the
asasee'a dealings outside his accounts durini a period of 19 days were
of the nature of Rs. 31, 171. 28. From this circumst11nce it was open
to the Sales·tax Officer to infer that the assesseee had large scale dealiPS~ outside his accounts. It was obvious that he
was
maintainina
f'lbe accounu to evade payment of sales-tax. In such a situation it
wu not possible for .the Sates-tax Officer to find out precisely the turnowr euppressed. He could only make an est'imate of the suppressed
tunaover on the b11is of the material before him. So long
aa
the
e1timate made by him wa• not arbitrary •nd has nexus with faets discovered, the same could not be queationed. The Hiah Court was wrona
in usumini that the assessina authority must have material before it
to prove the e"'act turnover suppressed. The basis adopted
by
the
Salc1·tax Oftlcer ·was a relevant one whether it was t~e most appropriate
or not. Hence
the Hiah Court was not justified in interfenng with
the same. [1010 Dl
CommissifJI'Ier of l11Come.tax, Central and U. P.
v.
Laxmi1UII'ain
Br.dridas., S I.T.R. 170, Raghubar Mandai Harihar Manda! v. The
State of Bihar, 8 S.T.C. 770, Ganga Ram Baimokand v. Commissioner
of ln,com~t-tax, Punjab, 5, I. T. R. 464 and
State
of Kerala v.
C.
Ytlukutty, 60 LT.R. 239, applied.
Commissioner of ]11come-tax West Bengd v. Padamchand Ramgopal.
76 I.T.R. 719, distinguished.
(ii) The contention that in a reassessment made under s. 19(l) of
the Act the Sales Tax Officer is not competent to make a best judgment
assessment was rightly rejected by ther High Court. Reassessment is
nothing but a fresh assessment. [1014 Bl
(iii) Since the estimate of tunnover made by the Sales Tax Officer
in hi9 -best judgment assessment
was
legal and justified the penalty
imposed by him under the State Act must also be held to be in accordance with Law.
State of Andhra Pradesh v. Bavuri V. Narasimhan, 16 S. T. C. 54,
relied on.
CIVIL APPF:LLATE JuRISDICTION : Civil Appeal No.
1068
& 1069 of 1970.
Appeals by special leave from the judgment and order dated
December 2, 1968 of the Madhya Pradesh High Court in Misc.
C. Case No. 84 of 1968.
Ram Panjwani and I. N. Shrof}, for the appellant.
R. P. Agarwala, for the respondent.
The Judgment of the Court was delivered by
HEGDE J. These appeals by special leave arise
from the
decision of the High Court of Madhya Pradesh in a consolidated
Rekrence under S. 44 of the Madhya Pradesh General Sales Tax
Act,· 1958 (to be hereinafter referred to as the 'State Act'). That
Reference was made by the Board of Revenue, Gwalior, partly at
the instance of the assessee and partly at the instance of the
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C,S.T, v, H.M. !SUPALl (Htgde, J.)
1007
A.
Commissioner cf Sales·tax, Madhya Pradesh. Four questions of
law were referred to the High Cotirt for its decision. They are :
ll
. " ( 1) Whether on the facts and ciroumstances of
the case the revised assessment enhancing the taxable
turnover under the State law by Rs. 2,50,000/· and the
taxable turnover undtr the Central law by Rs. 1,00,003/-
o~ the basis. of the undisputed escape in the amount of
Rs, 31,171.28 by adopting the said amount of escaped
turnover as the measure for determining the quantum
of enhancement tor the whole year was illegal, unjusti·
fled or excessive?
(2) Whether a best .iudgmont aasesSIQent could at
all be made under s. 19(1) o'l the Act or .whether
revi1ion of the · aueasmont should be confined to the
quantum of proved or admitted escaped turnover ?
(3) If the answer to- the previous question is that
the revision in assessment should be confined only to the
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quantum of proved or admitted escape in turnover, was
the penalty of Rs. 2,009/- imposed on the footing of
the revision of the assessment for the whole year legal
and justified? and ·
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( 4) Whether on· the facts and cfrcumstances of the
case the imposition Qf the penalty under section 19 ( 1)
of the Madhya Pradesh General Sales Tax Act, 19S8
read with 'Section 9 ( 3 ) of the Central Sales Tax Act
was pot legal?'
The first three questions were referred to the High Court at
the instance of the assessee and the last one was referred at the
instance of the Commissioner.
The High Coutt answered the 1st and the 3rd question in
favour of the assessee and the second and the fourth question
in favour of the Department. It opined :
" ... Our answer to the first question is that the estimate· of
taxable turnover under the local Act ood the Central Act made
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by the assessing authority for the period from 1st November 1959
to 20th October 1960 on the basis of Rs. 31,171.28 as the escaped
turnover for a period of 19 days was illegal and unjustified. The
escaped turnover proved in the present case is only Rs. 31,171.28
and the assessee is liable to be assessed under both the Acts only
on the taxable turnover comprised in -tb,e, escaped tUrnover of
H Rs. 31,171.28. Our answer to the seco'rid question is that there
CBJ:l be a best·judg:rnent assessment under section 19 ( 1 ) of the local
Act. lb a best·judgment assessment the quantum of escaped tumover would be that which the assessing authority thinks is proved
1008
SUPRBMB COURT REPORTS
[1973] 3 S.C.R.
. or is established. In other assessments the quantum of escaped
A
turnover would be the one which the assessing authority finds proved whether on the admission of the assessee or on· the material
produced at the enquiry in which the assessee has participated.
The third question is answered by saying that the imposed penalty
of Rs. 2,000/- is, in view of our answer to the first ·question, not
legal. Our answer to the fourth question is that a penalty for
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escaped assessment under the Central Act can be imposed under
Section 19 ( 1 ) of the local Act."
Aggrieved 'by the decision of the High Court, the Commissioner
has brought ·these appeals. The ass~see has not appealed against
that portion of the decision which went against him.
The facts of the case necessary for deciding the questions of law
arising for decision in these appeals, as could be gathered trom the
Statement of the case may now be set out.
The assessee was a registered deaier under the 'State Act' as
well as the Central Sales Tax Act (which will hereinafter be
referred to as the 'Central Act'). He was a dealer in Iron and
Steel. In these appe$, we are concerned with his turnover for
the period November 1, 1959 to October 20, 1960. In that year
he declared a gross turnover of Rs. 3,97,356/ 18 and taxable
turnover of Rs. 1,10,246/ 63P. The Sales-tax Officer determined
his gross turnover at Rs. 3,97,357/- and -taxable turnover at
Rs. 1,21,567/ -. Under the 'State Act" he assessed him in tke sum
of Rs. 3,743.34P. on November '20, 1961. The assessee had not
declared his gross or taxable turnover in respect of the year in
question under the 'Central Act'. But the Sales-tax Officer determined his ·turnover under the 'Central Act' by his order dated
Decembler 8, 1962 at Rs. 22,916/ - and levied on him a tax of
Rs. 252.04. The assessee did not appeal against these orders.
It appears that on September 19, 1963 the Flying Squad inspected
the business premises of the assessee and found a Bill book for
the period September 1, 1960 to Se~tember 19, 1960. The Bill
book showed that the assessee had effected sales of iron and steel
during that period of the value of Rs. 31,171.28P. Those sales
had not been entered in the books of account maintained by the
assessee.
On the basis of the information provided by the bill
book seized, the Sales-tax Officer initiated proceedings under
s. 19(1) of the 'State Act' on January 15, 1964 by issuing the
prescribed notices to the assessee. He also initiated proceedings
under that section under the 'Central Act' on March 15; 1964.
The notices in question were served on the assessee on April 17,
1964 and March 19, 1964 respectively. In response to these notices; the assessee submitted an explanation denying that the bill book
in question pertained to his dealings. Further, he also disputed
the correctness of the estimates made by the Sales-tax Officer of
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C.S.T. V, H.M. ESUFALI (Hegde, J.)
1009
his turnovers in the notices issued to him.
After hearing the
assessee, the Sales-tax Offi~er reassessed the assessee under the
'State Act' on April20, 1964 and under the 'Central Act' on April
30, 1964. The reassessments were made on the basis of 'bestjudgment'.
Ia:t estimating the assessee's turnover, the Sales-tax
Officer took into considration the fact that the assessee had dealings
outside his accounts of the value of Rs. 31,171.28 during a
period of 19 days. On the basis afforded by the facts discovered,
the Sales-tax Officer estimated the assessee's turnover under the
'State Act' for the assessment period in question at Rs.6,47,357 /-
(3,97,357, + 2,50,000).
Similarly he reopened the assessee's
assessment under the 'Central Act, and estimated the turnover of
the assessee under that Act at Rs. 1,22,916/- (22,916+1,00,000).
He also imposed on the assessee a penalty of Rs. 2,000/- under
the 'State Act' and a penalty of Rs. 1,500/- under the 'Central Act'
The assessee appealed against the reassessments made on him as
well as against the penalties imposed on him.
Those appeals
were dismissed by the, Appellate authority. The asseSsee took
up the matter in second appeal to the Board of Revenue, Madhya
Pradesh, Gwalior. The Board of Revenue set aside the penalty Otf
Rs. 1500/-imposed under the 'Central Act, but in other respects.
it rejected the appeal of the assessee.
Thereafter the Board,
partly at the instance of the assessee and partly at the instance of
the Commissioner,· submitted the four questions set out earlier to
the High Court.
Before proceeding to examine the contentions advanced on
behalf of the parties, it is necessary to clearify certain aspects. It
may be noted that the first assessments were made by the Sales.tax
Officer primarily on the basis of the returns
submitted by the
assessee. , In the proceedings relating to those assessments, the
Sales-tax Officer relied on the books of
account of the assessee.
While making reassessments on the basis of the information gatherred from the bill book seized, the Sales-tax Officer rejected the
accounts maintained by the assessee as unreliable and assessed
the assessee on the basis of his 'best judgment'. The distinction
between a 'best judgment' assessment and assessment based on
the accounts submitted by an assessee must be borne in mind.
Sometime there may be in<Docent or trivial mistakes in the accounts
maintained by the assessee. There may be even certain unintended
or unimportant omissions in those accounts; but yet the accounts
may be accepted as genuine and substantially correct.
In such
cases, the assessments are made on the basis of the accounts maintained even though the assessing officer may add
back to the
accounts price of items that might have been omitted to be included
in the accounts. In such a case, the assessment made is not a
· 'best-judgment' assessment.
It is primarily made on the basis of
the accounts maintained by the assessee. But when the assessing
1010
SUPREME· COURT REPORTS
[1973] 3 S,C.R.
officer comes to the conclusion that no reliance can be placed on
thC' accounts maintained biY the assessee, he proceeds to assess the
18801see on the basis of his 'best-judgment', In doing so. he may
take such assistance as the assessee's accounts may afford, he may
also. rely on other infonnation gathered by him as well as an the
surrounding circumstances of the case. The assessments made on
the basis of assessee's accounts and those made on 'best-judgment
basis are totally different types of assessments.
Now coming to the facts of this case, it is nece.ssal'y to
remember that at the initial stage, the assessee denied that the
bill book seized w'as his bHI book and the entries thel·ein related
to his dealings. He asserted that he had nothing to do with the
bill book in question and the entries therein do not relate to his
dealings. But at a later stage, he conceded that that 'bill book
was his and 1the entries 1heretn related to his dealings. It is now
proved as well as admitted that his dealings outstde his accounts
during a period of 19 days were of the value of Rs. 31,171.28.
From this circumstance, it was open to the Sales-tax Officer to
infer tb,at the assessee had large scale deaHngs oumde his accounts.
The assessee has neither pleaded nor established only jus~ifiable
reason for not entering in his accounts the dealings noted in the
bill book seized. It is obvious that he was maintaining false
accounts to evade payment of sales-tax. :&1 such a situation
it was not possible for the Sales-tax Officer to find out
precisely· the turnover suppressed.
He could only make
an estimate of the suppressed tum.over on the basis of the material
. before him.
So long as the estimate made by him is not arbitrary
and has nexus with facts discovered, the name cannot be questioned. In the very nature of things the estimate made may be an
over-estimate or an under-estimate.
But that is no ground for
interfering with his 'be~t judgment'. It is true that the basis adopted
by the officer should be relevant to the estimate made. The High
Court was wrong in assuming that the assessing authority must
have material before it to prove the exact turnover suppressed. If
that is true there is no question of best-judgment. The assessee cannot be pennitted to take advantage of his own illegal acts. It was
his duty to place all facts truthfully before the assessing authority.
If he fails to do his duty, he cannot be allowed to call upon the
assessing authority to prove conclusively what turnover, he had
suppressed. That fact must be within his personal knowledge.
Hence the burden of proving that fact is on him. No circumstance
has been placed before the assessing a~thority to show that the as-
&essee's deelings during 1-9-1960 to 19-9-1960 outside his accoul!ts
were due to some exceptional circumstance or that they were
proportionately more than his dealings outside his accm,mts, during
the remaining periods.
The assessing authority c;:ould not have
been in possession of any correct measure to find out the escaped
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turnover during the periods 1-11~1959 to 31-8-1960 and 20..9-1960
to 20-1 0-1960.· The task of the a$sessing authority ~finding out the
escaped turnover was by no means.easy. In estimating any escaped
turnover it is inevitable that there is some guess. work. The assessing authority while making the 'best-judgment' as8essment: no doubt
should arrive at its conclusion without any bias and on rational
blasis. That authority should not be vindictive or capricious. If the
. estimate made b~ the assessing authority is a bona fidt estimate and
is based on a rational basis, 'the fact the.t there is no good proof
m support of that estimate is immaterial. Prima 'facll, the IIIMI·
mg authority is the best judge of tho situation. It is his •best-j\ldgment' and not of any-on~ else's. 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 by the assessee were rightly
rejected
as
unreliable.
If they come to the conclusioo
Chat they were rightly rejected, the next question that arises for
consideration is whether the basis
adop~ed in -estimating the turnover has a reasonable nexus with the estimate made. If thebasis adopted is held to be a relevant basis even though the courts
may think that it is not the most appropriate basis, the estimate
made by the assessing authority can.not be disturbed.
In the
present case, there is no dispute that the assessee's accounts were
rightly discarded. We do not agree wi'th the High Court that it is
the duty of the assessing authority to adduce proof in support of'
its estimate. The b~is adoptOO by the Sales-tax Officer was a
relevant one whether it was the most appropriate or not. Hence·
the High Court was not justified in interfering with the same.
The Jaw relating to 'best-judgment' assessment is the same both
in the case of income-tax assessment as well as in the case of
sales-tax assessment. The scope of 'best-judgment' assessment
under the Income-tax law came up for consideration before the
Judicial Committee as early as 1937 in Commissioner of Incometax, Central and U.P. v. Laxminarain Badridas.(l). Therein Lord
Russel of Killowen speaking for the Judicial Committee observed
(at P- 180):
'The Officer is to make an assessment to the best of
his judgment against a perSon who is in default as
regardS supplying information.
He must not act dishoAestly, 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 assessm~nt, and for this purpose he must; their
Lordship think, be able to take into consideration local
knowledge and repute in regard to the assessee's circum0) 5.1.1 .R.l70.
1012
SUPREME. COURT kEPORTS
(i973) 3 S.C.R.
stances and his ·own. knowledge of 'previous returns . by
and ~essments 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 nec~s~ily be
guess--work ill the matter, it must be honest guess-work.
In that sense, too, the assessment must be to some
extent arbitrary.''
. .
·
In Raghubar Mandai Harihar Manda! v. The State of Bihar(1)
a case arising under the Bihar Sales Tax Act,
1944, the law
relating to 'best-judgment' assessment was examined at length by
this Court. Therein S. K. Das J. speaking for the Court observed
·(atp.778):
'
"No doubt it is true that when the r~turns 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 Ruessel 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:·
(emphasis supplil!d)
Proceeding further the learned judge quoted with approval the
observations of Din Mohamad J. in Ganga Ram Balmokand v.
Commissioner of Income-tax, Punjab (2) :
••rt cannot be denied that there must be some material
before the Income-tax Officer on which to base
his
estimate, but no hard and fast rule can be laid down
by the Court to define what sort of material is 'required
on which his estimate cnn be founded."
~ftcr quoting those ob~ervations, the learned judge proceeded to
oh.<;erve:
. "With that obc;crvation we generally agree. If. in
th1q case, the Sale'! Tax Authorities had based their
c<.rimate on some material ~fore them, no objection
could have been taken."
Armhin~~ the nJie laid down in Raelwbar Manclal
f[arihar
.'U,mdal'.f Cu'.4'! ( ~upra). to the f:.tcts of the present case it, i'l seen
---- .. ~
(I'}~'> T C -7111
f:!l S I. T.R. 46-l.
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1013
that the. Sales~ tax Otfi.ce,r had material bef~re him t~ find out, how
much turnover had escaped assessment dunng a penod of 19 days.
On the baSis. of that material he estimated 'the escaped turnover
for the entire year. Hence it cannot be said that there was no
basis for the estimate made by the Sales-tax Officer.
~t may be
· that ·his estimate was an over-estimate or an under-estJm~te but
it" cannot be said that 'the estimate was without any basis. .In
making that estimate, there was an element of guess-work winch
was inevitable in the circumstances of the case. If the Sales-tax
Officer was compelled. to adopt a: rule of thumb which in a sense
is an arbitrary rule, assessee was entirely responsible for that
situation.
In State of Kerala v. C. Velukutty,(L) this Court speaking
through Subba Rao J. (as he then was) observed (at p. 244 of
the Report) :
•
"The limits of the power are implicit in tl1e expression "best of his iudgment". 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 clement of gues.;-work in
a "best judgment assessment". It shall not be a wild
one, but shall have a reasonable nexus to the available
muterial and the circumstances of each case."
The question before us is whether there is a r.::as0nable nexus
betwee-n the basis adopted by the assessing authority and
the
estimate of escupcd turnover mude. We have no doubt that there
is such a nexus.
On behalf of the assessee, reliance was placed on the decision .
of this Court in Commissioner of Income-tax, JV est ·Bengal v.
Pctdamclrand Ramgopal( 1). Therein, while investigating ·into the
case of l11c assessee, the Income-tax Ollicer found two insignificant
1rustakcs in the asscssees accounts relating to the assessment year
1953-54. No mistakes were fOlmd in the accounts rel.atincr to the
assessment years 1954-55 to 1957-58.
Merely because"' therl!
were some insignificant mistakes in the- accoums maintained by the
as~ssce for the assessment year 1953-54, the Income-tax Otncer
reJected the acc{)unts of the assessee for all the cotic.:m..:d assessment year> and added to the income returned half the amount of
gro~s receipts shown by the assessee under the head "interest''
for eac~ _of the years ~s escaped lr1comc. The Tribunal upheld
the _u~dtttOn but the H1p.h Court came to the conclusion that the
add1hons made by the Income-tax Officer were quite arbitrary.
Thi~ Court agreed with that view. We do not think that the said
decision lends any support to the assessee's contention.
(I) 60 I,T.R.23<1
fl) 76 I.T.R.7I9.
1 014
SUPREME COURT REPORTS
(1973] 3 S.C.R.
For the reasons mentioned ab~ve, we are unable to agree with
A
· Jhe High Court that the Saks-tax Officer had arbitrarily assessed
1J1e assessee. .
lt was next contended that in a re-assessment under s. 19 ( l J
.of ·the Act, Sale-tax Officer was not competent to make 'bestjudgment assessment' as no such power was conferred on him
under the said section. This contention had been rejected by the
B
High Coi.Jrt and 'the assessee had not appealed against that part
of the judgment. Be that as it may, even though s. 19 does not
in specific terms confer on the assessing. authority power to make
'best-judgment assessment' that section specifically says that th~
assessment made under that section is a re-assessment.
Section
18 deals with assessment of tax. Section 18 ( 4) says :
c
"lf a registered dealer-
(a) X
X
X
X
(b) X
X
X
X
(C) X
X
X
X
(d) has not maintained any account or has not
regularly employed any method of acQounting, or if
the method employed is such that in the opinion of the
Commis!iioncr assessment cannot properly be made on
the b<tsis thereof; the Commissioner shall in the prescribed manner assess the dealer to the best of his judgment.''
What is true of the ao;sessment must also be true of rc<.hscssment because reasessment is nothing but a
fresh
assessment.
When reassessment is made under s. 19, the former assessment i-i
completely reopened and jn its place fresh assessment is madl!.
While rcasscs!>ing a dealer, the ~-;sessing authority does not merely
a~sess him on the escaped turnover c!ut it assesses him on his
total estimated turnover.
While making reassessment under s. 19,
it the asses~ing authority has no power to make best judgment
assessment, all that the assessee need do to escape reassessment i~
to refuse to file a return or refuse to produce his account-books.
If the contention taken on khalt of the ussesscc is correct, the
assessee can escape hie; liability to be rco:~sscssed bv adoptin" an
ob~lructive attitude. lt is difficult to conceive that such could be
the position in bw.
Before maling rea~scs!>mcnt, the assessing authority hJs H•.
undtr rule 33(1) framed under the Act, Ctlll upon the uo;c;css.:~ to
priJJuce his books of ;~ccount and other documl!nts \\hi("h
th~
" ~'c,~ing ~uthority may r~uire and any evidcm:o: '' hich the JeJkr
may .,.. !"~ to produce in ~upp:)ft of his objection.
When ~uch a
nviH.:c ·'" ~>~ ucJ to the dealer, he may appear before the assessing
:JLHlHJrtly Pn the date fixell in the notice and prefer his objections
[)
G
II
I 015
C.S.T. V, H.M. ESUF".L! (H
'
egde, J.)
and p~oduce such evid~:1cc as he m
.
(2) of rule 33 provides that if the a ay thrnk necessary. Sub-rule
rhe notice under s. 33 (I ) the asse~s~~'See appears in response to
assessment, if necessary o~ly after c~~m% a~thority may make ret<i by the dealer and ~fter examinin~
51
er~ng t.he objections rais-
. produced by him.
Jt is important to~ ~uc
e~rdence a~ may be
ll
the assessing authority is required to is~u~dhat Hl the notr7e which
1 6, the ex~ent of the escaped turnover as
~? t~e ~caler In form
ing authonty has to be specified
The es rmdate
bY: the assess-
-,
33
ld
t h
b
,
proce ure lard down in
rue
cou
no
ave een a mere empty f
r
c
D
assessee's contention is right in order t oesca ~rma lty. If the
h
d d -: ' .
p-. reassessment all
that t e assessee nee
o 1s to rgn_ore the notice issued under rule
33 ( 1) and refuse to ~o-operate wrth the assessing authority in the
rca~sessment. proc_eedmgs.
We are unable to accept that tha ·s
the true posrtron rn law.
t r.
.
In our opinion the decision of th~ Andra Pradesh High Court
10 State of A ndhra Pradesh v. Bavun V. Narasimhan,(') relied on
by the assessee was not correctly decided.
For the reasons mentioned above, we altow the;c appeals,
vacate the answers given by the High Court to Que:;tions Nos.
I and 3 and answer those questions in favour of the Department
i.e, that the estimate of taxable turnover under the 'State Act
and the 'Central Act' m:tde by the assessing authority for the .
period from November l, 1959 to October 20, 1960 on the basis
E of Rs. 31,171.28 as tlie escaped turnover for a period of 19 days
was legal and justified and consequently the penalty of Rs. 2,000/-
imposed on the assessee was in accordance with law. The asscss:e ~
shall pay the costs of the Department both in this Court and m
the High Court.
G.C.
Appeals allowed.
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.16 S.T.C.5
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