1968 (10) TMI 96 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Jurisdiction of the Sales Tax Officer to initiate reassessment proceedings under Section 21 of the U.P. Sales Tax Act.
2. Validity of the belief that taxable turnover had escaped assessment.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Sales Tax Officer to Initiate Reassessment Proceedings:
The first issue raised was whether Sri M.L. Gupta, Sales Tax Officer, Etawah, had the jurisdiction to initiate reassessment proceedings under Section 21 of the U.P. Sales Tax Act when the original assessments were made by Sri J.C. Sinha, Assistant Sales Tax Officer, Etawah. The court referred this question to a larger bench, which concluded: "It was open to Sri M.L. Gupta, Sales Tax Officer, Etawah, to initiate and take proceedings against the petitioner under section 21, U.P. Sales Tax Act, in spite of the fact that original assessment of the petitioner had been done by Sri J.C. Sinha, Assistant Sales Tax Officer, Etawah." Based on this, the first contention of the petitioner was rejected.

2. Validity of the Belief that Taxable Turnover Had Escaped Assessment:
The second issue concerned whether the Sales Tax Officer had a bona fide reason to believe that any taxable turnover had escaped assessment, as required under Section 21(1) of the U.P. Sales Tax Act. The petitioner argued that the notices were issued out of malice and with the ulterior motive of gathering material for a pending criminal case. The court examined whether the Sales Tax Officer had the requisite "reason to believe" based on relevant material.

Section 21(1) of the Act, similar to Section 34(1)(a) of the Income-tax Act, 1922, requires the assessing authority to have reason to believe that the turnover has escaped assessment. The court cited precedents, including the Supreme Court's rulings in Calcutta Discount Company and S. Narayanappa, which established that the belief must be based on relevant material and not be a mere pretence.

In this case, the court scrutinized the affidavits and the survey diary of Sri M.L. Gupta. The affidavits contained general statements about "suspicious entries" and "gross underestimation of stocks," but lacked specific details or instances of such entries. The court noted that no inventory was prepared during the survey, making it difficult to substantiate the claim of stock undervaluation. The survey diary also failed to provide any concrete material supporting the belief of escapement of turnover.

The court emphasized that the belief must be based on relevant material and not be arbitrary or capricious. The lack of specific and definite material in this case led the court to conclude that the conditions precedent for the exercise of jurisdiction under Section 21 were not satisfied. Consequently, the court quashed the impugned notices under Section 21 of the Act dated 5th March, 1966, for the assessment years 1960-61 to 1964-65, and prohibited the Sales Tax Officer from taking any action based on these notices.

Conclusion:
The court allowed the writ petitions, quashing the reassessment notices and prohibiting further action based on them. The petitioner was awarded costs. The judgment underscores the necessity for tax authorities to base their belief of escaped assessment on concrete and specific material, ensuring that such belief is not arbitrary or capricious.