1969 (2) TMI 167 - HC - VAT and Sales Tax

Summary

Issues:
Assessment under U.P. Sales Tax Rules, Ex parte assessment, Notices for production of account books, Jurisdiction of Sales Tax Officer, Initiation of proceedings under section 21, Limitation period for assessment, Honest belief for turnover assessment.

Analysis:
The judgment by the High Court of Allahabad involved the assessment of an assessee, M/s. Bhagwan Industries Private Limited, for the year 1957-58 under rule 41(5) of the U.P. Sales Tax Rules. The assessment was made ex parte due to the non-production of account books by the assessee. Subsequently, notices were issued by the Sales Tax Officer on multiple occasions, calling for the production of account books to verify certain transactions. The Sales Tax Officer then proceeded to issue a notice under section 21, fixing a hearing date for assessment. The assessment order was made on March 19, 1963, estimating the total net turnover at Rs. 84,50,000 for the year 1957-58. An appeal by the assessee was dismissed, leading to a revision application challenging the jurisdiction of the Sales Tax Officer under section 21 and the limitation period for assessment.

The first question raised was whether the assessing officer had an honest belief that the turnover had partially escaped taxation to initiate proceedings under section 21. The court analyzed the circumstances leading to the initiation of proceedings and concluded that suspicion alone cannot be the basis for invoking section 21. The court emphasized that there must be a "reason to believe" based on reasonable grounds, not mere suspicion. The court found that the assessing officer did not have sufficient grounds to believe that the turnover had been under-assessed.

The second question revolved around whether the preliminary notices for the production of account books could be considered as notices under section 21, affecting the limitation period for assessment. The court determined that the initial notices were not intended to be under section 21 and were issued separately. Therefore, these preliminary notices did not impact the limitation period for assessing the escaped turnover. The court answered both questions in the negative, ruling in favor of the assessee.

In conclusion, the court held that the assessing officer lacked an honest belief for initiating proceedings under section 21 and clarified that the preliminary notices were distinct from the notice issued under section 21, impacting the limitation period for assessment. The court ruled in favor of the assessee, granting costs and counsel fees.