1974 (2) TMI 62 - HC - VAT and Sales Tax

Summary

Issues:
- Interpretation of best judgment assessment under section 12(2) of the Orissa Sales Tax Act, 1947.
- Validity of enhancing turnover based on suppressions found in accounts.
- Determination of the quantum of enhancement in best judgment assessment.

Analysis:

Interpretation of Best Judgment Assessment under Section 12(2):
The case involved a reference made by the Member, Sales Tax Tribunal, regarding the correctness of a best judgment assessment under section 12(2) of the Orissa Sales Tax Act. The question arose as to whether the assessing authority was entitled to complete assessments using the best judgment method when the assessee had made a return and complied with the terms of the notices issued under sub-section (2) of section 12. The court examined the provisions of section 12 and held that the assessing authority could resort to best judgment assessment if the terms of the notices were not complied with to the satisfaction of the authority. The court emphasized that compliance with the notice terms is determined by the assessing authority, and failure to comply could lead to assessments based on best judgment. The decision was supported by precedents from the Patna High Court and the Orissa High Court, reinforcing the authority's discretion in completing assessments under best judgment.

Validity of Enhancing Turnover Based on Suppressions:
The assessing authority had found suppressions in the accounts of the assessee and completed best judgment assessments by enhancing the turnover significantly. The court acknowledged that the assessee had suppressed transactions, leading to the rejection of accounts and best judgment assessments. The court noted that the power to assess based on best judgment is conferred in cases where compliance with notice terms is lacking, as seen in sub-sections (3) and (4) of section 12. The court cited relevant case law and emphasized that the assessing authority had the discretion to complete assessments based on best judgment when explanations provided by the assessee were not accepted. The court upheld the assessing authority's right to enhance turnover in such cases, provided an honest estimate was made regarding the probable suppressions during the relevant accounting period.

Determination of Quantum of Enhancement in Best Judgment Assessment:
Regarding the quantum of enhancement in best judgment assessments, the Tribunal had justified the increase in turnover by considering the possibility of further suppressions beyond those detected. The court referred to a Supreme Court decision emphasizing that the best judgment lies with the assessing authority and not the court. It was highlighted that every assessing officer must make an honest attempt to estimate the actual turnover, and as long as the assessment is not arbitrary and is based on a reasonable estimate, interference is unwarranted. The court found that the assessing authority had made a genuine effort to determine the actual turnover, considering both disclosed and undisclosed transactions. The court agreed with the Tribunal's decision to confirm the enhancement, based on the facts and circumstances of the case, and concluded that the Tribunal was correct in law in upholding the enhancement.

In conclusion, the court answered the reference question affirmatively, stating that the Tribunal was correct in law in confirming the enhancement based on the suppressions found in the accounts. Each party was directed to bear their own costs, and the reference was answered accordingly.