1986 (12) TMI 337 - HC - VAT and Sales Tax

Summary

Issues:
1. Justification of rejection of accounts and completion of assessment on the basis of best judgment.
2. Interpretation of section 12(4) of the Orissa Sales Tax Act, 1947 regarding assessment of tax.
3. Comparison between assessment based on accounts and assessment to the best of judgment.

Issue 1: Justification of rejection of accounts and completion of assessment on the basis of best judgment

The case involved an application under section 24(1) of the Orissa Sales Tax Act, 1947, where the Tribunal had to decide whether the rejection of accounts and completion of assessment on the basis of best judgment were proper. The assessing officer had rejected the books of accounts of the dealer and enhanced the gross turnover by 10% based on an inspecting officer's report. The Tribunal upheld the assessment, leading to the reference to the High Court. The High Court ruled that rejection of accounts based on erroneous findings contrary to the record was not justified, indicating that the accounts of the dealer were accurate. However, the Court also explained that assessment to the best of judgment under section 12(4) is a statutory mandate when a dealer fails to furnish returns, and in such cases, the assessing authority has the right to complete the assessment based on their judgment. The Court emphasized that assessment on the best judgment basis is distinct from assessment based on accounts, and the former is valid under the law even if the accounts are maintained correctly.

Issue 2: Interpretation of section 12(4) of the Orissa Sales Tax Act, 1947 regarding assessment of tax

Section 12(4) of the Act empowers the Commissioner to assess the tax amount due from a registered dealer to the best of his judgment if the dealer fails to furnish returns by the prescribed date. The Court clarified that this provision mandates assessment based on the assessing authority's judgment in cases of non-compliance by the dealer, and the authority has the discretion to estimate the turnover based on the available materials. The Court highlighted that the legislative intent behind section 12(4) is to ensure proper assessment even in the absence of accurate accounts from the dealer, and equity considerations do not apply in such statutory assessments.

Issue 3: Comparison between assessment based on accounts and assessment to the best of judgment

The Court distinguished between assessments based on accounts and assessments to the best of judgment, stating that the latter involves a discretionary estimation by the assessing authority when the dealer fails to comply with the notice requirements. The judgment cited precedents under the Income-tax Act and other Sales Tax Acts to emphasize that the assessing officer must make a fair estimate based on available information and local knowledge. The Court reiterated that in best judgment assessments, there may be some guesswork involved, but as long as the estimate is rational and not arbitrary, it is deemed valid under the law. The Court concluded that in the present case, the best judgment assessment made by the Tribunal was proper, as there were no allegations of bias, vindictiveness, or capriciousness in the assessment process.

In conclusion, the High Court answered the reference against the assessee, upholding the Tribunal's best judgment assessment as valid under section 12(4) of the Orissa Sales Tax Act, 1947.