1999 (1) TMI 502 - HC - VAT and Sales Tax

Summary

Issues:
1. Assessment of turnover using the average running stock method in the jewellery account.

Analysis:
The case involved a tax revision related to the assessment year 1986-87 where the assessing officer resorted to the average running stock method in the jewellery account of a dealer in textile and jewellery items. The assessing authority rejected the book version of the assessee due to certain defects and made an addition to the extent of four times the average running stock, later reduced to two times by the appellate authority and affirmed by the Tribunal. During an inspection, a discrepancy of 4.200 grams worth Rs. 996.60 was found, leading the assessing officer to infer unaccounted purchases and sales. The main contention raised was the insignificance of the difference in gold ornaments, questioning the validity of using the average running stock method in such a scenario.

In the case of C. Kunhikannan v. State of Kerala 1996, the court highlighted that the estimation of turnover using the running stock method should be based on the specific facts of each case and cannot be applied uniformly. The court emphasized that the application of the average running stock method must be substantiated by reasons related to the case's circumstances. In the present case, the application of the average running stock method resulted in a significant addition to the turnover, exceeding Rs. 1 lakh.

The High Court, after careful consideration, concluded that the case required reconsideration. It was emphasized that before resorting to the average running stock method, the assessing authority must provide cogent reasons justifying its application. The court reiterated that the average running stock method is not a universal rule and its application should be based on the specific facts and circumstances of each case. As the reasons for using this method were not adequately provided by the assessing authority or the appellate authority, the Tribunal's order was set aside. The case was remitted to the Tribunal with directions to reassess the application of the average running stock method based on the facts and circumstances of the case.

In the final decision, the court allowed the petition, emphasizing the importance of providing detailed reasons for resorting to the average running stock method in assessing turnover, thereby ensuring a fair and justified evaluation in tax revision cases.