2008 (1) TMI 848 - HC - VAT and Sales Tax

Whether, on the facts and in the circumstances of the case, the rejection of books of account is based on relevant considerations? Whether the estimate of the turnover is legally justified and is based on material? Whether the Tribunal is legally justified in taking firing period at 100 days while 94 days has been admitted and in estimating production at 9,50,000 bricks as against the disclosed production of 9,10,000 bricks? Whether the estimate of average selling rate at ₹ 405 per thousand bricks is based on any material and is legally justified, inasmuch as the sales are completely verifiable? Held that - Merely because the Tribunal has mentioned that non-maintaining of other account books could lead to the rejection of account books it cannot be said that rejection of account books was bad. There were other reasons also. The Tribunal has only affirmed the findings of the lower authorities. The next submission with regard to the selling rate also does not have any merit inasmuch as once the account books were rejected even the cash memo submitted by the dealer stood rejected and, therefore, assessment with regard to the selling rate has to be made. Even the learned Standing Counsel could not explain the figure of 100 having been mentioned by the Tribunal after accepting the firing period declared by the dealer. Thus the firing period declared by the dealer is accepted. In view of the reasoning of the Tribunal it is held that the total firing period of the relevant assessment year was only 94. Thus the revision deserves to be allowed on question No. 3 alone. Revision partly allowed.The order of the Tribunal accordingly stands modified. The Tribunal will redetermine or recompute the turnover treating the firing period as 94 days and pass appropriate orders.

Summary

Issues:
1. Rejection of account books based on relevant considerations.
2. Justification of turnover estimate and material basis.
3. Legality of firing period determination and production estimate.
4. Validity of selling rate estimation and verifiability.

Issue 1: Rejection of Account Books
The dealer challenged the rejection of account books by the assessing officer, contending that maintaining profit and loss account, cash book, and ledger were not mandatory under section 12 of the Act. The dealer argued that the rejection was unjustified as essential books were maintained. The court noted that the rejection was not solely due to incomplete records but also because the dealer failed to produce account books during surveys, leading to discrepancies between stock, sales, and firing period. The court upheld the rejection, emphasizing other valid reasons beyond incomplete records.

Issue 2: Turnover Estimate and Material Basis
The dealer disputed the turnover estimate based on firing period, selling rate, and production capacity. The assessing officer determined the turnover at Rs. 2,25,000, later reduced to Rs. 1,77,530 by the appellate authority, and further to Rs. 1,60,000 by the Tribunal. The court found that the Tribunal's reduction of the firing period from 104 to 100 days was erroneous, as the dealer had declared a 94-day period. Consequently, the turnover was recalculated at Rs. 1,60,000, leading to a revised tax liability of Rs. 14,080.

Issue 3: Firing Period Determination and Production Estimate
The Tribunal's error in fixing the firing period at 100 days instead of the declared 94 days was a crucial issue. The court observed that the Tribunal accepted the dealer's declared firing period but mistakenly noted it as 100 days. By rectifying this error, the court affirmed the firing period as 94 days, aligning with the dealer's declaration. This correction influenced the turnover calculation and tax liability adjustments.

Issue 4: Selling Rate Estimation and Verifiability
The dealer argued that the disclosed selling rate was supported by cash memos and should not have been altered without valid reasons. However, the court clarified that once account books were rejected, the selling rate based on cash memos also lost credibility. The court distinguished a previous judgment where the cash memo was not disbelieved, emphasizing that without valid account books, the assessment authority had the discretion to determine the selling rate. Consequently, the court upheld the revised turnover and tax liability based on the corrected firing period.