2017 (12) TMI 1782 - HC - VAT and Sales Tax

Restoration of view taken by the Assessing Authority - addition of turnover and re-assessment - estimation of turnover based solely on surmises and conjectures - HELD THAT - It is not disputed that the solitary bill was numbered 114 and dated 14 February 1999. On this basis the Assessing Authority as well as the Tribunal have incorrectly proceeded to assume that 113 additional transactions were presumably undertaken by the assessee. They have also further and for reasons which cannot possibly be countenanced or accepted proceeded to hold that all these 113 transactions would have been valued at ₹ 60,770/-. The Court is constrained to observe that this line of reasoning is totally arbitrary and cannot possibly ever appeal to logic let alone acceptance in judicial proceedings. Both the Assessing Authority as well as the Tribunal have proceeded in the matter without being educated by the principles which must necessarily govern a best judgment assessment. While it is true that in the course of estimation of turnover a certain degree of guess work must necessarily be recognized as vesting and inhering in the hands of the Assessing Authority, the same cannot possibly be construed as conferring a power to estimate turnover in a wholly whimsical manner as has been done in the facts of the present case. The estimation of turnover of ₹ 10,00,000/- is based solely on surmises and conjectures. The mere fact that the bill in question bore the number 114, cannot automatically lead one to conclude or hold that it was preceded by 113 prior transactions and that too of identical value. Such a process of determination and assessment in the case of a taxing statute cannot be accorded approval by this Court. The order of the Tribunal as well as the Assessing Authority dated 9 February 2007 and 24 December 2004 respectively, shall stand set aside and the decision of the First Appellate Authority dated 25 August 2006 shall stand restored - Revision allowed.

Summary

Issues:
1. Revision against Tribunal's judgment.
2. Estimation of escaped turnover based on a single bill.
3. Application of principles governing best judgment assessment.

Analysis:
The judgment involves a revision challenging a Tribunal's decision that set aside the First Appellate Authority's judgment and upheld the Assessing Authority's estimation of escaped turnover. The case revolved around a bill dated 14 February 1999 amounting to &8377; 60,770, leading the Assessing Authority to estimate the escaped turnover at &8377; 10,00,000 based on assumptions of 113 similar transactions. The First Appellate Authority annulled this addition, citing lack of justification for such estimation. However, the Tribunal supported the Assessing Authority's view, prompting the High Court to intervene.

The High Court criticized the arbitrary reasoning of assuming 113 additional transactions valued at &8377; 60,770 each based on a single bill numbered 114. It emphasized the necessity of principles governing best judgment assessment, highlighting that while some guesswork is permissible, it should not lead to wholly whimsical estimations. The Court deemed the estimation of &8377; 10,00,000 solely on surmises and conjectures as unacceptable in judicial proceedings. It emphasized that the mere sequential numbering of bills cannot justify such assumptions and held that such an approach is illogical and not in line with the principles of a taxing statute.

In conclusion, the High Court allowed the revision, setting aside the Tribunal and Assessing Authority's orders while restoring the decision of the First Appellate Authority. The judgment underscores the importance of applying sound principles in best judgment assessments and cautions against arbitrary estimations based on flimsy grounds, emphasizing the need for logical and justifiable reasoning in tax assessments.