1970 (2) TMI 149 - HC - VAT and Sales Tax

Summary

Issues:
Whether the Tribunal was justified in rejecting the books of account solely based on a low percentage of profit when the accounts were otherwise deemed to have no defects.

Analysis:
The judgment pertains to a case where the account books of a dealer were rejected by the Assistant Commissioner of Sales Tax primarily due to a low margin of profit shown in the books, despite the accounts having no other defects. The Sales Tax Tribunal upheld this rejection based on the profit margin being less than 2 percent, deeming the account books as not genuine. The dealer contended that this decision was contrary to law, arguing that low profits alone cannot be a valid ground to declare the account books as not genuine.

The High Court, in its analysis, criticized the Tribunal's decision, stating that the margin of profit alone cannot be a conclusive factor in determining the authenticity of account books. The Court emphasized that various factors could influence profit margins, such as market competition or strategic business decisions. Referring to a previous decision, the Court highlighted that low profits should serve as a warning to tax authorities to scrutinize the accounts more thoroughly rather than a reason to outright reject them.

Furthermore, the Court referenced a Supreme Court case to underscore that while tax avoidance through legal means is permissible, the mere accrual of low profits does not automatically render account books as improperly maintained. The Court concluded that the Tribunal erred in rejecting the books of account solely based on the low profit margin shown, emphasizing that the taxing authority must provide valid reasons for such a declaration.

In the final ruling, the Court answered the referred question in the negative, indicating that the Tribunal's decision to reject the account books was unjustified. The Court ordered no costs, and the reference fee deposited was to be refunded to the petitioner. Judge Sachidananda Acharya concurred with the decision, indicating unanimous agreement on the matter.