2016 (8) TMI 1115 - HC - VAT and Sales Tax

Best judgment assessment - Rejection of accounts - Held that - Assessing authority did not lay its hand or rest his estimation on any material that may have been found in the possession of the assessee. While it was open to him to undertake an assessment to the best of his judgment consequent to the rejection of account, the same could not have been based on surmises and conjectures. It is settled law that while a best judgment assessment necessarily entails an exercise of estimation which may be tinged with a degree of guess work, the same cannot be completely disengaged or unconnected with material maintained and disclosed by the assessee. The estimation itself which had to be made to the best judgment of the assessing authority has to be a judicious and empirical exercise. In the facts of the present case the enhancement of the turnover to ₹ 3,00,000, its subsequent reduction by the first appellate authority to 2,30,000/- is not based on any material or evidence that may have been collected or which may have been found during the course of assessment. Such an assessment far from being characterized as one having been made to the best of the judgment of the authority, can only be described as capricious and whimsical. The orders in the opinion of this Court cannot be sustained

Summary

Issues:
Validity of order passed by Tribunal affirming best judgment assessment based on rejection of books of account for failure to maintain mandatory manufacturing account register under U.P. Trade Tax Act, 1948.

Analysis:
The revisionist challenged the validity of an order by the Tribunal affirming a best judgment assessment by the assessing authority, which rejected the books of account due to the failure to maintain a manufacturing account register as required by the U.P. Trade Tax Act, 1948. The assessing authority proceeded to enhance the disclosed purchases and sales of the assessee based on estimation, leading to a dispute over the assessment process.

The revisionist argued that the best judgment assessment should have been supported by material or evidence, contending that the authorities did not rely on any such contemporaneous evidence to justify the estimation. The counsel highlighted that there was no indication of tax evasion by the revisionist and pointed out that the Department had accepted the books of account for the subsequent year, raising questions about the basis for the enhanced assessment.

On the other hand, the Standing Counsel defended the assessing authority's estimation, stating that once the books of account were rejected, estimation of turnover became necessary. However, the revisionist emphasized the lack of material or evidence supporting the enhanced turnover figure, leading to a challenge of the assessment process.

The Court referred to a Division Bench ruling stating that the rejection of books of account does not automatically justify an increase in disclosed turnover, emphasizing the need for a best judgment assessment based on reasonable estimates derived from relevant facts and circumstances. The Court criticized the assessing authority for not basing the estimation on any material found in the possession of the assessee, highlighting that a best judgment assessment should involve a judicious and empirical exercise, not mere guesswork.

Ultimately, the Court allowed the revision, setting aside the orders of the Tribunal, first appellate authority, and assessing authority, and granting the assessing authority the opportunity to proceed in accordance with the law. The judgment emphasized the importance of a well-founded best judgment assessment supported by material and reasonable estimation principles, rather than arbitrary or whimsical decisions.