2019 (7) TMI 194 - HC - VAT and Sales Tax

Rejection of Books of accounts - rejection on the basis of surmises and conjectures - Whether even otherwise the selling rate of coal could have been enhanced by making addition to the freight charges in absence of any material in support thereof? - HELD THAT - Perusal of the assessment order reveals that the reason for making the enhancement to the freight charges is only one, being non-production of part freight receipts. Even if that reason can be accepted as a reason to make the estimation, the assessment order does not disclose the basis on which the enhancement had been made to the freight charges. Neither there is any exemplar relied upon by the Assessing Authority nor there is any intimation received from the seller or transporter or railways in support of the conclusion reached with respect to suppression of the freight charges - answered in the negative i.e. in favour of the revenue and against the assessee. HELD THAT - It is vital in the facts of the present case that the entire quantities of coal had been produced by the assessee from a single purchaser from M/S Bharat Coking Coal Ltd., Dhanbad. Some freight receipts had also been produced by the assessee disclosing the freight charges paid to that seller that have not been doubted or disbelieved. The Assessing Authority could not have recorded a subjective satisfaction that there was suppression of freight charges. The same mistake has been committed by the first appellate authority in affirming the findings with respect to suppression of freight charges - The enhancement made on account of freight charges is clearly unsustainable as it is not based on any material or valid consideration. Rather, the same is found to have been made on purely subjective satisfaction devoid of any evidentiary basis - answered in the negative i.e. in favour of the assessee and against the revenue. Revision allowed in part.

Summary

Issues:
1. Rejection of books of account based on surmises and conjectures.
2. Enhancement of selling rate of coal by adding to freight charges without proper material support.

Analysis:
1. The revision was filed against the Trade Tax Tribunal's order, where the assessee's books of account were rejected during the assessment due to doubts regarding manufacturing account and purchase of coal, specifically related to freight charges. The Assessing Authority estimated the total taxable turnover at ?3,17,00,000, which was later reduced to ?2,36,25,500 by the first appellate authority. The assessee argued that rejection based on non-production of some freight receipts was unjustified as they had produced similar receipts from the same seller for the same transactions. The Tribunal erred in assuming non-production of freight receipts. The Tribunal upheld the rejection based on other discrepancies, including transit loss and manufacturing account additions.

2. The revenue contended that all freight receipts should have been produced to establish the purchase value. The rejection of books was justified due to unexplained discrepancies like transit loss and manufacturing account additions. The estimation of turnover was deemed necessary due to the rejection of books, and enhancement was made due to non-production of all freight receipts. The court found that the rejection was not solely based on a single defect in freight receipts but also on other unexplained discrepancies like transit loss and manufacturing account issues.

3. While best judgment assessments require some guesswork, the enhancement of freight charges lacked a valid basis. The Assessing Authority failed to provide any material supporting the enhancement, and the reasons given were insufficient. The entire coal quantity was purchased from a single seller, and some freight receipts were produced without doubt. The authorities wrongly concluded suppression of freight charges without substantial evidence. The enhancement of freight charges was deemed unsustainable and based on subjective satisfaction without evidentiary support.

4. The court answered the questions of law against the assessee regarding the rejection of books based on surmises but in favor of the assessee regarding the enhancement of selling rate by adding to freight charges. The court directed the deletion of the addition to inward freight charges of coal and consequent adjustment to the selling price, partially allowing the revision.