2019 (7) TMI 1199 - HC - VAT and Sales Tax

Best Judgement assessment - rejection of books of accounts - books could not be produced during one survey though stock found at the time of survey was found to be far less than that found in the recorded account books during the assessment proceedings - HELD THAT - Other than that survey, there is no other incriminating material available against the assessee as may warrant rejection of his books of account. Coming to the survey itself, the only defect noted was of the account books having not been produced. Thus, in that survey, no incriminating material was discovered against the assessee. While rejection of books of account may have been in order if the stock physically found was excess of that which was found recorded in the books of account, however, in view of the opposite fact being in existence, the opposite conclusion of acceptance of the goods appears to be wholly justified in view of the complete absence of any other incriminating material or circumstance to establish that the assessee was engaged in trading or sale of goods outside its books of account or to doubt the correctness of the books of account. The question of law, as framed above, is answered in the negative i.e. in favour of the assessee and against the revenue - revision allowed.

Summary

Issues:
- Rejection of books of account during assessment proceedings
- Best judgment assessment made by assessing authority
- Question of law regarding rejection of account books

Analysis:

Issue 1: Rejection of books of account during assessment proceedings
The assessee, engaged in trading food grains and manufactured rice during the assessment year 2003-04, faced a situation where a survey conducted at their business premises noted a defect due to the non-production of account books. However, no other discrepancies or incriminating materials were found during the survey to suggest any illegal activities beyond the recorded accounts. The assessee later produced the account books during the assessment proceedings, explaining the reason for their non-production during the survey. Upon examination, no discrepancies were found in the account books, and it was revealed that the assessee had actually accounted for more stock than was found during the survey. Despite this, the assessing authority rejected the books of account, leading to a best judgment assessment.

Issue 2: Best judgment assessment made by assessing authority
The assessing authority's decision to reject the account books was affirmed by the Tribunal. The counsel for the assessee argued that the rejection was unjustified as there were no defects or materials indicating the presence of duplicate accounts or undisclosed turnover. It was contended that the higher stock in the account books compared to the survey findings was evidence of the assessee's compliance and not engagement in illegal activities. On the other hand, the Standing Counsel argued that the non-production of account books during the survey implied a lack of actual maintenance, justifying the rejection. Additionally, the discrepancy between the recorded stock and the survey findings was seen as an admission of incomplete accounts, warranting the best judgment assessment.

Issue 3: Question of law regarding rejection of account books
The Court, after considering the arguments and perusing the record, found that apart from the single survey conducted, there was no other incriminating material against the assessee to justify the rejection of the account books. The only noted defect during the survey was the non-production of account books. Upon examination of the produced account books, it was revealed that the assessee had actually recorded more goods than were physically present during the survey. This discrepancy indicated the accuracy of the accounts rather than any malpractice. The Court concluded that the rejection of the account books and the subsequent estimation of turnover lacked evidentiary basis and were based on conjectures. Therefore, the question of law was answered in favor of the assessee, leading to the allowance of the revision.

In conclusion, the judgment highlighted the importance of assessing the actual circumstances and evidence before making a best judgment assessment, emphasizing the need for concrete proof to reject account books and estimate turnover.