2019 (7) TMI 1201 - HC - VAT and Sales Tax

Best Judgement Assessment - rejection of books of accounts - estimation of undisclosed turn over of medicines - imposition of penalty - HELD THAT - The penalty had been imposed on the assessee on the allegation of the goods being not properly accounted for and that penalty has been sustained upto this Court, the books of account of the assessee are found to have been rightly rejected. However, rejection of the books of account may not lead to any fanciful or exaggerated conclusion as to quantification of the turnover. It is settled principle in law, though certain guess work is necessarily involved in the course of making a best judgment assessment, however that guess work must be informed with reasons and based on cogent material and evidence on record. This rule of prudence introduces rationality and proportionality in the estimation made by the assessing authority with reference to the infraction of law noted or detected by him - Keeping that in mind it does appear, in absence of any other material on similar transactions having been performed by the assessee during the assessment year in question, the assessing authority and the appeal authority have not been right in contemplating and allowing for more than ten fold increase in the turn over. It does not appear proper that the estimation of the turn over may have been made and sustained at ₹ 3,50,000/-. Normally, the matter would have been remitted to the appeal authority to make a fresh assessment in light of the observations made above, without making any observation as to the estimation made by the authority. However, the present is a case of A.Y. 1997-98, the legislation itself has undergone two changes upon introduction of the VAT Act and thereafter GST regime - In such facts, no useful purpose would be served in remitting the matter to the authority to pass a fresh order at this belated stage after more than 20 years of the close of the assessment year. Appeal allowed in part.

Summary

Issues:
Challenging best judgment assessment order, Rejection of books of account, Estimation of undisclosed turnover

Challenging best judgment assessment order:
The revision was filed against the Trade Tax Tribunal's order upholding the best judgment assessment order. The assessing authority had rejected the books of account and estimated the undisclosed turnover of medicines at ?10,00,000. The key questions raised were whether the rejection of books solely based on post-dated invoices was justified and whether the estimation of turnover at ?10,00,000 was excessive.

Rejection of books of account:
The assessee, a dealer in pharmaceutical products, purchased goods from a manufacturer and sold them to another party. The rejection of books was based on the discrepancy in post-dated invoices, leading to penalty imposition. The counsel argued that the recorded transactions should not have led to book rejection. The Standing Counsel contended that the penalty was imposed due to unaccounted goods, justifying book rejection.

Estimation of undisclosed turnover:
The Tribunal's rejection of the appeal was based on the sustained penalty for unaccounted goods. The Standing Counsel defended the estimation of ?10,00,000 as proportionate. However, the Court emphasized that estimation in best judgment assessments must be rational and supported by evidence. The excessive increase in turnover without similar transactions raised concerns. The Court directed a revised assessment at ?3,50,000 for the A.Y. 1997-98 due to legislative changes and the belated stage of the case.

This detailed analysis covers the issues raised in the legal judgment comprehensively, addressing the challenges to the best judgment assessment order, rejection of books of account, and the estimation of undisclosed turnover in the context of the case.