2019 (8) TMI 7 - HC - VAT and Sales Tax

Basis of assessment - book/diary during the survey admittedly belonging to the third party - the applicant was not in existence in the assessment in dispute - HELD THAT - There is clear lack of application of mind and there is clear absence of any necessary finding recorded as to the status of the assessee or the manner in which such liability as has been fixed on the present assessee. Mere existence of blood relationship between persons involved in the two businesses is of no consequence. Though the books of account of the third person may have been relevant for the purpose of assessment of the assessee, however, in absence of any material being found therein representing concealed transaction of the present assessee, neither any rejection of books of account nor any addition may have been made in the case of assessment, for the sale proprietorship concern of the assessee. Revision allowed.

Summary

Issues:
Assessment based on seized book belonging to a third party - Liability of conducting a discontinued business on the sole proprietor - Relevance of blood relationship in assessing liabilities.

Analysis:
The judgment by the High Court of Allahabad involved a case where the assessee filed revisions against the order of the Commercial Tax Tribunal confirming best judgment assessments made against the assessee for the business conducted in the name of M/S Al-Fateh Tailors & Traders. The key question of law admitted for consideration was whether a book belonging to a third party, discovered during a survey, could be the basis for assessing the applicant when the applicant was not in existence during the assessment period in question.

The assessee, in this case, argued that he was not the proprietor of the discontinued business M/S Al-Fateh Tailors & Traders, which was conducted by his father. The seized book containing details of tailoring by the father during the relevant assessment years was used by the revenue authorities to make additions to the assessee's turnover. The assessee explained that he only helped his father in that business and had started his own sole proprietorship business later. The Tribunal's findings were contested as they did not establish the assessee as the sole proprietor of the discontinued business.

The Court held that the assessing officer failed to clarify the status of the assessee in the assessment order, leading to a lack of necessary findings and application of mind. It was emphasized that the liability of a partnership or association of persons conducting the discontinued business could not be imposed on the sole proprietorship concern of the present assessee without proper reasoning or notice. The Court ruled that in the absence of any material representing concealed transactions of the present assessee in the seized book, no rejection of accounts or additions should have been made in the assessment.

Conclusively, the Court allowed the revisions, highlighting that while the seized book might have been relevant for assessment purposes, without evidence of concealed transactions by the present assessee, no additions should have been made to the assessment of the sole proprietorship concern. The judgment clarified the importance of distinguishing liabilities between different entities and the necessity of clear reasoning in tax assessments, disregarding mere blood relationships in determining liabilities.