2020 (8) TMI 219 - HC - VAT and Sales Tax

Validity of Estimation of turnover - estimation made purely on assumptions and presumptions and not on the basis of any material - HELD THAT - There is no material available to the Assessing Officer as to any brand having been sold at a higher rate than that disclosed in the bills. What was before the Assessing Officer was only the actual invoices from which two of the highest in the respective licensed premises were picked up to compute the average for the purpose of estimation. We do not think that the Assessing Officer adopted a rational basis for making such estimation when admittedly the assessee had sold different brands which have different purchase value; as seen from the sale value disclosed in the sale invoices. The assessee sells liquor on retail, after purchasing the same from the Kerala State Beverages Corporation. The purchase value cannot be a reference to decide on the assessee's sale price since the assessee offers a premises for the customer to consume alcohol. The estimation has been made on mere surmises and conjectures. There is absolutely no rational basis to reject the books of accounts and the estimation made has no nexus to the nature of the business and transactions carried out in the two licensed premises of the assessee - revision allowed - decided in favor of assessee.

Summary

Issues:
Assessment of gross profit, Best judgment assessment, Rejection of books of accounts, Estimation of turnover, Rational basis for estimation.

Assessment of Gross Profit:
The revisions by the assessee concern assessment years 2007-08, 2009-10, 2010-11, 2011-12, and 2013-14. The Assessing Officer adopted varying gross profit percentages in comparison to the books of accounts of the assessee. For instance, in the assessment year 2013-14, a gross profit of 160% was adopted against the recorded 138.45%. In other years, gross profit percentages ranged from 143% to 184%. The contention was that these assessments were made without valid reasons and contrary to the principles of best judgment assessment.

Best Judgment Assessment and Rejection of Books of Accounts:
The counsel for the assessee argued that the Assessing Officer's actions, upheld by appellate authorities, were against the principles of best judgment assessment. The assessment was based on assumptions and presumptions rather than concrete evidence from the books of accounts. The estimation of gross profit was primarily based on the sales of two brands of foreign liquor in different premises without substantial material to support the estimation, leading to the rejection of books of accounts.

Estimation of Turnover and Rational Basis:
The Government Pleader contended that there were no legal issues in the Tribunal's order, citing previous court decisions. However, the High Court found the cited cases to be irrelevant to the current matter. The assessment order revealed that the estimation of turnover was made without a rational basis. The Assessing Officer compared purchase and sales values of different liquor brands without considering the unique sales strategies of the assessee in different premises. The estimation lacked a reasonable nexus with the actual business transactions, leading to the rejection of books of accounts.

Legal Principles and Conclusion:
The High Court referred to legal principles from Commissioner of Sales Tax v. H.M.Esufali, emphasizing that a best judgment assessment should be rational and unbiased, with a reasonable nexus to available facts. In this case, the estimation was deemed arbitrary and not based on factual evidence. The Court concluded that the estimation was made on mere surmises and conjectures, lacking a rational basis. Consequently, the orders of the authorities below were set aside in favor of the assessee, and the revisions were allowed, with each party bearing their respective costs.