1977 (5) TMI 28 - Tri - VAT and Sales Tax

Summary

Issues Involved:
1. Reopening of assessment under s. 12(4)
2. Stock discrepancies and their implications
3. Validity of chits as evidence
4. Estimation of escaped turnover
5. Application of best judgment assessment principles

Detailed Analysis:

1. Reopening of Assessment under s. 12(4):
The appellant challenged the reopening of the assessment completed under s. 12(4), arguing that there were no materials to justify such action. The Tribunal noted that the original assessment was completed before the fraud report from the visit on 17th Feb., 1970, was available to the AO. The Tribunal emphasized that sufficient material collected during the inspection justified reopening the account.

2. Stock Discrepancies and Their Implications:
During the inspection on 17th Feb., 1970, discrepancies between physical stock and the stock register were found. The Tribunal highlighted that excess stocks were found for several items, indicating that the appellant was carrying on business out of accounts. The Tribunal rejected the stock register produced by the appellant later, as it did not contain the Inspector's signature from the visit date. The Tribunal concluded that the excess stock found, valued at Rs. 6,175.40, was correctly estimated, excluding the stock of paddy valued at Rs. 1,500, which was considered the appellant's agricultural produce.

3. Validity of Chits as Evidence:
The Tribunal examined two chits found during the inspection. The first chit, related to a transaction involving til seeds and mustard, was deemed irrelevant as it did not substantiate the excess stock found a month later. The second chit, concerning a cloth transaction, was also dismissed as there was no evidence that the appellant dealt in cloth. Both chits were excluded from consideration in estimating the escaped turnover.

4. Estimation of Escaped Turnover:
The Tribunal scrutinized the method used by the first appellate Court to estimate the escaped turnover. The appellate Court had applied the principles from CST, Madhya Pradesh vs. H.M. Esuf Ali, estimating daily suppression and multiplying it by the number of working days. The Tribunal found this approach inappropriate, as it did not consider whether the suppression was continuous and methodical. The Tribunal referred to other case laws, emphasizing that an inference of continuous suppression requires substantial material evidence. The Tribunal concluded that estimating the escaped turnover at Rs. 20,000, which is approximately 3.5 times the excess stock found, was more reasonable.

5. Application of Best Judgment Assessment Principles:
The Tribunal discussed the principles of best judgment assessment, citing various case laws. It stressed that the basis for estimating the turnover must have a reasonable nexus with the facts discovered. The Tribunal found that the first appellate Court's estimate was arbitrary and lacked proper appreciation of the principles enunciated by the Supreme Court in Esuf Ali's case. The Tribunal highlighted that the assessment should not be punitive and must be based on honest inquiries and reasonable evidence.

Conclusion:
The Tribunal allowed the appeal in part, setting aside the estimate made by the first appellate Court. It directed the AO to estimate the GTO by adding Rs. 20,000 and distribute this addition proportionately between tax-free and taxable goods. The AO was instructed to recalculate the tax and refund any excess tax paid by the appellant.