1971 (9) TMI 156 - SC - VAT and Sales Tax

Whether penalty can be levied while making the assessment under sub-section (2) of section 12 of Madras General Sales Tax Act, 1959 merely because an incorrect return has been filed? Held that - Appeal dismissed. In the present case the High Court found that the turnovers involved in the first and the third items were not determined on the basis of any estimate or best judgment. The quantum of turnovers in respect of both these items were based on the assessee s account books. The true position, therefore, was that certain items which had not been included in the turnover shown in the returns filed by the assessee were discovered from his own account books and the assessing authority included those items in his total turnover. For these reasons the High Court was justified in holding that the assessment of the first and the third items could not be regarded as based on best judgment. The penalty thus could not be levied in respect of those two items.

Summary

Issues:
Assessment of turnover under the Madras General Sales Tax Act, 1959; Applicability of penalty for incorrect return submission; Interpretation of Section 12(2) of the Act; Justifiability of penalty imposition based on best judgment assessment.

Analysis:
The case involved an appeal from a judgment of the Madras High Court concerning the assessment of turnover under the Madras General Sales Tax Act, 1959. The assessee, a dealer in various goods, had discrepancies in the turnover reported for the assessment year 1961-62. The assessing authority found that certain items were not included in the monthly returns, leading to a higher determined turnover. The High Court decision addressed the issue of penalty imposition for incorrect return submission under Section 12(2) of the Act.

The High Court analyzed Section 12(2) of the Act, which empowers the assessing authority to assess the dealer to the best of its judgment in cases of incomplete or incorrect returns. The court determined that penalty imposition is only justified when the assessment is made to the best judgment of the authority. Sub-sections (2) and (3) were interpreted together to conclude that penalty can only be levied when the assessment is based on best judgment principles. The court emphasized that best judgment assessment must be made on recognized principles of justice and supported by available material.

In this case, the High Court found that the turnovers related to certain items were not determined based on best judgment but were derived from the assessee's account books. It was acknowledged that the turnovers in question were discovered from the account books of the assessee and included in the total turnover. Therefore, the High Court ruled that penalty imposition for these items was not justifiable as the assessment was not based on best judgment principles.

Conclusively, the appeal was dismissed by the Supreme Court, upholding the High Court's decision. The penalty imposition was deemed unjustified for the items where turnover assessment was derived from the assessee's account books rather than through best judgment assessment principles.