Case: The Commissioner Of Sales Tax' Madhya Pradesh  Vs. M/S. H.M. Esufali, H.M. Abdulali Indore

1. These appeals by special leave arise from the decision of the High Court of Madhya Pradesh in a consolidated Reference under Section 44 of the Madhya Pradesh General Sales Tax Act. 1958 (to be hereinafter referred to as the State Act,). That reference was made by the Board of Revenue, Gwalior, partly at the instance of the assessee and partly at the instance of the commissioner of Sales Tax. Madhya Pradesh. Four questions of law were referred to the High Court for its decision. They are:"(1) Whether on the facts and circumstances of the case the revised assessment enhancing the taxable turnover under the State law by Rs. 2,50,000/- and the taxable turnover under the Central law by Rs. 1,00,000/- on the basis of the undisputed escape. In the amount of Rs. 31,171.28 by adopting the said amount of escaped turnover as the measure for determining the quantum of enhancement for the whole year was illegal. unjustified or excessive ?(2) Whether a best judgment assessment could at all be made under Section 19 (1) of the Act or whether revision of the assessment should be confined to the quantum of proved or admitted escaped turnover ?(3) If the answer to the previous question is that the revision in assessment should be confined only to the quantum of proved or admitted escape in turnover, was the penalty of Rupees 2,000/- imposed on the footing of the revision of the assessment for the whole year legal and justified ? and(4) Whether on the facts and circumstances of the case the imposition of a penalty under Section 19 (1) of the Madhya Pradesh General Sales Tax Act. 1958 read with Section 9 (3) of the Central Sales Tax Act was not legal ?"2. The first three questions were referred to the High Court at the instance of the assessment and the last one was referred at the instance of the Commissioner3. The High Court answered the 1st end the 3rd question in favour of the assessee and the second and the fourth question in favour of the Department. It opined:"..............our answer to the first question is that the estimate of taxable turnover under the local Act and the Central Act made by the assessing authoritv for the period from 1st November 1959 to 20th October 1960 on the basis of Rs. 31.171.28 as the escaped turn over for a period of 19 days was illegal and unjustified. The escaped turnover proved in the present case is only Rupees 31.171.28 and the assessee is liable to be assessed under both the Acts only on the taxable turnover comprised in the escaped turnover of Rs. 31,171.28. Our answer to the second question is that there can be a best judgment assessment under Section 19 (1) of the local Act. In a best-judgment assessment the quantum of escaped turnover would be that which the assessing authority thinks is proved or is established. In other assessments the quantum of escaped turnover would be the one which the assessing authority finds proved whether on the admission of the assesses or on the material produced at the enquiry in which the assessee has participated. The third question is answered by saying that the imposed penalty of Rs. 2,000l- is in view of our answer to the first question. Not legal. Our answer to the fourth question is that a penalty for escaped assessment under the Central Act can be imposed under Section 19 (1) of the local Act4. Aggrieved by the decision of the High Court, the Commissioner has brought these appeals. The assessee has not appealed against that portion of the decision which went against him5. The facts of the case necessary for deciding the questions of law arising for decision in these appeals, as could be gathered from the statement of the case may now be set out6. The assessee was a registered dealer under the State Act as well as the Central Sales Tax Act (which will hereinafter be referred to as the Central Act). He was a dealer in Iron and Steel. In these appeals, we are concerned with his turnover for the period November 1. 1959 to October 20. 1960. In that Year he declared a gross turnover of Rs. 3,97,356/18 and taxable turnover of Rs. 1,10,246/63 p. The Sales Tax Officer determined his Gross turnover at Rs. 3,97,357/- and taxable turnover at Rs. 1.21.567/-. Under the State Act he assessed him in the sum of Rs. 3,743.34 P. On November 20 1961. The assessee had not declared his gross or taxable turnover in respect of the Year in question under the Central Act. But the Sales-tax Officer determined his turnover under the Central Act by his order dated December 8. 1962 at Rs. 22,916/- and levied on him a tax of Rs. 252.04. The assessee did not appeal against these orders. It appears that on September 19. 1963 the Flying Squad inspected the business premises of the assessee and found a Bill book for the period September 1. 1960 to September 19 1960. The Bill book showed that the assessee had effected sales of iron and steel during that period of the value of Rs. 31,171.28 P. These sales had not been entered in the books of account maintained by the assessee. On the basis of the information provided by the bill book seized the Sales-tax Officer initiated proceedings under Section 19 (1) of the State Act on January 15, l964 by issuing the prescribed notices to the assessee. He also initated proceedings under that section under the Central Act on March 15, 1964. The notices in question were served on the assessee on April 17, 1964 and March 19. 1964 respectively. In response to those notices. the assessee submitted an explanation denyina that the bill book in question pertained to his dealings. Further. he also disputed the correctness of the estimates made by the Sales Tax Officer of his turnovers in the notices issued to him. After hearing the assessee the Sales Tax Officer reassessed the assessee under the State Act on April 20, 1964 and under the Central Act on Apri1 30, 1964. The re-assessments were made on the basis of best-judgment. In estimating the assessees turnover. the Sales Tax Officer took into consideration the fact that the assessee had dealing outside his accounts of the value of Rs. 31,171.28 during a period of 19 days. On the basis afforded by the facts discovered. the Sales Tax Officer estimated the assessees turnover under the State Act for the assessment period in question at Rs. 6,47,357/- (3,97,357 + 2,50,000). Similarly he reopened the assessees assessment under the CentraI Act and estimated the turnover of the assessee under that Act at Rs. 1.22,916/-(22,916 + 1,00,000/-). He also imposed on the assessee a penalty of Rs. 2 000/under the State Act and a penalty of Rs. 1 500/- under the Central Act. The assessee appealed against the re-assessment made on him as well as against the penalties imposed on him. Those appeals were dismissed by the Appellate authority. The assessee took up the matter in second appea1 to the Board of Revenue. Madhya Pradesh. Gwalior. The Board of Revenue set aside the penalty of Rs. 1,500/- imposed under the Central Act but in other respects it rejected the appeal of the assessee. Thereafter the Board, partly at the instance of the assessee and pertly at the instance of the Commissioner. submitted the four questions set out earlier to the High Court.

Reasoning: The assessing authority while making the best-judgment assessment no doubt should arrive at its conclusion without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis. the fact that there is no good proof in support of that estimate is immaterial. Prima facie the assessing authority is the best Judge of the situation. It is his best-judgment and not of any one elses. The High Court could not substitute its best-judgment for that of the assessing authority. In the case of best-judgment assessments the Courts will have to first see whether the accounts maintained by the assesses were rightly rejected as unreliable. If they come to the conclusion that they were rightly rejected the next question that arises for consideration is whether the basis adopted in estimating the turnover has a reasonable nexus with the estimate made.If the basis adopted is held to be a relevant basis even though the Courts may think that it is not, the most appropriate basis, the estimate made by the assessing authority cannot be disturbed. In the present case, there is no dispute that the assessees accounts were rightly discarded. We do not agree with the High Court that it is the duty of the assessing authority to adduce proof in support of its estimate. The basis adopted by the Sales Tex Officer was a relevant one whether it was the most appropriate or not. Hence the High Court was not justified in interfering with the same11. Applying the rule laid down in Reghubar Mandal Harihar Mandal case, 8 STC 770   = (AIR 1957 SC 810  ) (supra), to the facts of the present case it is seen that the Sales Tax Officer had material before him to find out how much turnover had escaped assessment during a period of 19 days. On the basis of that materia1 he estimated the escaped turnover for the entire year. Hence it cannot be said that there was no basis for the estimate made by the Sales Tax Officer. It may be that his estimate was an over-estimate or an under-estimate but it cannot be said that the estimate was without any basis. In making that estimate there was an element of guesswork which was inevitable in the circumstances of the case. If the Sales Tax Officer was compelled to adopt a rule of thumb which in a sense is an arbitrary rule, assessee was entirely responsible for that situation15. For the reasons mentioned above, we are unable to agree with the High Court that the Sales Tax Officer had arbitrarily assessed the assessee17. What is true of the assessment must also be true of re-assessment because re-assessment is nothing but a fresh assessment. When re-assessment is made under Section 19. the former assessment is completely re-opened and in its place fresh assessment is made. While re-assessing a dealer, the assessing authority does not merely assess him on the escaped turnover but it assesses him on his total estimated turnover. While making re-assessment under Section 19, if the assessing authority has no power to make best judgment assessment all that the assessee need do to escape re-assessment is to refuse to file a return or refuse to produce his account-books. If the contention taken on behalf of the assesses is correct, the assessee can escape his liability to be re-assessed by adopting an obstructive attitude. It is difficult to conceive that such could be the Position in law18. Before making re-assessment, the assessing authority has to under Rule 33 (1) framed under the Act, call upon the assesses to produce his books of account and other documents which the assessing authority may require and any evidence which the dealer may wish to produce in support of his objection. When such a notice is issued to the dealer, he may appear before the assessing authority on the date fixed in the notice and prefer his objections and produce such evidence as he may think necessary. Sub-rule (2) of Rule 33 provides that if the assesses appear" in response to the notice under Section 33 (1), the assessing authority may make reassessment, if necessary only after considering the objections raised by the dealer and after examination such evidence as may be produced by him. It is important to note that in the notice which the assessing authority is required to issue to the dealer in Form 16, the extent of the escaped turnover as estimated by the assessing authority has to be specified. The procedure laid down in Rule 33 could not have been a mere empty formality. If the assessees contention is right. in order to escape re-assessment all that the assessee need do is to ignore the notice issued under Rule 33 (1) end refuse to co-operate with the assessing authority in the re-assessment proceedings. We are unable to accept that that is the true position in lawWe have no doubt that there is such a nexusThis contention had been rejected by the High Court and the assessee had not appealed against that part of the judgment. Be that as it may even though Section 19 does not in specific terms confer on the assessing authority power to maket assessment that section specifically says that the assessment made under that section is areassessment18 deals with assessment of tax.