CENTRAL AUTOMOBILES Vs. STATE OF KERALA

JUDGEMENT

(1.) THE questions of law raised before us in this tax revision case are : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in reversing the order of the Appellate Assistant Commissioner cancelling the rejection of accounts and deleting the addition of 25 per cent made by the Sales Tax Officer ? (2) Whether the rejection of accounts is proper ? (3) Whether the addition made is sustainable ?"

(2.) THE petitioner returned a total and taxable turnover of Rs. 37,894. 07 and Rs. 37,592. 71 respectively, for the year 1969-70. THE assessee, a partnership firm - M/s. Central Automobiles, Pazhavangadi, Trivandrum - are dealers in automobiles. THEir accounts were called for, and on scrutiny, the following defects were noted : " (1) THEre was neither an opening stock list nor a closing stock list. (2) THE sales turnover reported for 1969-70 was very low. (3) No satisfactory explanation was given for the steep fall in the purchases as well as in the sales of the previous year. (4) Separate accounts were not maintained for the purchases and sales of 3 per cent and 12 per cent taxable goods during the year 1969-70, and (5) THE net loss of Rs. 748. 85 conceded for 1969-70 cannot be accepted as true. " Notice under section 17 (3) of the Kerala General Sales Tax Act was issued to the assessee. Explanation was submitted. THE explanation given by the assessee was not accepted and, therefore, the assessment was completed to the best of judgment of the officer by adding 25 per cent. to the taxable turnover. THE matter was taken in appeal by the assessee to the Appellate Assistant Commissioner, who held that the non-maintenance of the day-to-day stock register alone cannot be a ground for resorting to best judgment assessment and, therefore, the rejection of the accounts and the addition of 25 per cent to the taxable turnover made by the assessing authority were held to be unsustainable. THE department took the matter in appeal before the Sales Tax Appellate Tribunal, Trivandrum, against the order of the Appellate Assistant Commissioner. THE Appellate Tribunal reversed the decision of the Appellate Assistant Commissioner and restored the order of the assessing authority on the ground that the assessee did not maintain an inventory for the opening and closing stocks for the year. THE Tribunal observed as follows : " THE Sales Tax Officer found that the assessee did not maintain an inventory for the opening and closing stocks for the year. It therefore followed that the figures furnished by the assessee as opening and closing stocks were only imaginary and that the accounts produced before him were defective to that extent. Further a scrutiny of the purchases and sales based on the stocks as on 1st April, 1969, and 31st March, 1970, could not be made by him. We feel that this is a very serious defect which renders the accounts unacceptable for the sales tax assessment purposes. We also feel that the Appellate Assistant Commissioner should have considered this defect along with the other defects pointed out by the assessing authority and found that the accounts of the assessee are unreliable. In the circumstances, we reverse the findings of the Appellate Assistant Commissioner and up-hold the rejection of the accounts. THE addition made by the officer to the turnover conceded by the assessee appears to be quite reasonable and we therefore restore the assessment made by the officer on the assessee for the year in question. "

(3.) THE Supreme Court had to consider a similar question in S. N. Namasivayam Chettiar v. Commissioner of Income-tax ([1960] 38 I. T. R. 579 (S. C) ). In that case, the Appellate Tribunal held that the correct profits of the assessee could not be deduced from the books produced by him. THE reasons it gave were (1) vouchers from several purchases made in Colombo had not been produced and for purchases of over 3 lakhs of rupees no vouchers were forthcoming and without the vouchers the entries in the account books could not be verified; (2) there was no quantitative tally for the grains and for other materials purchased by the assessee and it was not possible to accept the books of account, where the turnover was as large as 17 lakhs of rupees without a quantitative tally; (3) a fairly big sum of money was alleged to have been paid towards purchasing of licences for export from India; and Rs. 19,000 worth of purchases were made in Tuticorin when only a small sum of money in cash was shown in the assessee's accounts; (4) several outsiders' cheques had been entered in the accounts of the assessee without any proof as to why those cheques were paid to the asseess; and (5) a fairly bit sum of money had been invested in India in the purchase of property without money being received from Colombo. Discussing the above irregularities the Supreme Court held that in cases such as the instant case, the keeping of a stock register was of great importance because that was a means of verifying the assessee's accounts by having a "quantitative tally". If, after taking into account all the materials including the want of a stock register, it was found that from the method of accounting the correct profits of the business were not deducible, the operation of the proviso to section 13 of the Income-tax Act would be attracted. THE Income-tax Officer, even if he accepted the assessee's method of accounting, was not bound by the figure of profits shown in the accounts. It was for the income-tax authorities to consider the materials places before them and, if in any case, after taking into account the absence of a stock register coupled with other materials, they were of the opinion that the correct profits and gains could not be deduced, then they would be justified in applying the proviso to section 13.