MEHABOOB AND COMPANY Vs. GOVERNMENT OF MADRAS

JUDGEMENT

(1.) WE are not satisfied that the common order of the tribunal in relation to the two assessment years 1960-61 and 1961-62 is in accordance with law. What appears to have happened is that for the two years, the assessee , who is the common petitioner, failed to submit returns, his stand apparently being that he had not effected any first sales in the State of declared goods of the kind covered by item 4 of the Second Schedule to the Madras General Sales Tax Act, 1939. On a surprise inspection, the revenue recovered certain materials on the basis of which they purported to apply best judgment and estimate the turnover for each of the two years. Eventually, when the matter went before the Tribunal, it reduced the turnovers but adopted the same process as was applied by the revenue. When the contention of the assessee is that the sales were not first sales in the State chargeable to tax, before the sales are brought to tax, the revenue has to establish that they are first sales in the State. There is no assessment one way or the other on the basis of which the matter could be decided. No doubt when no returns were filed or when returns filed were not accepted as true, correct and complete , the powers of best judgment call for exercise. But the best judgment is only in respect of the turnover, not of the kind of sale - whether it is a first sale or any other sale in the State. Even in applying best judgment it should be remembered that though a certain amount of latitude is given and discretion plays a part, the exercise of the discretion is an act of judgment which should necessarily be based on some materials at least. Simply because a certain material is relied on which justifies estimate of the turnover on a particular amount, it does not follow that on probabilities turnover might have escaped assessment. If that principle is uniformly applied, the danger involved cannot be overstated. In applying best judgment, the estimate should closely follow the material and it is only where there are factors and circumstances which show that there has been evasion, a further estimate on that account may be called for. The Tribunal referred to some material which justified estimate of turnover to a certain extent. But it also thought fit to add a certain sum on account of probable omissions. It is not clear from the order whether it thought that omissions were probable because there was some material which showed that the assessee had effected sales and, therefore, possibly he bad also effected further sales for which there was no material. That is based merely on suspicion. In our view, there should be something more than that to justify estimate on that basis. On the other point, the Tribunal went wrong as to whether the sales were at all first sales chargeable to tax. It has not referred to any evidence in its order except to a portion of the turnover to justify its finding that the balance of the turnover consisted of first sales chargeable to tax. That question will have to be decided on the basis of evidence and does not permit of any conclusion on the basis of best judgment which is confined to estimate of the turnover. One other question that arises from the common order of the Tribunal is whether what is comprehended in item 4 of the Second Schedule is factually first sale in the State or a first sale only by a registered dealer in the State. That question we leave open and express no opinion on it. The Tribunal will once again go into that question and decide it with reference to the provisions of the Act.

(2.) THE petitions are allowed. No costs.