KANIRAM JANKI DAS Vs. STATE OF BIHAR

JUDGEMENT

(1.) These Miscellaneous Judicial Cases arise out of references made by the Board of Revenue, Bihar, under Section 21 (3) of the Bihar Sales Tax Act of 1944 (Act VI of 1944) in pursuance of an order of this Court dated the 22nd of April, 1949. The refer-ences relate to different periods of assessment though the assessee in each case is the same and the points involved are common.

(2.) There were four points formulated by this Court on which the Board was asked to state a case, but Mr. Baldeo Sahay, appearing on behalf of the assessee, has not pressed the first point. Therefore, it is unnecessary, to refer to it. The other three points are : (1) Whether in the circumstances of this case the assessment made under Section 10 (3) of the Act was legal and valid; (2) Whether in the circumtances of this case the Sales Tax Officer was justified in refusing the deduction claimed under Section 5 (2) (a) (i) of the Act; and (3) Whether the amount of sales-tax realised by the dealer can be added in order to arrive at a gross turnover for computing the taxable income. (2a) It is not relevant, in my opinion, to refer to the different stages of the case, but I will deal with the relevant facts in so far as the points involved are concerned. I would dispose of first of all questions (1) and (3).

(3.) On the first question it is contended that the assessment made under Section 10(3) of the Act was illegal. It may be observed that in addition to lac and catechu, the assessee is a dealer in various other kinds of goods; for instance, oil seeds, ropes, gum, honey and bee-wax, etc. The Sales tax officer did not rely on the assessee's figures in regard to the sale of those goods during the periods of assessment. He also felt that the assessee had suppressed the amount of actual sale of those goods, and for these reasons the officer determined the turnover on account of the sale of those goods at a round figure of Rupees 5 lakhs which under the circumstances he considered to be quite reasonable. The Commissioner of Sales-tax agreed with that assessment and upheld the figure so assumed by the Sales Tax Officer; and the Board of Revenue also in revision held that on this point there was no ground for interference. The assessment on the face of the order appears to be under Section 10 (3) of the Sales Tax Act. It is contended by the assessee that the question of assessment under Section 10 (3) of the Act only arises where there has been non-compliance with the terms of the notice under Section 10 (2) (a). In this case, according to the contention of the learned Counsel for the assessee, there was no non-compliance with the terms of the notice given to the assessee to produce his papers and books of accounts. It is pointed out that the relevant documents called for from the assessee, according to the terms of the notice, had been duly produced before the Sales Tax Authorities, and that being so, an assessment under Section 10 (3) of the Act was unwarranted. On the other hand, it is suggested that the correct procedure to adopt was to give a further opportunity to the assessee to prove his case, or to verify the evidence adduced by some other procedure to be adopted by the Sales Tax Officer before he could make any assessment. In doing so, it is argued, the Sales Tax Officer could rely upon any material that came to his knowledge but he could not proceed to act under Section 10 (3) of the Act when the terms of the notice had been fully complied with by the production of the relevant books and documents. Reliance has been placed upon a decision of this Court, in --'Raghu Nath Mahadeo v. Cornmr. of Income-Tax, Bihar and Orissa', 6 Pat. L. T. 555. The assessment in that case was under the Income Tax Act (XI of 3922). and the question which fell to be considered there was whether the assessment had been made under Section 23 (4) or under Section 23 (3) of the Act. Section 23 (2) of the Act provided that if the Income-tax Officer had reason to believe that the return made under Section 23 was incorrect or incomplete, he should serve on the person who made the return a notice requiring him, on the date therein specified, to produce any evidence on which such person relied in support of the return. The assessee, as the facts show appear-ed in that case and produced the evidence upon which he relied in support of this return. The Income-tax Officer, however, did not consider that evidence conclusive of the matters which he had to determine and wanted some more materials. Sub-section (3) of Section 23 provided that the officer, after hearing such evidence produced by the assessee in pursuance of the notice under Sub-section (2) of that section and such other evidence as the Income-tax Officer might require on specified points, should proceed to make an assessment and determine the amount payable by him. There was nothing to show in that case that the Income-tax Officer did require any other evidence on specified points. He, however, proceeded to make an assessment. The Income-tax Officer himself purported to do so under Section 23 (3) of the Act. A notice of assessment sent by him to the assessee for payment of the amount assessed itself stated that the assessment was under Section 23 (3) of the Act. Yet the Commissioner of Income-tax thought that the books of accounts had not been relied upon by the Income-tax Officer, and, therefore, there was non-compliance with the notice served upon him under Section 23 (2) of the Act, and consequently the assessment was not under Section 23 (3) but under Section 23 (4) of the Act. This, it was pointed out by their Lordships, was an incorrect assumption on the part of the Commissioner. There are no doubt some general observations made in the judgment which encouraged the argument of the learned Counsel. It is to be noticed, however, that the Income-tax Officer had not in that case entirely disbelieved the books of accounts or the evidence adduced by the assessee in pursuance of the notice. The Income-tax Officer only thought that it was not conclusive on certain points, Therefore, it was not a case where there was a mere pretence of compliance with the terms of the notice by producing documents which were utterly unreliable. In the present case the order of the Sales Tax Officer indicates that he did not consider the documents to be at all reliable in regard to the sale of the goods in question and he was compelled to assume a figure of his own. That being so, there was really no compliance with the terms of the notice required by Section 10 (2) (a) of the Sales Tax Act. It would be, therefore, not correct to deduce a general proposition from the decision cited above in support of the argument that although the books of accounts produced by the assessee in support of his return may be held to be unreliable, yet the taxing officer would not be entitled to make an assessment to the best of his judgment as provided by Sub-section (3) of Section 10 of the Act. It has been also argued that the provisions of the Income-tax Act are not in 'pari materia' with the relevant provisions of the Sales Tsx Act; it is said : there is only one contingency contemplated by Section 10 (3) of the Act, namely, non-compliance with all the terms of a notice under Section 10(2)(a). That may be true, but then Section 23 (4) of the Income Tax Act also speaks of best judgment assessment in case of non-compliance with the terms of a notice under Section 23 (2) of the Act; and the language of Section 23 (2) and (3) of the Income Tax Act is very much similar, 'mutatis mutandis', to the language of Section 10 (2)(a) and (b) of the Sales Tax Act and so also is the language of Section 23 (4) of the Income Tax Act to the relevant provisions of Section 10(3) of the Sales Tax Act. The learned Counsel was unable to explain to me as to how the Sales Tax Officer was to make an assessment where he found that the evidence produced by the assessee was utterly unreliable. The obvious answer which suggests itself to me is that in such a circumstance he is to make an assessment to the best of his judgment, and the mere fact that unreliable documents were produced by the assessee in pursuance of a notice served by the officer, will not prevent the officer from exercising his best judgment in the matter of making an assessment because he is left with no other alternative. I do realise that in some cases this may lead to vagaries on the part of a none-too-careful taxing officer; but vagaries of this kind will have to be corrected by. the higher authorities to whom appeals or revisions lie against the order of the officer in question within the provisions of the law. It appears that in this very case the Commissioner on appeal has directed reconsideration of some of the books and materials produced by the asses-see. T, therefore, hold that where books of accounts or documents produced by the asses-see, in pursuance of a notice served by the taxing authorities under Section 10(2)(a) of the Act, are found to be quite unreliable so that the officer is unable to make an assessment on the basis of the documents produced, the tax-ing officer in such a case would be justified in making an assessment under Section 10(3) of the Act to the best of his judgment; because in substance the assessee has failed "to comply with all the terms of a notice issued under Subsection (2)" of the Sales Tax Act. This view of mine is in consonance with an earlier view which this very Bench took in --'Doma Sahu v. State of Bihar', M. J. C. No. 4 of 1949, D/- 5-3-1951 (Pat.) in which case also the decision in '6 Pat. L. T. 555', cited above, was considered and distinguished. It would be useful in this context to advert to an important decision of the Judicial Committee of the Privy Council in -- 'Commr. of Income-tax, U. P. & C. P. v. Badri Das Ramrai Shop', A.I.R. 1937 P. C. 133 : 64 Ind. App. 102 (P.C.) where their Lordships pointed out :