South India Bearing Company vs State of Tamil Nadu

P. P. S. Janarthanaraja, J.—The assessed is on revision as against the order of the Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), Chennai in S. T. A. No. 319 of 2000 dated June 20, 2001. The revision was admitted on the following substantial question of law :

Whether, in the facts and circumstances of the case, the Sales Tax Appellate Tribunal was right in law for application of the formula on the ground of non-maintenance of day to day stock book for the purpose of making best judgment assessment u/s 12(2) of the Act

The petitioner-assessee is a dealer in bearings. The relevant assessment year is 1993-94 and the assessee had reported a total and taxable turnover of Rs. 73,58,971 and Rs. 19,60,214. The assessing officer called for the records and checked the same. Later it was found that the dealers have not maintained stock registers even for inter-State purchases and there is no inventory on the opening and closing stock held and produced even though they have filed separate details under taxable/second sales items. There also was inspection by the enforcement wing officers on June 22, 1993 and they found various defects. After considering the defects, the assessing officer adopted the formula and determined the total and taxable turnover of Rs. 61,21,690 and 27,01,300 and levied penalty of Rs. 87,927 u/s 12(3)(b)(ii) of the Act. Aggrieved by that order, the petitioner/assessee filed an appeal before the Appellate Assistant Commissioner, who set aside the addition of Rs. 6,97,542 made by the assessing officer towards disallowance of exemption on second sales and deleted the penalty of Rs. 87,927. Aggrieved by that order, the Revenue filed an appeal before the Sales Tax Appellate Tribunal. The Tribunal set aside the order of the Appellate Assistant Commissioner and restored the order of the assessing officer. Aggrieved by the said order, the petitioner/assessee has filed the present revision.

The learned counsel appearing for the petitioner contended that the assessing officer is wrong in determining the taxable income by adopting the formula. He further contended that the inspection was carried out in a hasty manner and therefore, wrongly arrived at the variation in stocks. He further contended that the petitioner/assessee furnished first and second sales figures correctly and therefore, restriction of claim of second sales on the basis of the formula is not correct and it is not a fit case for levying penalty when the quantum is made on the basis of the formula and therefore, the order passed by the Tribunal is not in accordance with law and the same has to be set aside.

The learned Government Advocate appearing for the Revenue submitted that the assessing officer and the Tribunal came to the conclusion that the petitioner/assessee has not maintained any stock register for inter-State purchases and no inventory on the opening and closing stock held and produced even though the assessee filed separate details under taxable/ second sales items and also the trading account reveals a loss of ten per cent under first sales and profit of 34 per cent under second sales, which indicates that the figures furnished are not correct and represent true position. Therefore, the order passed by the Tribunal is in accordance with law and the same has to be confirmed. Heard the learned counsel appearing for the petitioner/assessee and the learned Government Advocate appearing for the Revenue and perused the documents on record. The Tribunal has given a specific finding that the dealers have not maintained the stock register for inter-State purchases and no inventory on the opening and closing stock held and produced even though the assessee filed separate files for the second sales items and also the sale register was not posted up to the date and the opening stock as on April 1, 1993 has not been produced for verification. The Tribunal further held that the local and inter-State purchase items were kept mingled and not identifiable and no stock book was maintained and produced for inspection. In view of the factual finding that there is no inventory or bill wise details for reconciliation of the stock taken at the time of inspection and the assessment order is based on the defects found by the assessing officer, the Tribunal is correct in coming to the conclusion that the assessing officer is correct in adopting the formula and restricting the claim of second sales and disallowing the same. Therefore, the assessing officer is justified in restricting the claim of exemption on second sales and levying tax on the turnover of Rs. 6,97,542 and is based on valid materials and evidence and we do not find any error or illegality in the order of the Tribunal to interfere with the finding restricting the exemption in respect of the turnover by adopting the formula and restricting the claim of second sales. In respect of penalty, the Tribunal is not correct in levying penalty of Rs. 43,945 for the assessment year 1993-94 because certain discrepancies was found by the assessing officer in adopting the formula and made addition. It is also seen from the records that the figures and other things are taken from the account books only, otherwise the addition is made only on the estimation and therefore, we are of the view that it is not a fit case for levying penalty since the authorities restricted the claim by adopting formula and not as a concrete basis. We answer the question in favour of the assessee and against the Revenue and the appeal is allowed. No costs.