M.U. Isaac, J.
1. The petitioner is a private limited company carrying on the business of purchasing prawns, lobsters and frog legs, processing them in its factory at Cochin and selling them mostly to customers outside India and to a very limited extent to customers in India. Prawns and lobsters are taxable under the Kerala General Sales Tax Act, 1963 (hereinafter referred to as the Act) at the point of last purchase in the State. For the year 1964-65, the petitioner filed a return showing a net turnover of Rs. 16,83,180.62 in respect of purchase of these goods. The Sales Tax Officer rejected the petitioner's books of accounts and made a best judgment assessment. He fixed the net turnover by adding 40 per cent, of the returned turnover to make up for alleged suppression of purchases. The petitioner filed an appeal before the Appellate Assistant Commissioner without any success. It filed a second appeal before the Sales Tax Appellate Tribunal. The Tribunal agreed with the subordinate authorities in rejecting the petitioner's accounts, but it held that the enhancement of the turnover by 40 per cent, was unreasonable, and limited the addition to Rs. 1,00,000. The petitioner has objected to the above order of the Tribunal, and moved this Court in revision, raising the following questions of law :-
(i) Whether on the facts and in the circumstances of the case, the findings of the Tribunal that the books of accounts of the petitioner and the turnover returned by it in respect of purchase turnover of prawns and lobsters are incorrect and incomplete and that they are to be rejected, are warranted ?
(ii) Whether there is material to support the estimated addition of Rs. 1,00,000 to the purchase turnover, as ordered by the Tribunal?
2. It is necessary to state a few more facts to know how the above questions arise. The petitioner purchases prawns and lobsters partly at Cochin, and partly from outstations. Goods purchased from outstations are transported to Cochin for the purpose of being processed and exported. Section 29 of the Act provides for establishment of check posts and inspection of goods in transit with a view to prevent and check evasion of tax. Sub-section (2) of Section 29 provides among other things that no person shall transport within the State across or beyond the notified area of a check-post, any consignment of goods exceeding the prescribed quantity or value by any vehicle or vessel, unless he is in possession of either a bill of sale or delivery note or way-bill or certificate of ownership containing the prescribed particulars. Rule 32 of the Kerala General Sales Tax Rules, 1963 (hereinafter referred to as the Rules) deals with maintenance and preservation of accounts. Sub-rule (19) of the above rule reads as follows:
Every person who consigns goods by any vehicle or vessel or any other means in pursuance of a sale where a sale bill or delivery note is not issued or consigns goods through the said means from one godown to another or from one branch to another branch for storage or sale, shall issue a way-bill in Form 27. Every such way-bill shall be prepared in duplicate, serially machine numbered, shall be kept in book form, shall be duly signed and dated by the dealer or his manager or his authorised agent and one copy of it shall be issued to the purchaser or the person in charge of the goods as the case may be and the other copy shall be retained by the dealer.
3. The petitioner has printed way-bills in Form 27 for transport of goods purchased from outstations in Cochin. On checking the duplicate of the way-bills issued by the petitioner during the year 1964-65, it was found that about 1350 duplicates were missing. The numbers of the missing duplicates are given in the order of assessment. F-208 dated 1st December, 1964, and F-210 dated 2nd December, 1964, are two among these missing duplicates. The originals of these two way-bills were received by the Sales Tax Officer from the Feroke Sales Tax Check Post. F-208 relates to a transport of 3,000 kgs. of prawns from Quilandy to Cochin. The consignor is shown as one T. Mammu, and the consignee is the petitioner. F-210 relates to another transport of 3,000 kgs. of prawns from Parappanangadi to Cochin. It was goods purchased by the petitioner at Parappanangadi and therefore the petitioner is shown as the consignor and the consignee in this way-bill. The petitioner's books of accounts did not show entries for the purchase of the above two consignments for which the petitioner submitted the following explanation. There is an entry in the accounts on 1st December, 1964, in the name of one P.K. Aziz, Cochin, showing purchase of 4,166 kgs. of prawns; and there is also another entry in the name of the same person on 2nd December, 1964, showing the purchase of 3,395 kgs. The petitioner submitted that T. Mammu mentioned in way-bill F-208 was the agent of P.K. Aziz, and on 1st December, 1964, the petitioner purchased 4,166 kgs. of prawns from him, out of which 3,000 kgs. were transported by lorry as per F-208 and 1,166 kgs. were transported by rail, and that the goods consigned to the petitioner had thus been actually accounted in the petitioner's books. Regarding the goods transported as per way-bill F-210, the petitioner submitted that the 3,000 kgs. of prawns covered by the said way-bill were purchased from P.K. Aziz, and that the credit given to him on 2nd December, 1964, for 3,395 kgs. of prawns consisted of 3,000 kgs. transported under this way-bill and 395 kgs. locally purchased from him. The Sales Tax Officer did not accept the above explanation. Regarding the consignment as per F-208, he stated :-
So long as there are no receipts in the name of Mammu, it cannot be said that their receipt has been accounted for. Though it is said that it has been accounted for along with a rail consignment, the name of the consignor, and the station from which it was consigned are not known. I am, therefore, unable to agree that a purchase of 4,166 kgs. on 1st December, 1964, from P.K. Aziz, Cochin-5, represents purchases from Mammu.
The reason for rejecting the explanation about the consignment as per F-210 is stated as follows:-
As regards the other purchase also, it is not accounted for, as on 2nd December, 1964, there was only one purchase of 3,395 kgs. from Aziz, Cochin.
4. The petitioner urged before the Appellate Tribunal that there was no material to reject its books of accounts and that its explanation regarding the above two way-bills should be accepted. The contention was rejected by the Tribunal also. It referred to the explanation offered by the petitioner, and then stated the reason for rejecting the above contention as follows :-
The position thus is that the appellant is not in a position to disprove the finding of the Sales Tax Officer that certain purchases as evidenced by the two way-bills, F-208 and F-210, have not been accounted for by the appellant in his books. We feel that this is a serious defect and that in the face of such a defect, the assessing authority is fully justified in concluding that the accounts of the appellant are incorrect and incomplete. The appellants have not been in a position to produce the duplicates of a considerably large number of way-bills for verification by the Sales Tax Officer. In these circumstances, and in view of the clear failure on the part of the appellants to prove that they had accounted for the purchases of certain specific consignments, we do not hesitate to confirm the rejection of the accounts as proper.
The learned Government Pleader submitted that the above statement shows two grounds for rejection of the petitioner's accounts. One is the non-accounting of the two consignments as per way-bills F-208 and F-210; and the other is non-production of duplicates of several way-bills. We shall first deal with the second ground. The Sales Tax Officer has also referred to this matter in his order of assessment. It is not clear from the records whether he perused the originals of these way-bills, as he did in the case of F-208 and F-210, and checked the accounts with them. What is relevant to notice is that there is no case that the petitioner has not entered in his accounts any of the purchases as per the way-bills whose duplicates were missing. The rejection of the accounts by the Sales Tax Officer is based solely on the alleged non-accounting of the consignments transported as per F-208 and F-210. This is clear from the manner in which he has determined the turnover to his best judgment. He took the total purchases on 1st December, 1964, and 2nd December, 1964, as per the books of accounts of the petitioner. The value of the consignments transported on these two dates as per F-208 and F-210 worked out 40 per cent, of the total purchases on these two dates. He assumed that this must be the percentage of suppression for the remaining 364 days of that year ; and on that basis he added 40 per cent, of the total purchases disclosed by the books of accounts to arrive at the proper taxable turnover. This means that the non-production of the duplicates of the way-bills mentioned in his order was neither a ground for rejection of the accounts, nor was it a consideration in determining the turnover. The Appellate Tribunal's order also states that 'the main ground relied on by the Sales Tax Officer for rejecting the accounts of the appellant-company is the discrepancy noticed in the purchases on 1st December, 1964, and 2nd December, 1964.' No other ground is either referred or dealt with in the Tribunal's order for rejecting the accounts. The explanation offered by the petitioner for the nonavailability of some of the duplicates of the way-bills has not been considered by the Tribunal or the subordinate authorities. The Appellate Tribunal's order does not also indicate how the non-availability of the duplicates for verification by the Sales Tax Officer would affect the credibility of the accounts. As we already pointed out the Sales Tax Officer had no such case ; and it may be quite possible that he verified the accounts with reference to the originals. In these circumstances, we cannot accept the learned Government Pleader's contention that the non-production of the aforesaid duplicates was one of the grounds for rejection of the accounts.
5. Coming to the alleged non-entry of the purchases of the goods transported as per F-208 and F-210, there can be little doubt that, if these purchases are not entered in the accounts, it constitutes a sufficient ground for rejection of the accounts, in the absence of any satisfactory explanation. Whether an explanation offered by the assessee is satisfactory or not is a matter for the Tribunal to decide; but it is equally clear that there should be some material to reject the explanation. Its acceptance does not depend on the mere whim and fancy of the sales tax authorities. The Appellate Tribunal has misdirected itself in this case when it rejected the petitioner's contention stating that the petitioner was unable 'to disprove the finding of the Sales Tax Officer that certain purchases as evidenced by the two way-bills F-208 and F-210 have not been accounted for by the appellant in his books of account.' In an appeal under the Act, the Tribunal is the final judge on questions of fact. Its duty is to appraise the materials on record, and arrive at its own finding on the questions of fact raised before it. The question before the Tribunal was whether there was any material to reject the petitioner's accounts, and not whether the petitioner could disprove the Sales Tax Officer's finding. As the Tribunal's order stands, the petitioner's accounts were rejected on the sole ground that the petitioner was not in a position to disprove the finding of the Sales Tax Officer. This is not a ground for the rejection of accounts ; and this is sufficient to dispose of the first question raised in this revision petition in favour of the petitioner.
6. We, however, propose to examine the question on the merits in the light of the undisputed facts as disclosed by the records and the finding of the Appellate Tribunal. The petitioner maintains proper books of accounts, and they are being audited and certified by a reputed firm of chartered accountants. Its accounts have been fully accepted by the sales tax department in the previous and subsequent years. A copy of the order of assessment made by the Income-tax Officer, Ernakulam, under the Income-tax Act, 1961, for the year 1964-65, which it produced before the Appellate Tribunal along with several other documents, shows that its books of accounts were fully accepted by that department also. The balance-sheet and profit and loss account of the petitioner show that it exports most of the goods purchased by it, that, on the export sales, it makes a large profit on account of import entitlements obtained from the Government of India as export incentive. Otherwise, the sale of these goods is a loss. There is no instance of any purchase or sale, except the two disputed consignments, which have not passed through the books of accounts. It is not ordinarily possible to export the goods except in the regular course of business. The extent of local sales is comparatively insignificant; and the petitioner is not liable to tax under the Act in respect of the goods which it purchases and sells locally, as tax is leviable on these goods under the Act only on the last point of purchase within the State. Thus evasion of tax by suppression of purchases from the books of accounts is scarcely possible in the nature of the petitioner's business. These are very important considerations in deciding the question whether the petitioner's accounts can be believed or not. Unfortunately, neither the Appellate Tribunal nor the subordinate authorities have considered any of these matters in rejecting the petitioner's accounts. A Division Bench of this Court in Oommen v. Commissioner of Agricultural Income-tax [1963] K.L.T. 211 said:
Acceptance of accounts kept in the usual course of business is the rule; and their rejection must be the exception, for proper reasons only.
Rejection of accounts of an assessee, who carries on business on a large scale, whose business honesty has never given room for any suspicion, and whose accounts have never been suspected, is a very serious matter for the assessee. It is not something to be done light-heartedly at the whim and fancy of the revenue authorities. There must be adequate grounds for holding that the accounts of such an assessee cannot be believed.
7. As we have already pointed out, the petitioner's accounts were rejected on the sole ground that the goods transported by it as per way-bill F-208, dated 1st December, 1964, and F-210, dated 2nd December, 1964, were not found entered in the petitioner's books. We have referred to the explanation submitted by the petitioner in this matter. The petitioner's books contain entries showing a purchase of 4,160 kgs. of prawns on 1st December, 1964, and another purchase of 3,395 kgs. of prawns on 2nd December, 1964, both from P.K. Aziz, Cochin-5. According to the petitioner, these entries covered the goods transported as per way-bills F-208 and F-210. Way-bill F-208 contains the name of P.K. Aziz. If the Sales Tax Officer felt any doubt regarding the veracity of the explanation offered by the petitioner, the matter could have been verified with P.K. Aziz, who is a dealer in Cochin. He could have ascertained from that dealer whether he sold any prawns to the petitioner on the above dates, if so, what were the quantities that were sold to the petitioner on the said dates, wherefrom the sales were made, and how the goods were delivered to the petitioner. When the books of account show entries relating to the purchase of goods which would cover the goods transported as per way-bills F-208 and F-210, the burden is on the revenue to show that the said entries did not relate to the goods transported under these way-bills ; but they related to different goods. We can find absolutely no material to hold that the said entries contained in the books did not cover the goods transported as per these way-bills, or to reject the petitioner's explanation.
8. It is well established that the function of an assessing officer is quasi-judicial, and that he should be governed in his procedure by judicial considerations. In Mehta Parikh & Co. v. Commissioner of Income-tax, Bombay A.I.R. 1956 S.C. 554, the Supreme Court said :
The court would be entitled to intervene if it appears that the fact-finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question.
In Omar Salay Mohammed Sait v. Commissioner of Income-tax, Madras A.I.R. 1959 S.C. 1238, the Supreme Court again said :
We are aware that the Income-tax Appellate Tribunal is a fact-finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court.
The above statements were quoted with approval in a later decision of the Supreme Court in Lalchand Bhagat Ambica Ram v. Commissioner of Income-tax [1959] 37 I.T.R. 288. Examined in the light of the correct legal position as laid down in the above decisions of the Supreme Court, we hold that there was no material for the Appellate Tribunal to find that the goods transported as per way-bills F-208 and F-210 were not brought into the accounts of the petitioner. The first question raised in revision must, therefore, be decided in favour of the petitioner.
9. In the light of our above finding, it is unnecessary to decide the second question. We shall, however, deal with it, as it has been specifically raised. We have already referred to the manner in which the turnover was determined by the revenue authorities to the best of judgment. The value of the goods transported as per way-bills F-208 and F-210 was 40 per cent, of the value of the goods purchased on 1st December, 1964, and 2nd December, 1964, as per the accounts of the petitioner. After holding that the goods covered by way-bills F-208 and F-210 did not go into the accounts, the Sales Tax Officer determined the total turnover by adding 40 per cent, to the turnover of the year as shown by the accounts. This involves the assumption that on all the 366 days of that year the petitioner made purchases, and on every one of these days there was a similar extent of suppression. The result of this process of reasoning would be that, if the value of the goods covered by the above way-bills was twice the value of the goods purchased on the above two dates, the Sales Tax Officer would have determined the turnover at thrice the amount shown by the books of accounts ; and if the accounts did not disclose any purchases on the above dates, the result would have been unimaginable. The manner in which the Sales Tax Officer has determined the turnover shows an absolute lack of judgment, if not perversity or something worse. It is surprising that the Appellate Assistant Commissioner adopted the same reasoning and affixed his rubber stamp to the finding of the Sales Tax Officer. The Appellate Tribunal rightly rejected the above method ; but it added Rs. 1,00,000 to the turnover disclosed by the petitioner's accounts to make up for the alleged suppression of purchases. The reason stated by the Tribunal for adding the above amount is that it would compare well with the turnover assessed from 1962-63 up to 1965-66. The Tribunal's order does not show what were the turnovers as per the assessments for the above years. The assessments for these years were done by accepting the petitioner's accounts. If there was any fall in the turnover for 1964-65, the year with which we are concerned in this case, it should have been put to the petitioner, before it was adopted as a basis for determining the turnover to the best of judgment. Neither the order of the Tribunal nor the records of the case show that it was done. In these circumstances, we are constrained to hold that there was no material to support the addition made by the Appellate Tribunal, and to decide the second question raised in this revision also in favour of the petitioner.
10. In the result, this revision petition is allowed with costs. Counsel's fee is fixed at Rs. 200.