Full Judgment
H.L. Dattu, C.J.
1. This revision petition is filed against the orders passed by the Sales Tax Appellate Tribunal, Additional Bench, Kozhikode in T. A. No. 409 of 2004, for the assessment year 2002-03.
2. The assessee is a dealer registered under the provisions of the Kerala General Sales Tax Act, 1963 and the Central Sales Tax Act, 1956. It is engaged in the business of selling marbles. It claims that it has maintained the regular books of account as required under the provisions of the Kerala General Sales Tax Act, 1963 and the Rules framed thereunder. For the assessment year 2002-03, the assessee had filed its annual returns conceding total and taxable turnover of Rs. 86,90,934.98 and also had conceded the gross profit at 6.5 per cent during the year in question.
3. The assessing authority has rejected the returns so filed by the assessee and thereafter has issued a pre-assessment notice, inter alia, directing the petitioner to show cause why the annual returns filed by the assessee in form No. 9 should not be rejected and the assessment should not be completed by way of best judgment assessment. The proposal made in the pre-assessment notice by the assessing authority is as under:
1. The assessee has conceded gross profit at 6.5 per cent during the year which was low in this line of business. Hence sales turnover has to be estimated by adding reasonable gross profit at 10 per cent on the purchase value of goods sold.
2. Excess tax collection of Rs.199 during the month of June 2002 and March 2003 has to be paid over to the Government.
4. After receipt of the pre-assessment notice, the assessee had filed its objections, inter alia, explaining the reasons for conceding only 6.5 per cent gross profit for the assessment year in question and further it had requested the assessing authority to complete regular assessment instead of going for the best judgment assessment as proposed in the pre-assessment notice issued. The reply filed by the assessee to the pre-assessment notice is as under:
The above proposal was communicated to the assessee giving them an opportunity of hearing. In response to the above, they have filed a reply in which it is stated that annual return filed in support of the books of account, maintained in the ordinary course of business was true and correct and gross profit earned was very accurate as evidenced by the statutory audit report. It was also stated that gross profit on sales could not be increased in view of the competitive market price, that the gross profit earned and sales turnover reported were much higher than that of previous years, that the finding of the assessing authority is nothing but opposed to the facts, etc. They have lastly requested to accept the conceded turnover.
5. In the reply filed, the assessee had assigned five reasons why the pre-assessment notice should not be confirmed. They are, that they are maintaining the books of account in accurate manner as provided under the provisions of the KGST Act and the Rules framed thereunder ; the entries made in the books of account are true and correct ; the gross profit during the assessment year in question is also accurately reflected in the books of account ; their accounts have been audited by a statutory auditor and the same has been enclosed along with the annual returns ; and in the nature of the business that the assessee is conducting, since there is a heavy competition, the gross profit could not be increased.
6. The assessing authority has rejected the explanation and has proceeded to confirm the proposal made and has made an addition of 10 per cent gross profit to the gross profit declared by the assessee, The reasoning and conclusion reached by the assessing authority is as under:
I have gone through the reply in detail. The dealer has not adduced any further evidence to prove his contention. It is a fact that conceded gross profit was very low in this line of business considering the gross profit earned by other such dealers. I do not find any valid reason to deviate from the proposal. Hence, the objections put forth by the assessee is overruled as devoid of merits and the assessment for the year 2002-03 is completed as already proposed.
7. One thing is clear that even in the case of best judgment assessment, the assessing authority is expected to assign valid reasons, firstly, for rejecting the books of account and the return filed by the assessee. Secondly, even the best judgment assessment is an assessment and therefore, the assessing authority, on mere assumptions and presumptions, is not expected to make additions to the conceded turnover and also to the conceded gross profit in the return filed. There must be valid reason for the assessing authority to reject the returns filed and to proceed for the best judgment assessment.
8. In the instant case, as we have already noticed, it is not the case of the assessing authority that the statutory audit report filed by the assessee cannot be accepted and it is also not the case of the assessing authority that the books of account maintained by the dealer cannot be accepted, since they are not maintained in the form required under the provisions of the KGST Act and CST Act. Further, it is not the case of the assessing authority that though the assessee has earned more gross profit, he has not conceded the same or has not declared the same in the annual return filed for the assessment year in question. On mere ipse dixit the assessing authority proceeds to hold that in the line of business the assessee is carrying on, the gross profit must be on a higher side. This reasoning, in our opinion, is arbitrary but also capricious. Therefore, this reasoning of the assessing authority cannot be accepted.
9. For redressing its grievance against the addition made by the assessing authority, the assessee has unsuccessfully filed appeal before the first appellate authority and the Tribunal, respectively.
10. Aggrieved by the orders passed by the Tribunal, the assessee is before us in this tax revision case. The assessee has framed the following questions of law for our consideration and decision:
(i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in rejecting the accounts and estimating the turnover only on the basis of alleged low gross profit ?
(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in observing that the burden of proof is on the assessee when actually the burden is on the Revenue to prove the higher rate of profit based on which assessment has been completed. Is it justified to ask the assessee to prove the negative fact ?
(iii) Whether, on the facts and in the circumstances of the case, the addition is justified when there is no inspection, stock variation, penalty, compounding or any other discrepancy in the accounts and actually the gross profit and the volume of trade showed a better trend than the previous year ?
11. In view of what we have already stated in our order, the questions of law framed by the assessee is answered in favour of the assessee and against the Revenue. Accordingly, we allow the revision petition. We direct the assessing authority to accept the conceded gross profit declared by the assessee in its annual returns filed for the assessment year 2002-03 and pass fresh assessment order in accordance with law, as expeditiously as possible, at any rate, within four months from today and issue a fresh demand notice.
12. Ordered accordingly.