M. Appukutty Vs. Sales Tax Officer, Spl. Circle I, Kozhikode - Court Judgment

P. Govindan Nair, J.

1. The writ applicant is an assessee to sales-tax. For the year 1961-1962, monthly returns were submitted and tax was also paid by the petitioner in accordance with those returns. A consolidated return for the entire year showing the turnover correctly, it is claimed by the petitioner, was also sent. The respondent, the Sales-tax Officer then issued a notice dated 20-2-1963 in which it is stated.

'It is therefore proposed to reject your returns and the accounts produced in support of them and to complete the assessment to the best of my judgment.'

The above communication is Ext. P1 and the objections of the petitioner to Ext. P1 is Ext. P2 dated 27-2-1963. On 5-7-1963, another communication, Ext. P4, was sent by the respondent stating that he proposes to complete the assessment for the year according to the best of his judgment by adding '10 per cent of the net taxable turnover as per the books of account as probable suppressions.' This too was objected to by the petitioner by Ext. P5. But overruling his objections, the assessment order in question has been passed adding 10 per cent to the net turnover as computed by the assessing authority from the books of account of the assessee. The 10 per cent comes to Rs. 27,60,883.60. A copy of the assessment order is Ext. P6. It is this order, Ext. P6, that has been challenged in this writ application.

2. According to counsel for the petitioner, Ext. P6 evidences a capricious and arbitrary assessment without any material to support the conclusion and is the pure result of surmises and conjectures. He, therefore, prays that a writ he issued quashing the order, Ext. P6.

3. A preliminary objection has been raised that the petitioner has adequate alternative remedies under the statute and, therefore, this writ application should not he entertained. This, in fact, was the only argument that has been advanced by counsel on behalf of the Revenue. This question has, therefore, to be examined. I shall refer to the facts relating to the assessment which, I consider necessary, for the determination of this issue.

4. Certain reasons have been given in Ext. P1 for rejecting the accounts and notwithstanding the explanation, Ext. P2, the accounts have been rejected. I will assume for the purpose of this proceeding under Article 220 of the Constitution (in fact it is not for me to assess the adequacy of the grounds for rejecting the accounts) that the accounts have been rightly rejected. The further question is as to whether the addition of 10 per cent of the net taxable turnover as per the books of account towards probable suppressions is arbitrary and capricious as contended by counsel for the petitioner. It is stated in Ext. P4 that such an addition is proposed because of the defects enumerated in Ext. P1. The defect mentioned in paragraph 3 of Ext. P1 has been given up in Ext. P4. The remaining defects are:

(1) The turnover 'as per the returns and accounts' do not agree.

(2) The cash balance on certain dates mentioned in Ext. P1 does not justify the loans taken by the petitioner from the persons mentioned in Ext. P1 on the dates specified in Ext. P1.

(3) The secret account recovered from Messrs. Vasu and Janardhanan indicates purchases having been made on twelve occasions from the assessee. These do not find a place in the books of account of the assessee.

5. The petitioner contended that there is no discrepancy between the turnover as return ed and as seen from his books of account. He gave detailed reasons for the loans taken on the various dates mentioned in Ext. P1. He further said that all his transactions are entered in his account books and that he had no dealings whatever with Messrs. Vasu and Janardhanan. There were he contended, no sales effected by him on the several dates mentioned in Ext. P1 to Messrs. Vasu and Janardhanan. He however pointed out that on ten out of the twelve dates mentioned in Ext. P1 he had effected sales on a cash basis to different parties for the identical amounts mentioned in Ext. P1 and that these sales are seen from his own account books. He further stated that, his representative had already shown the concerned cash bills to the Sales-lax Officer. He therefore, asserted that out of a turnover of Rs. 14,834.27 which is the total of the twelve items mentioned in Ext. P1 all but a turnover of Rs. 3,531.21 are seen entered in his account books.

In the above circumstances he pleaded that there was no justification for making any addition to the turnover disclosed by his book's and that in any event there was no justification for adding 10 per cent to the net turnover as disclosed by the books. The answers to these objections, if any, are in the order, Ext. P6, and are the following:

'The turnover as per books and that as disclosed by the returns docs not agree. .....The explanations regarding the alleged borrowing are unacceptable ..... The contentionthat only actuals can be added on towards suppression cannot he accepted. . . . .'

The reason for doubting whether there has been borrowing is stated thus:

'It is common knowledge that usurers charge exhorbitantly high rate of interest and none would go in for a loan unless one is so hard pressed.'

And, regarding the contentions of the petitioner relating to the entries in the 'secret books' of Messrs. Vasu and Janardhanan, what is stated is:

'Collusion and collaboration are the key note of evasion as without which the delinquent will be found out by the normal routine cross verification of transactions at the time of final assessment. So apart from the regular books of accounts which are kept for inspection and production before Income-tax and Sales-tax authorities, another set of accounts showing real volume of business done is kept by the evaders. These books of accounts may not conform to the standard of books of accounts that are expected to be maintained in a commercial house as it is only intended to understand for ourselves the veal volume of business transacted. These books are styled by the department either as duplicate books or secret books. It is only by the element of surprise involved in an inspection that such books are occasionally detected by the departmental officers. When such books are seized it is quite usual for the dealers to disown the books, even though they may know that ultimately it may not be of any avail to them. For the continued prosperity of the business they must have the help and co-operation of the suppliers as well as their customers and so they will go to any extent to help them. They will therefore figure only as hostile witnesses to the department.

In the instant case the books have been seized by the Intelligence Officer from the shop of Vasu & Janardhanan and the receipt for the same has been acknowledged by Shri Vasu. On a comparison of the entries in the book marked 'A' with their regular book of account it has been found that transactions which are specially noted as 'credit' have been entered in them. So apart from the normal presumption that the books found in the business place of a dealer relate to him, it has been established that the books relate to them. It is true that Sri Vasu was at pains to assert that no books have been detected and they do not relate to him. On the face of the above facts, he can only be deemed as a witness who has sworn to speak the untruth and nothing but the untruth. I discard his evidence as fabrication'.

And finally, regarding the proposal to add 10 per cent, the respondent says:

'The contention that only actuals can be added on towards suppression cannot be accepted. The only dictum laid down is that the estimation must he related to the malerial relied on. In the circumstances of the case I do not think that 10 per cent towards omission, is in any way high.'

6. The discrepancy as seen from the order, Ext. P6, relating to the gross turnover returned and the gross turnover as computed from the hooks of the assessee is Rs. 1,51,404,17. The turnover shown in the return of the assessee was in excess by the above amount of the turnover computed by the respondent from the books of account. How this will help in coming to the conclusion that there should be an addition of 10 per cent., I am unable to follow:

7. The only other material was the entries-in the secret account books of Messrs. Vasu and Janardhanan. It has to be mentioned here that these books are not of the assessee and have not been recovered from the assessee. Out of the amounts seen in these books all but-Rs. 3,531.21 is seen entered in the books of account maintained by the assessee. Apart from those two items of material relied on there is of course the opinion of the Sales-tax Officer that 'none would go in for a loan unless one is so hard pressed.' He has not found that the assessee has not actually borrowed the money. No attempt has been made to find out the truth or otherwise of the transactions of borrowing relied on by the assessee.

8. Whether a business-man dealing in goods to the tune of nearly a lakh of rupees each day should or should not maintain cash reserves of a particular amount by borrowing certain amounts--the maximum of such borrowings in this case being Rs. 75,000, is a matter which must be left to the business man, and solely to his discretion. The petitioner has given reasons for these borrowings and also pointed out that the cash balances along with the borrowed amounts had to be utilised within the next few days to meet the demands of the business. These aspects have not even been adverted to and all that is said in the order. Ext. P6, is that:

'The explanations regarding the alleged borrowings are unacceptable'.

9. It is, therefore, clear that the addition of Rs. 27,60,383.00 has been made on the basis of the entries in the secret books of Messrs. Vasu and Janardhanan which indicated transactions of dealings with the petitioner on two occasions amounting to a total of Rs. 3531.21.' Such an addition is clearly arbitrary and seems to me to he perverse and capricious. This Court had occasion to consider similar estimates. When the rate of the purchase and' sale of copra from October 1, 1957 to March, 31, 1958 was taken to be the prevailing rate for the purchase of copra right from 1st April 1957 to 13th January 1958 for the purpose of estimating suppressions this Court said in Alikoya & Co. v. State of Kerala, (1961) 12STC 567 (Ker) that the assessment is arbitrary.

10. Notwithstanding the fact that the assessment is thus quite arbitrary and even perverse it is contended that this Court should not interfere under Article 226 but should leave this matter to be dealt with by the taxing authorities. I am unable to accept this contention.

11. It is well settled that the existence of an alternate remedy is not an absolute bar to the issue of a writ of certiorari when there has been violation of the principles of natural justice and when a fundamental right is infringed. I need refer only to one or two decisions of the Supreme Court in support of this proposition. In State of U. P. v. Mohammad Noon, AIR 1958 SC 86, it was said:

'The superior court will readily issue a certiorari in a case where there has been adenial of natural justice before a court of summary jurisdiction.'

And the Supreme Court has also ruled that the infringement of a fundamental right is a ground on which a writ of certiorari would issue notwithstanding the existence of other remedies under the statute, adequate or otherwise (See the decisions of the Supreme Court in State of Bombay v. United Motors (India) Ltd., 1953 SCR 1069: (AIR 1953 SC 252 and in Himmatlal Harilal Mehta v. State of Madhya Pradesh, 1954 SCR 1122: (AIR 1954 SC 403) ).

12. It appears to me that in cases of this nature this Court should interfere, for, I consider that the remedy available by way of appeal to the Appellate Authority and then by way of second appeal to the Tribunal and then a Revision to this Court is not adequate where as. assessee like the petitioner before me is compelled in the meantime to pay the tax imposed on him by an arbitrary assessment which has been solely guided by the whim and/or fancy of the assessing authority. It is very seldom, if ever, that the Appellate Authorities in this state grant a stay of the payment of the lax imposed on an assessee by an assessment order whether it be arbitrary or otherwise. In fact, not a single case has come up before me where the Appellate Authority or the Tribunal had granted a stay of the collection of the lax imposed on an assessee. Andit would take years before an assessee is able to reach this Court in Revision to have a final adjudication. In these circumstances, the remedies under the statute, I feel, are not even adequate and in the case of arbitrary assessments such as the one evidenced by Ext. P6, this Court must protect the citizen from the whimsicalities of officials, who, it seems to me, allow enthusiasm to overrun judicial discretion and a sense of fair play. These authoriseshave to be kept on the 'leading strings' of fair play as this Court said in Musali Guptan v. State of Kerala, 1963 Ker LT 1051.

13. Principles of natural justice demand that there should be a fair determination of aquestion by quasi-judicial authorities. Arbitrariness will certainly not ensure fairness. Black's Law Dictionary defines the word 'Arbitrary' as

'Done capriciously or at pleasure without adequate determining principle; non-rational; not done or acting according to reason or judgment.'

14. For over a century, Courts have been at pains to lay down principles to guide authorities who have to determine questions in a quasi-judicial manner and the insistence has always been on adherence to the principles of natural justice. This, of course, requires a fair opportunity being afforded to a person charged or a person to be taxed, to show cause against the proposal and state his case. It appears to me that it does not end there. By merely telling a person of the proposal and giving him a chance to explain the principles of natural justice are not satisfied. If giving a mere opportunity to show cause and to explain would satisfy the principles of natural justice the notice to show cause becomes an empty formality signifying nothing for, after issuing the notice to show cause the authority can decide according to his whim and fancy. The judicial process does not end by making known to a person the proposal against him and giving him a chance to explain but extends further to a judicial consideration of his representations and the materials and a fair determination of the question involved. In this connection I may refer to two decisions of the House of Lords. Lord Loreburn in dealing with the powers of the Board of Education in Board of Education v. Rice, 1911 AC 179, observed:

'In such cases the Board of Education will have to ascertain' the law and also to ascertain the facts. I need not add that in doing either they must act in good faith and fairly listen to both sides, for that is a duty lying upon every one who decides anything.'

And later on, the same learned Judge observed:

'But if the Court is satisfied either that the Board have not acted judicially in the way I have described, or have not determined the question, which they are required by the Act to determine, then there is a remedy by mandamus and certiorari.'

The same principle was reiterated by the House of Lords in the decision in Local Govt. Board v. Arlidge, 1915 AC 120. Viscount Haldane, Lord Chancellor quoted with approval the decision of Lord Loreburn and said:

'I agree with the view expressed in an analogous case by my noble and learned friend Lord Loreburn. In 1911 AC 179 he laid down that, in disposing of a question which was the subject of an appeal to it, the Board of Education was under a duty to act in good faith, and to listen fairly to both sides, inasmuch as that was a duty which lay on everyone who decided anything.'

15. If the materials available are disregarded or if the 'quasi judicial authority refuses to apply its mind to the question and if he reaches a conclusion which bears no relation to the facts before him, I think, to allow those decisions to stand would be violative of the principles of natural justice. Arbitrary decisions can also, therefore, result inviolation of the principles of natural justice which is a fundamental concept of our jurisprudence. Nay, in certain cases, where an authority refuses to apply its mind to the question and makes a decision as it likes, it may amount to even a mala fide decision. That iswhat the Calcutta High Court decided in Ram Chandra Chaudhuri v. Secy. to Govt. of West Bengal, AIR 1964 Cal 265. '

16. Counsel on behalf of the Revenue has relied on a number of decisions. It is however, not necessary to refer to all of them, for, the principle relied on by counsel is clearly stated, if I may say so, in two recent pronouncements of the Supreme Court in Bhopal Sugar Industries Ltd. v. D. P. Dube, (1963) 14 STC 410 (SC) and Thansingh Nathmal v. Supdt. of Taxes, Dhubri, (1964) 15 STC 468: (AIR 1964 SC 1419). In (1964) 15 STC 468: (AIR 1964 SC 1419) the Supreme Court observed:

'The High Court does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under Article 226 trench upon an alternative remedy provided by statute for obtaining relief. Where it is open to the aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining redress in the manner provided by a statute, the High Court normally will not permit by entertaining a petition under Article 226 of the Constitution the machinery created under the statute to he by-passed, and will leave the party applying to it to seek resort to the machinery so set up.'

17. These observations were made with reference to the facts which were so stated by their Lordships.

'Against the order of the Commissioner an order for reference could have been claimed if the appellants satisfied the Commissioner or the High Court that a question of law arose out of the order. But the procedure provided by the Act to invoke the jurisdiction of the High Court was by-passed; the appellants moved the High Court challenging the competence of the Provincial Legislature to extend the concept of sale, and invoked the extraordinary jurisdiction of the High Court under Article 226 and sought to re-open the decision of the taxing authorities on a question of fact......'

18. The circumstances under which the remarks contained in the Judgment in (1963) 14 STC 410 (SC) have been made arc seen from page 415 of the report:

'In the present case the company invoked the jurisdiction of the High Court on question of fact as well as on the constitutionality of the taxing statute and breach of fundamental rights. The High Court instead of determining the constitutional questions, on which alone the petition could normally be entertained, proceeded to investigate the correctness of an assumption made by the company, and thereby decided the case which was not expressly raised by the other party. In doing so the High Court fell into an error and assumed jurisdiction to decide the dispute which had to bedecided by resort to the machinery provided under the Act after ascertainment of the true nature of the transaction in the light of the agreement and surrounding circumstances. The order passed by the High Court cannot therefore be upheld.'

I8a. I am unable to discern anything in the above decision or in the decisions of my learned brother Mr. Justice K. K. Mathew in O. P. Nos. 767 and 791 of 1963 (Kcr) on which too reliance was placed which militate again what I have stated above.

19. It is too well established a principle to be sought to be supported by decisions that the rejection of the account books does not give the Taxing Authority a right to make any assessment in any way it likes without any reference to the materials before him. Whether the assessment be one relating to income-tax, agricultural income-tax or sales-lax, the process of best judgment assessment is a quasi-judicial process, an honest and bona fide attempt in a judicial manner to determine the tax liability of a person. And such determination must be related to the materials before the authority.

20. I do not find even the slightest judicial approach to the question in this case. There was no material before the authority which would in any manner justify the addition of 27,60,000 and odd Rupees to the turnover. The addition made is arbitrary and capricious and is even mala fide in the sense that there has been no application of the mind to the question involved.

21. When tax is imposed illegally in such a fashion, I think, there is an infringement of the fundamental right of a person like the petitioner before me to curry on his trade or business. It was held by this Court in Aluminium Industries Ltd. v. Agricultural Income Tax and Rural Sales-tax Officer, 1961 Ker LJ 1336 that collecting tax not legally due infringes the right to carry on business guaranteed by the Constitution. No doubt quasi-judicial authorities have jurisdiction to decide rightly as well as wrongly. But no judicial or quasi-judicial authority has the right to decide in an arbitrary manner and if it so decides, I think, this Court is not helpless to safeguard the interests of the victim of such decision by interfering under Article 226 of the Constitution. Further I am of the view that in such cases Article 265 of the Constitution.

'No tax shall be levied or collected except by authority of law,'

is also violated. There is no collection of tax by the authority of law when assessments are made in this arbitrary fashion.

22. I quash Ext. P6 in so far as it relates to the addition of Rs. 27,60,883.60. The respondent will re-compute the turnover and the tax after deleting this turnover.

23. This writ application is allowed on the above terms and the respondent will pay the costs of the petitioner including Advocates fee Rs. 300.