Judgment

KHANNA, J. :- This appeal by special leave by the Commissioner of Sales Tax Uttar Pradesh is directed against the judgment of Allahabad High Court whereby it answered the following two questions referred to it under S. 11 of U. P. Sales Tax Act (hereinafter referred to as the Act) in the negative:

"(I) Whether the assessing officer under these circumstances could be said to have had an honest belief that the turnover had partially escaped taxation so as to start proceedings under Section 21?

(II) Whether the aforesaid two preliminary notices asking for the production of accounts can be taken to be notices under Sec. 21 for the starting of the proceedings so as to warrant passing of the assessment within one year of the service thereof?"

2. The matter relates to the assessment year 1957-58. The respondent assessee, Bhagwan Industries (P) Ltd., carries on the business of selling atta, maida and sooji. Its business comprises various units including Venkateshwar Flour Mills, Lucknow. It was assessed on December 26, 1958 for the purpose of sales tax for the year 1957-58 under rule 41 (5) of the U. P. Sales Tax Rules. The estimated turnover was determined to be Rs. 46,00,000, out of which the net turnover of Venkateshwar Flour Mills for atta, maida and sooji was estimated at Rs. 43,00,000. The assessment was ex parte and the respondent did not produce the account books.

3. On account of food shortage the Government banned the purchase of wheat by rolling flour mills from the open market in August 1958. The Government further fixed quota of wheat to be supplied by the Central Government for each such mill on the basis of average of grinding done in the past three years. The quota of Venkateshwar Flour Mills was fixed at 1,192 tons, i.e. 32,000 maunds per month. With that quota the respondent in the assessment year 1958-59 disclosed a turnover of Rs. 75,70,840. On September 13, 1961 the Sales Tax Officer issued the following notice to the respondent:

"Certain items of sales and purchases made by you during the year 57-58 & 58-59 have come to my notice which need verification. You are required to appear before me on 27-9-61 with all your account books of the year 57-58 and 58-59 for the above mentioned verification.

2. Please note that in case you fail to appear it will be presumed that the Sales and Purchases under reference are not entered in your books and action under Section 21 of the U. P. Sales Tax Act may be taken against you."

The above notice was served upon the respondent on September 19, 1961. Appearance was put in on behalf of the respondent in pursuance of the notice, but the account books were not produced. On March 13, 1962 the Sales Tax Officer sent the following memorandum to the respondent:

"M/s. Bhagwan Industries Private Ltd., Aishbagh Lucknow deal in attas, maida and sooji which are manufactured by them in their rolling flour mills Shree Venkateshwar Flour Mills. They have been finally assessed for the years 1956-57 and 1957-58 on estimated turnover of Rs. 42,75,000/- (tax assessed Rs. 98,046-94) and Rs. 45,00,000 (tax assessed Rs. 72,875.00) respectively. Both these assessment orders were passed ex parte. The case of the year 1956-57 was reopened under S. 21 on the basis of certain information and an escaped turnover of Rs. 35,532/- was again assessed under section 21 of the U.P. Sales Tax Act. At the time of this assessment also the account books were not produced.

2. The above mentioned firm is on record for the last many years. The sale of atta, maida and sooji was exempt under Section 4 of the U. P. Sales Tax Act upto 31-3-56 but was declared taxable with effect from 1-4-56. According to the assessment order of the year 1955-56 their sales of atta, maida and sooji had amounted to Rs. 58,18,425-15-6. The assessment case of the firm for the year 1958-59 has also been completed and during that year according to the account books the turnover of atta, maida and sooji had amounted to Rs. 75,70,840/-. Keeping in vie