Best judgment assessment and annual accounts rejection upheld where relevant material supported estimation and one-quarter defect tainted the year's books.

A best judgment assessment is valid when the books and returns are rejected, provided the estimate rests on relevant material and is a fair estimate rather than a mere suspicion; here, suppression of sales, unreliable conduct, and the scale of business supplied sufficient basis for estimation. Section 12(2)(b) of the Orissa Sales Tax Act, 1947 permitted further enquiry and assessment after the assessee failed to comply fully with notice and the return was not found correct and complete, so best judgment assessment was competent. Where accounts were maintained on an annual basis, a defect affecting their credibility in one quarter justified rejection of the entire financial year's accounts, even though returns were filed quarterly.

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Issues: (i) Whether a best judgment assessment was invalid for want of material when the books of account and returns were rejected; (ii) whether best judgment assessment could be made under section 12(2)(b) of the Orissa Sales Tax Act, 1947; and (iii) whether, where a defect was found in one quarter, the accounts for the other quarters could still be rejected when the accounts were maintained on an annual basis.

Issue (i): Whether a best judgment assessment was invalid for want of material when the books of account and returns were rejected.

Analysis: Rejection of returns and account books does not authorise a purely arbitrary estimate. A best judgment assessment must rest on some evidence or material and must be a fair estimate, though it necessarily involves an element of guesswork. In the present case, the assessing authority relied on specific suppression of sales, the unreliable conduct of the assessee, and the scale of business. Those were treated as relevant materials supporting estimation, and the assessment could not be said to rest on mere suspicion or no evidence.

Conclusion: The assessment was not arbitrary or illegal for want of material; the answer was against the assessee.

Issue (ii): Whether best judgment assessment could be made under section 12(2)(b) of the Orissa Sales Tax Act, 1947.

Analysis: Once the assessee failed to comply fully with the statutory notice and the assessing authority was not satisfied that the return was correct and complete, the authority was competent to proceed to hear the matter and make the assessment under section 12(2)(b). The provision authorised further enquiry and assessment after rejection of the return-stage satisfaction contemplated by section 12(2).

Conclusion: Best judgment assessment could be made under section 12(2)(b); the answer was in the affirmative and against the assessee.

Issue (iii): Whether, where a defect was found in one quarter, the accounts for the other quarters could still be rejected when the accounts were maintained on an annual basis.

Analysis: Although returns were filed quarter-wise, the statutory scheme and the rules indicated that the books of account were maintained on an annual basis. The Act required correct and complete accounts, the term "year" meant the financial year, and the rules required preservation and maintenance of business records for the year. On that footing, a defect affecting the credibility of the annual accounts justified rejection of the accounts for the whole financial year, not merely for the quarter in which the defect was detected.

Conclusion: The accounts for the other quarters could also be rejected; the answer was in the affirmative and against the assessee.

Final Conclusion: The reference was answered in favour of the revenue on the core legal questions, with the assessee failing on the challenges to the assessment and on the argument that rejection should be confined to a single quarter.

Ratio Decidendi: A best judgment assessment is valid if it is founded on relevant material and fair estimation, and where the accounts are maintained on an annual basis, a proved defect affecting their reliability can justify rejection of the entire annual accounts even though returns are filed quarterly.

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