Best judgment turnover assessment cannot rely on a rigid formula when reliable accounts support the declared turnover.

Best judgment turnover assessment under section 12(2)(b) requires the assessing authority to apply its own mind to the facts of the individual case, base the estimate on material, and give reasons; a rigid formula from another case cannot replace that statutory duty. The mechanical use of a five-times-working-expenses rule was therefore impermissible. Where the hotel accounts were found to be properly kept and sales were fully recorded, the declared turnover could not be displaced merely because purchase records were defective. The assessments had to be confined to the turnovers shown in the returns, with excess tax liable to refund if already paid.

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Issues: (i) Whether a best judgment turnover assessment under section 12(2)(b) could be made by mechanically applying a rigid formula or general working rule evolved in another case; (ii) whether the declared turnover could be displaced where the accounts of the hotels were found to be reliable.

Issue (i): Whether a best judgment turnover assessment under section 12(2)(b) could be made by mechanically applying a rigid formula or general working rule evolved in another case.

Analysis: The statutory scheme required the assessing authority, before estimating turnover, to give the dealer an opportunity to prove the return, hold an enquiry, base the estimate on some material, disclose that material to the extent possible, and assign reasons for the substitution. A best judgment assessment demanded the authority's own application of mind to the facts of the particular case. A formula or flat ratio, even if useful as a general working rule, could not be substituted for the statutory duty to exercise judgment in the individual case.

Conclusion: The mechanical adoption of the five-times-working-expenses formula was impermissible and the estimate on that basis was unsustainable.

Issue (ii): Whether the declared turnover could be displaced where the accounts of the hotels were found to be reliable.

Analysis: Where the assessing authority accepted that the accounts were properly kept and recorded the sales faithfully, there was no justification for rejecting the declared turnover. A defect in purchase records, when the sales turnover itself was fully recorded, did not warrant substitution of an estimate. The finding that the accounts were correct was inconsistent with a best judgment estimate overriding the declared figure.

Conclusion: The declared turnover could not be displaced, and the assessments on both businesses had to be confined to the turnovers shown in the returns.

Final Conclusion: The revision succeeded in substance: the impugned assessments were set aside to the extent they exceeded the declared turnovers, and relief was granted by restricting tax to the turnovers returned, with refund of excess tax if already paid.

Ratio Decidendi: In a best judgment assessment, the taxing authority must apply its own mind to the facts of the particular case and cannot mechanically adopt a pre-existing formula or working rule as a substitute for statutory judgment, especially where the assessee's accounts are found to be reliable.

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