Best judgment assessment upheld where search material showed suppressed turnover and the estimate had a rational basis.

Reopening of a U.P. Sales Tax assessment was upheld where search materials, including seized papers, loose sheets and account books, disclosed suppressed turnover and double sets of accounts, giving reason to believe that income had escaped assessment. No breach of natural justice arose because the material actually relied on, namely the survey report and the assessee's sworn statement, had been supplied; the Special Investigation Branch letter was not the basis of assessment. Rejection of the books and best judgment assessment were justified on the evidence of suppression. The turnover estimate for both years was sustained because it rested on relevant material and a rational nexus, and was not arbitrary.

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Issues: (i) Whether the assessment for 1969-70 could be reopened under section 21 of the U.P. Sales Tax Act on the basis of material gathered in the search and survey proceedings; (ii) Whether non-supply of the Special Investigation Branch report vitiated the assessment for breach of natural justice; (iii) Whether rejection of the account books and adoption of best judgment assessment were justified; and (iv) Whether the turnover estimated for both years was arbitrary and unsupported by material.

Issue (i): Whether the assessment for 1969-70 could be reopened under section 21 of the U.P. Sales Tax Act on the basis of material gathered in the search and survey proceedings.

Analysis: The reopening was founded on material obtained during the search, including seized papers, loose sheets and account books suggesting suppressed turnover and double sets of accounts. That material furnished a reason to believe that part of the turnover had escaped assessment.

Conclusion: The reopening was valid and within jurisdiction.

Issue (ii): Whether non-supply of the Special Investigation Branch report vitiated the assessment for breach of natural justice.

Analysis: The material actually relied upon in assessment consisted of the survey report and the assessee's statement on oath, both of which were supplied. The Special Investigation Branch communication was treated as a letter in the nature of correspondence and was not the basis of the assessment.

Conclusion: No breach of natural justice was established.

Issue (iii): Whether rejection of the account books and adoption of best judgment assessment were justified.

Analysis: The survey disclosed suppression of transactions in loose sheets and the maintenance of double accounts. Such material justified disbelief in the books and warranted best judgment assessment.

Conclusion: Rejection of the account books and best judgment assessment were justified.

Issue (iv): Whether the turnover estimated for both years was arbitrary and unsupported by material.

Analysis: The estimate was based on specific material showing concealed purchases and sales for substantial parts of the relevant years. In estimating escaped turnover, some guesswork is inevitable, but it must rest on a rational basis having reasonable nexus with the material and must not be tainted by bias, caprice or vindictiveness.

Conclusion: The estimated turnover was not arbitrary and did not warrant interference.

Final Conclusion: The assessment orders were sustained in full and the writ petition failed.

Ratio Decidendi: An estimate of escaped turnover in best judgment assessment is sustainable if it is founded on relevant material and has a rational nexus with that material, even though some element of guesswork is involved.

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