Best judgment assessment requires disclosed basis and rebuttal opportunity; undisclosed comparisons and conjectural profit estimates cannot stand.

Rejection of account books was upheld where primary records were missing, vouchers appeared spurious, and relevant records were withheld, making the objection one of fact. The contention that want of notice under section 23(2) invalidated the best judgment assessment was not accepted on the record. An estimated turnover and gross profit rate could not stand because the assessment did not disclose the basis of the figures or the comparable cases relied on, and the assessee had no chance to rebut that material. Gross profit was also required to be computed on accepted accounting principles, not by deductions unrelated to cost of goods sold.

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Issues: (i) whether the account books were rightly rejected and whether the absence of a notice under section 23(2) invalidated the best judgment assessment; (ii) whether the estimated turnover of Rs. 10,50,000 and gross profit rate of 9% were sustainable when no basis was disclosed to the assessee or opportunity given to rebut it; (iii) whether the manner of computing gross profit by deducting certain items was in accordance with accepted accounting principles.

Issue (i): whether the account books were rightly rejected and whether the absence of a notice under section 23(2) invalidated the best judgment assessment.

Analysis: The missing primary books, the production of spurious vouchers, and the withholding of relevant account records furnished material for rejection of the books. That rejection was treated as a question of fact not open to interference. On the further contention that a notice under section 23(2) was a condition precedent to a best judgment assessment, the record did not establish that the point had been raised earlier or that sufficient material existed to hold the assessment invalid on that ground.

Conclusion: The rejection of the books was upheld and the objection based on want of notice under section 23(2) failed.

Issue (ii): whether the estimated turnover of Rs. 10,50,000 and gross profit rate of 9% were sustainable when no basis was disclosed to the assessee or opportunity given to rebut it.

Analysis: The assessment orders did not disclose the basis for fixing the turnover at Rs. 10,50,000 or for adopting 9% as the gross profit rate. The supposed comparable cases were not identified, and the assessee was not given an opportunity to meet the material relied on. An estimate which depends on undisclosed materials and untested comparisons cannot stand, for an assessment must rest on some disclosed basis and not on pure conjecture.

Conclusion: The estimate of turnover and gross profit rate was held unsustainable.

Issue (iii): whether the manner of computing gross profit by deducting certain items was in accordance with accepted accounting principles.

Analysis: Gross profit is the excess of sales over the cost of goods sold and does not ordinarily include deductions for establishment or other items not directly affecting such cost. On accepted principles of accountancy, the disputed deductions were not properly taken into account in arriving at gross profit.

Conclusion: The computation method was not approved.

Final Conclusion: The reference was answered against the department, with the assessment basis found wanting for lack of disclosed material and opportunity to rebut, while the assessee was awarded costs.

Ratio Decidendi: A best judgment income assessment cannot rest on undisclosed comparisons or mere surmise and suspicion; the basis for estimating turnover or profit must be disclosed to the assessee and be capable of rebuttal, failing which the estimate is invalid.

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