Best judgment assessment must use rational estimates, not speculative round figures, when determining true income.

A best judgment assessment was permissible because the assessee's books were defective, but the addition failed because it was built on successive estimates and a speculative round figure rather than a rational estimate of true income. A reassessment under the proviso to section 13 of the Income-tax Act, 1922 must follow rules of reason and justice and approximate actual profits as closely as possible. The court held that an arbitrary addition was unsound, and the increase to disclosed income was not justified.

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Issues: Whether the addition of Rs. 50,000 to the disclosed income was justified on the basis of a best judgment assessment under the proviso to section 13 of the Income-tax Act, 1922.

Analysis: The assessee's books were found defective, so recourse to best judgment assessment was permissible. However, the addition was founded on a chain of estimates: the officer first estimated the gross profit in a comparable case, then used that estimate to fix the assessee's gross profit, and finally rounded the difference to arrive at an addition of Rs. 50,000. Such a method was held to be unsound because an assessment under section 13 must be made according to rules of reason and justice and should approximate the true profits as closely as possible. The adoption of a speculative and arbitrary round figure was also disapproved.

Conclusion: The addition was not justified and the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: A best judgment assessment must be based on a rational method reasonably calculated to ascertain true income, and not on an estimate built upon another estimate or on an arbitrary rounded addition.

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