Fair income estimation requires disclosed basis and rebuttal opportunity; a guess estimate is not lawful.

In an assessment under section 23(3), rejection of the books may be justified where the assessee fails to explain omitted receipts and the accounts do not reflect the true state of affairs, but the assessment must still be based on disclosed material and a fair opportunity to rebut it. An estimate made without revealing the basis relied upon, or without giving the assessee a chance to meet the material, is only a guess and not a lawful estimate. The document states that the estimate of income at Rs. 30,000 was not justified on these facts and the question was answered in the negative.

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Issues: Whether, in an assessment under section 23(3), the income-tax authorities could estimate the assessee's income at Rs. 30,000 without disclosing the basis of the estimate and without giving the assessee an opportunity to rebut the material relied upon.

Analysis: The rejection of the books was upheld because the assessee failed to give a satisfactory explanation for the omitted receipts and the records did not reflect the true state of affairs. However, rejection of accounts did not dispense with the obligation to make a fair assessment on relevant material. In an assessment under section 23(3), the assessee must be given an opportunity to meet the material or basis on which the proposed estimate is founded. A mere assertion that the authorities had inquiries showing omissions and higher lending rates was insufficient where the basis of the estimate was not disclosed and no opportunity to rebut it was shown. An assessment made without reference to material capable of verification by the assessee amounted to a guess and not a lawful estimate.

Conclusion: The question was answered in the negative. The estimate of income at Rs. 30,000 was not justified in the absence of disclosed basis and opportunity to rebut, and the assessee succeeded.

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