Best-judgment assessment must disclose private enquiry material and allow rebuttal before reliance on comparables

An assessment made to the best of judgment under the Income-tax Act is not arbitrary where accounts are unreliable, but it must comply with natural justice. If the estimate rests on private enquiries or independently collected information, the assessee must be disclosed the material relied on and given a fair opportunity to show that the comparable cases are not truly comparable or otherwise rebut the estimate. A random assessment based on undisclosed material cannot be sustained. The assessment was therefore set aside for fresh consideration after disclosure and hearing.

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Issues: Whether an assessment based on private enquiries and comparable cases is valid without disclosing the material relied on to the assessee, and whether the assessee must be given an opportunity to meet that material.

Analysis: Under the proviso to section 13 of the Income-tax Act, the assessing authority may determine profits to the best of its judgment where accounts are unreliable, but that power is not arbitrary. If the assessment is founded on private enquiries or information collected independently, natural justice requires disclosure of the material relied upon so that the assessee can show that the instances are not comparable or can otherwise rebut the estimate. A random assessment based on undisclosed material cannot be sustained, and fair-play demands a real opportunity to contest the basis of the estimate.

Conclusion: The assessment could not stand without disclosure of the private enquiry material and an opportunity to rebut it. The questions referred were answered against the Revenue and in favour of the assessee, and the matter was sent back for fresh consideration after disclosure and hearing.

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