Best-judgment assessment requires statutory notice and a rational basis; accounts cannot be rejected arbitrarily.

Where an assessee files a return and produces accounts in compliance with a requisition, the taxing authority cannot reject them and make a best-judgment assessment without first issuing notice under section 23(2) and giving the assessee an opportunity to meet objections. An assessment made without that statutory notice was held illegal. The use of section 13 also failed because the estimate was not based on any disclosed material or rational foundation and was treated as a mere guess. The assessment procedure was required to remain judicial and reasoned, and the accounts furnished could not be discarded arbitrarily.

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Issues: Whether an assessment made after the assessee furnished a return and produced accounts in response to a notice under section 22(4) of the Income-tax Act, 1922, could be sustained without giving notice under section 23(2) to meet objections to the return and accounts, and whether the estimate under section 13 was justified.

Analysis: A return had been filed and the accounts were produced in compliance with the requisition. Where the Income-tax Officer is not prepared to accept the return and accounts, the statutory procedure required notice under section 23(2) before rejecting them and proceeding on a best judgment basis. The assessment was made without such notice. The reliance on section 13 also failed because the estimate was not founded on any disclosed basis or material and was treated as a mere guess. The procedure of assessment was required to be judicial in nature, and the accounts furnished by the assessee could not be discarded without lawful and reasoned grounds.

Conclusion: The assessment was illegal for want of notice under section 23(2) and for the arbitrary use of section 13. The answer was in favour of the assessee.

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