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Issues: (i) Whether the Income-tax Officer was justified in proceeding ex parte under Section 23(4) and whether the assessee had shown sufficient cause for reopening the assessment under Section 27. (ii) Whether the ex parte assessment was made to the best of judgment in accordance with law and supported by adequate material.
Issue (i): Whether the Income-tax Officer was justified in proceeding ex parte under Section 23(4) and whether the assessee had shown sufficient cause for reopening the assessment under Section 27.
Analysis: A summary assessment under Section 23(4) could be made where there was non-compliance with notices requiring production of accounts and evidence. However, the exercise of power under Section 27 depended on whether the assessee was prevented by sufficient cause from complying with the statutory notices. The finding on sufficient cause had to be reached by a judicially sound exercise of discretion, after considering all material circumstances. The rejection of the assessee's application ignored relevant facts bearing on illness, inability to attend, and the effect of the officer's failure to communicate a definite order on the request for adjournment.
Conclusion: The ex parte assessment was technically within jurisdiction, but the assessee had established sufficient cause for reopening the assessment under Section 27.
Issue (ii): Whether the ex parte assessment was made to the best of judgment in accordance with law and supported by adequate material.
Analysis: An assessment to the best of judgment was not an exercise of unfettered whim. It had to rest on reasoned appreciation of materials and, where ex parte assessment was made, the Income-tax Officer was expected to conduct a local inquiry and place on record the details and results of that inquiry so that the assessment could be seen to be reasonable and not arbitrary. A vague, generalized or unsupported estimate could not satisfy that standard, especially where prior assessments suggested a materially lower income and no intelligible basis was disclosed for a drastic enhancement.
Conclusion: The assessment was not made to the best of judgment and was invalid in law.
Final Conclusion: The reference succeeded substantially in the assessee's favour, the ex parte assessment was held unsustainable, and the contrary departmental findings on sufficient cause and best judgment were rejected.
Ratio Decidendi: A best-judgment assessment under the Income-tax Act must be founded on some reasonable material, including necessary local inquiry where circumstances demand it, and a finding under the reopening provision can raise a question of law if it is reached without proper material or by ignoring relevant circumstances.
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