Best judgment assessment must be rational and fair, while a merits-decided appellate order can support reference under the tax scheme.

A decision on the income-tax appellate scheme explains that where an assessee follows the statutory sequence from a fresh assessment application to an appeal heard and decided on merits, the Assistant Commissioner's determination constitutes an order under Section 31, supporting a reference to the High Court. It also states that a best judgment assessment under Section 23(4) is not an unfettered power: it must rest on a rational basis and conform to justice, equity and good conscience. However, where the assessment was made after enquiry and was found neither arbitrary nor unreasonable, the abstract challenge failed and no reference was called for.

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Issues: (i) Whether an order existed under the income-tax appellate scheme so as to support a reference to the High Court; (ii) whether a best judgment assessment under the income-tax law could be attacked on the footing that the Income-tax Officer had arbitrary power to assess at any figure.

Issue (i): Whether an order existed under the income-tax appellate scheme so as to support a reference to the High Court.

Analysis: The assessee had pursued the statutory sequence from a fresh assessment application under Section 27 of the Income-tax Act, 1922, to an appeal under Section 30(1), and the Assistant Commissioner had in fact heard and decided the appeal on merits. On that basis, the decision of the Assistant Commissioner amounted to an order under Section 31, and the view that no such order existed was incorrect.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether a best judgment assessment under the income-tax law could be attacked on the footing that the Income-tax Officer had arbitrary power to assess at any figure.

Analysis: A best judgment assessment under Section 23(4) of the Income-tax Act, 1922, is not an unfettered or arbitrary power. The assessment must be made on a rational basis and in accordance with justice, equity and good conscience. On the facts, however, the assessment had been made after enquiry and was recorded as neither arbitrary nor unreasonable, so a reference on the abstract legal proposition would not assist the assessee.

Conclusion: The issue did not justify calling for a reference, and the contention failed in substance.

Final Conclusion: The application for reference was rejected and the assessee obtained no relief.

Ratio Decidendi: A best judgment assessment is not immune from judicial standards of fairness, but where the assessment is shown to have been made on enquiry and is not arbitrary or unreasonable, a reference on the abstract legal issue need not be directed.

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