Best-judgment assessment and sufficient-cause inquiry do not, by themselves, create a referable question of law.

A best-judgment assessment under section 23(4) of the Income-tax Act, 1922 does not, by itself, raise a referable question of law under section 66(3), because the officer is required to make an estimated assessment where statutory defaults occur and the mere fact of estimation or alleged arbitrariness remains within the statutory scheme. In an appeal from refusal to cancel such an assessment under section 27, the issue is whether the assessee showed sufficient cause for non-compliance, which is primarily factual; only the existence of supporting material for that finding may present a limited legal question. The broader challenge to the original assessment therefore fails.

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Issues: (i) Whether an assessment made under section 23(4) of the Income-tax Act, 1922, on the basis of the Income-tax Officer's best judgment can itself be challenged as raising a question of law before the High Court under section 66(3). (ii) Whether, in an appeal from an order refusing cancellation of such assessment under section 27, any question of law arises so as to justify a reference to the High Court under section 66(3).

Issue (i): Whether an assessment made under section 23(4) of the Income-tax Act, 1922, on the basis of the Income-tax Officer's best judgment can itself be challenged as raising a question of law before the High Court under section 66(3).

Analysis: A section 23(4) assessment is an estimated assessment made because the assessee has failed to comply with the statutory requirements. The provision requires the Income-tax Officer to make the assessment to the best of his judgment and does not confer a judicial discretion in the sense of a choice to act or not to act. The fact that the assessment is based on incomplete materials does not, by itself, convert the estimate into a question of law. An arbitrary assessment in the sense of a mere estimate is inherent in the statutory scheme, and the legality of such assessment cannot be reopened as a substantive legal issue under section 66(3) merely because it is said to be unreasonable or unsupported by full materials.

Conclusion: No question of law arises from the mere fact that the assessment under section 23(4) was estimated or said to be arbitrary in that sense.

Issue (ii): Whether, in an appeal from an order refusing cancellation of such assessment under section 27, any question of law arises so as to justify a reference to the High Court under section 66(3).

Analysis: Section 27 turns on whether the assessee was prevented by sufficient cause from making the return or complying with the statutory notices. That inquiry is primarily one of fact, and the Income-tax Officer is required to decide whether sufficient cause is shown. On appeal from refusal to cancel the assessment, the only possible legal issue is whether there were any materials to support the finding on sufficient cause. The validity of the original section 23(4) assessment is not the issue in such an appeal, and the proviso to section 30(1) bars a direct appeal against the assessment itself. The earlier contrary view that these matters involved a judicial discretion and gave rise to a question of law was rejected.

Conclusion: No question of law arises from the refusal to cancel the assessment under section 27 unless the limited issue of supporting material is shown, and the reference on the broader challenge fails.

Final Conclusion: The questions referred were answered in the negative, the challenged assessment was held not to furnish a referable question of law under section 66(3), and the contrary line of authority was disapproved pro tanto.

Ratio Decidendi: A best-judgment assessment under section 23(4) and a refusal under section 27 raise only factual questions unless the absence of any evidentiary basis is shown; they do not, merely because they are said to be arbitrary or unreasonable, generate a referable question of law under section 66(3).

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