Best judgment assessment requires reasoned, material-based enquiry; provisional balance sheet alone cannot justify rejection of accounts.

Section 7(3) of the U.P. Trade Tax Act, 1948 permits rejection of a return only when it appears incorrect or incomplete, and any best judgment assessment must rest on material with a reasonable nexus to turnover. A rough or provisional balance sheet seized during survey, by itself, was insufficient to displace audited accounts or justify rejection of books without recorded reasons and contemporaneous enquiry. The statutory best judgment power had to be exercised on an empirical and reasoned basis, which was not done here. The rejection of accounts and the assessment founded solely on the provisional balance sheet were therefore unsustainable, and the matter was remanded for fresh consideration in accordance with law.

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Issues: Whether the rejection of the assessee's books of account and the consequential best judgment assessment were valid under Section 7(3) of the U.P. Trade Tax Act, 1948 when based principally on a rough or provisional balance sheet seized during survey.

Analysis: Section 7(3) permits rejection of a return only where it appears incorrect or incomplete and thereafter obliges the assessing authority to determine turnover to the best of its judgment. That power is not arbitrary and must be exercised on the basis of material having a reasonable nexus with the assessment. Here, the assessing authority and the Tribunal relied essentially on the rough or provisional balance sheet, without first recording reasons for disbelieving the audited accounts on which self-assessed tax had been paid and without undertaking an enquiry based on contemporaneous material. The statutory requirement of an empirical and reasoned best judgment exercise was therefore not satisfied.

Conclusion: The rejection of books of account and the assessment made solely on the basis of the provisional balance sheet were unsustainable, and the revision was allowed with remand to the assessing authority for fresh consideration in accordance with law.

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