Best judgment assessment must be material-based, not conjectural, after rejection of books of account for non-maintenance of records.

Rejection of books of account for failure to maintain the mandatory manufacturing account register justified a best judgment assessment, but the estimate still had to rest on some material, facts, or disclosed circumstances. Where turnover was enhanced without any contemporaneous evidence, the assessment was not a reasoned estimate and became arbitrary. The Allahabad HC therefore held that a best judgment assessment cannot be based only on surmises, conjecture, or whimsical assumptions, and the turnover enhancement was unsustainable.

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Issues: Whether, after rejection of the books of account for failure to maintain the mandatory manufacturing account register, the turnover could be enhanced by a best judgment assessment without reliance on any material or evidence.

Analysis: The mandatory maintenance of the manufacturing account register under Section 12 justified rejection of the books of account and permitted a best judgment assessment. However, the estimate could not be made in a vacuum. The assessment had to bear some nexus with material, facts, or disclosed circumstances and could not rest merely on surmises, conjectures, or arbitrary assumptions. Where the enhancement of purchases and sales was not founded on any contemporaneous material or evidence, the exercise ceased to be a reasoned best judgment assessment and became capricious and whimsical.

Conclusion: The enhancement of turnover was unsustainable and the revision was allowed.

Ratio Decidendi: A best judgment assessment following rejection of books of account must still be a reasoned and material-based estimation; it cannot be founded solely on conjecture or arbitrariness.

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