Best judgment assessment needs rational material; penalty cannot rest only on wrong security computation under the circular.

Best judgment assessment requires some empirical, contemporaneous, or otherwise rational material; unsupported and arbitrary enhancement of escaped turnover cannot be sustained. On the facts noted, the departmental material related mainly to one assessment year, and the books-rejection and turnover estimates were therefore set aside, with remand for fresh consideration. Penalty could not be imposed merely because security was incorrectly computed under the Commissioner's circular, since the circular itself contemplated adjustment or recovery of the shortfall and that basis alone did not establish intent to evade tax. The penalty orders were accordingly annulled.

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Issues: (i) whether the rejection of the books of account and the estimation of escaped turnover for the assessment years in question were sustainable; (ii) whether penalty could be levied solely on the ground of incorrect computation of security under the Commissioner's circular.

Issue (i): whether the rejection of the books of account and the estimation of escaped turnover for the assessment years in question were sustainable.

Analysis: The material relied upon by the department was found to be primarily referable to one assessment year, without any categorical finding or cogent material supporting the other year. The assessment orders also contained mutually inconsistent recitals regarding production and verification of accounts. Although a best judgment assessment permits some degree of estimation, the estimate must still rest on some empirical, contemporaneous, or otherwise rational material. An unsupported and purely arbitrary enhancement of escaped turnover could not be sustained.

Conclusion: The rejection of the books of account and the estimation of escaped turnover were set aside, and the matter was remanded to the assessing authority for fresh consideration.

Issue (ii): whether penalty could be levied solely on the ground of incorrect computation of security under the Commissioner's circular.

Analysis: The circular itself contemplated a situation where the dealer had incorrectly computed security and provided for adjustment or recovery of the shortfall. The only basis for penalty was the difference in security amount, which by itself did not establish the requisite intention to evade tax. In these circumstances, the penalty orders could not stand.

Conclusion: The penalty orders were unsustainable and were set aside.

Final Conclusion: The revisions succeeded in part: the assessment matters were remanded for fresh decision, while the penalty matters were allowed and annulled.

Ratio Decidendi: A best judgment assessment must be founded on some material and rational basis, and penalty cannot be imposed merely because security was wrongly computed where the governing circular provides for correction of the shortfall.

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