Best-judgment income estimation by Settlement Commission must be reasoned; unexplained additions are arbitrary and open to writ interference.

A Settlement Commission exercising best-judgment powers under Chapter XIXA of the Income-tax Act must still give reasons showing how the quantified addition was derived from the material on record. An unexplained selection of a figure, especially where larger amounts appear in the record, is arbitrary and capricious and can be interfered with in writ jurisdiction under Article 226. The impugned settlement order was therefore unsustainable, and the matter was remanded to the Settlement Commission for fresh consideration.

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Issues: Whether the Settlement Commission's order under Chapter XIXA of the Income-tax Act, 1961 warranted interference under Article 226 of the Constitution of India for want of reasons and an arbitrary best-judgment estimation of taxable income.

Analysis: The challenge was directed against the Settlement Commission's determination of the amount to be added to the assessee's income. The Court held that, although the Commission could adopt a best-judgment approach, it remained obliged to disclose the manner in which the figure was arrived at. The impugned order did not explain why a particular amount was selected in preference to the larger sums referred to in the materials, nor did it provide a rational basis for the additions made. In the absence of reasons, the estimate was held to be arbitrary and capricious, and the writ court could interfere where the settlement order suffered from such vice.

Conclusion: The impugned order was unsustainable and was set aside; the settlement application was remanded to the Settlement Commission for fresh consideration.

Final Conclusion: Judicial review was justified because a settlement order based on best judgment must still disclose a rational and reasoned basis for the quantified addition; failure to do so vitiates the order and permits remand.

Ratio Decidendi: A Settlement Commission may use best judgment in quantifying undisclosed income, but the figure must be supported by reasons showing a rational nexus with the materials on record; an unexplained and arbitrary estimate is liable to be interfered with in writ jurisdiction.

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