Best judgment assessment must rest on disclosed material and rational reasons, not arbitrary flat-rate estimation.

A best judgment assessment may involve some guesswork, but it must rest on relevant material and disclosed reasons rather than arbitrary estimation. The High Court found that neither the Income-tax Officer nor the Commissioner identified any material supporting the adoption of a flat net profit rate, and the basis of computation was not rationally explained. The assessment and revisional orders were therefore held arbitrary and quashed, while the assessing authority was left free to make a fresh assessment in accordance with law.

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Issues: Whether the best judgment assessment made by the Income-tax Officer, and the Commissioner's affirmance in revision, were vitiated for want of any disclosed material and for arbitrariness in estimating net profit at a flat rate.

Analysis: In making a best judgment assessment, some element of guesswork is permissible, but the estimate must be based on relevant material and cannot be arbitrary. Here, neither the Income-tax Officer nor the Commissioner referred to any material supporting the adoption of a flat 15 per cent net profit rate. The basis of the computation was not disclosed, and the assessment was not shown to rest on any rational foundation.

Conclusion: The assessment and revisional orders were arbitrary and liable to be quashed; the petitioner succeeded, though the assessing authority was left free to make a fresh assessment in accordance with law.

Ratio Decidendi: A best judgment assessment, though involving guesswork, must be founded on relevant material and cannot be sustained if it is arbitrary or unsupported by disclosed reasons.

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