Best-judgment assessment must rest on disclosed material, and adverse information must be shared so the assessee can rebut it.

An income-tax assessment made under best-judgment powers must rest on some disclosed material and not on pure guess, suspicion, or surmise. Where the taxing authority relies on private inquiries, departmental information, or comparative data, fairness requires disclosure of the substance of that material and a real opportunity for the assessee to rebut it. Relevant material produced by the assessee must also be considered. An estimate of gross profit or sales based on undisclosed material is invalid and cannot be sustained.

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Issues: Whether an income-tax assessment made under Section 23(3) could be sustained when the assessee was not given access to adverse material relied upon by the authorities and when the estimate of gross profit was said to rest on surmise rather than material.

Analysis: The assessment under Section 23(3) had to be based on some material and not on a pure guess or bare suspicion. Where the taxing authority relies on information collected from private inquiries or departmental material, fairness requires that the substance of the material be disclosed to the assessee and that a real opportunity be given to rebut it. The Tribunal also could not refuse to consider relevant material produced by the assessee while relying on undisclosed comparative data from other mills. On the facts, the estimate of gross profit and sales was not supported by disclosed material and the assessee was denied a fair hearing.

Conclusion: The assessment and the Tribunal's estimate could not stand, and the appeal was allowed in favour of the assessee.

Ratio Decidendi: An income-tax assessment under best-judgment powers must rest on some disclosed material, and where adverse information is used against the assessee, fair procedure requires disclosure and an effective opportunity to meet it; an estimate founded on surmise, suspicion, or undisclosed material is invalid.

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