Private enquiry assessments require full disclosure and a rational nexus between material and turnover estimates.

An income-tax assessment based on private enquiries must rest on material disclosed to the assessee with a real opportunity to rebut it, and an estimate must have a rational nexus with the facts relied on. Here, only the substance of the private enquiry was communicated, while the detailed basis for the alleged suppressed turnover, the departmental note, and the foundation for applying a flat 50% profit rate were not properly disclosed. The Court also found no reliable link between the unaccounted dyes and chemicals and the turnover estimate, or between different business lines and the same profit rate. The assessment therefore could not stand.

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Issues: Whether the information collected in private enquiry was fully disclosed to the assessee and whether there was material to support the assessment made under section 13 of the Income-tax Act, 1922.

Analysis: The assessment was founded on private enquiries, comparable cases and an estimate of turnover and gross profit, but the material actually communicated to the assessee was only a bare statement of the substance of the private enquiry. The record did not show that the detailed basis of the alleged suppressed turnover, the note relied upon by the department, or the factual foundation for applying a flat 50% profit rate had been placed before the assessee in a manner enabling effective rebuttal. The Court also found no reliable nexus between the unaccounted dyes and chemicals and the estimated turnover, and no satisfactory basis for applying the same profit rate across different lines and methods of business.

Conclusion: The assessee was not given adequate disclosure and opportunity of rebuttal, and the assessment lacked material capable of supporting an order under section 13; the answer was therefore in the negative and in favour of the assessee.

Ratio Decidendi: An income-tax assessment based on private enquiries must be founded on material disclosed to the assessee with a real opportunity to rebut it, and an estimate unsupported by a rational nexus between the material and the figure adopted cannot stand.

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