1981 (6) TMI 135

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.... 264 of the IT Act, in respect of asst. yrs. 1970-71, 1975-76, 1976-77. 2. The facts may be briefly stated as follows : The assessee is running a hotel under the name and style Sharada Sweets', Fort Road, Gulbarga. The revenue had information that the assessee was having a taxable income from that business and that he had not filed the returns. The second respondent-ITO, issued notices u/s 148 of the IT Act (hereinafter referred to as the Act) for the asst. yrs. 1970-71, 1975-76 and 1976-77. Assessment orders were also passed u/s 144 of the Act, for the asst. yrs. 1970-71, 1975-76 and 1976-77. Petitioner filed return for the aforementioned three years declaring income Rs. 3,800 for each of those years. On 31-8-1974 and 2-9-1974 he....

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....pondent for the asst. yrs. 1970-71, 1975-76 and 1976-77 are contrary to law and are passed without an adequate opportunity to the petitioner and in any event capricious arbitrary inasmuch as there was no material before second respondent on the basis of which he could make best judgment assessments and therefore, the first respondent-Commissioner ought to have set aside the assessment order and remitted the same to the ITO for fresh assessment and not having done that, the Commr. had failed to exercise his jurisdiction. 3. A perusal of the assessment order indicates that the order of the Commr. for 1970-71 is passed on the admitted sales turnover which was Rs. 42,000, 10% of it has been taken as the probable income of the petitioner-asse....

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....ower to levy assessment on the basis of best judgment was not arbitrary power; it was that assessment must be based on some relevant material. It was not a power that could be exercised under the sweet-will and pleasure of the concerned authorities. Similarly, in the case of Sheo Nath Singh v. AAC of IT [1971] 82 ITR 147 (SC) Hegde. J, as he then was, speaking for the bench while considering the words "reason to believe" occurring in s. 34(1A) of the Act, held that those words suggested that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. It was further held that the ITO would be acting without ....