Principles behind best judgment assessment :
Best judgment assessment is one of the tools to harass taxable persons. Really, best judgment assessment cannot be on basis of whims and fancies.
It has been held that though best judgment assessment is an estimate and involves guess work, the estimate must relate to some evidence or material and it must be something more than mere suspicion – Raghubar Mandal v. State of Bihar – (1957) 8 STC 770 (SC) = AIR 1957 SC 810.
Even a best judgment assessment must be made reasonably and not surmises – Kathyaini Hotels v. ACCT (2004) 135 STC 77 (SC).
In State of Kerala v. C. Velukutty – (1966) 17 STC 465=60 ITR 239 (SC), it was held that ‘best of judgment’ means it does not depend on arbitrary caprice.
Though there is element of guesswork, it shall have reasonable nexus to the available material and circumstances of the case.
There is no doubt that authorities should try to make an honest and fair estimate of the income even in best judgment assessment and should not act arbitrarily, there is always a certain degree of guess work in best judgment assessment. If assessee did not maintain proper books of account, he himself has to be blamed for such assessment – Kachwala Gems v. JCIT (2007) 158 Taxman 71 (SC).
In CST v. H M Esufali – (1973) 90 ITR 271 = 1973 SCC (Tax) 484 = 32 STC 77 (SC), it was observed – ‘The distinction between ‘best judgment assessment’ and assessment based on accounts submitted by an assessee must be borne in mind. Sometimes there may be innocent or trivial mistakes in the accounts maintained by assessee. There may be even certain unintended or unimportant omissions in those accounts; but yet the accounts may be accepted as genuine and substantially correct. In such case, assessments are made on basis of accounts maintained, even though the Assessing Officer may add back to the accounts price of items that might have been omitted to be included in the accounts. In such case, the assessment made is not a ‘best judgment’ assessment. It is primarily made on the basis of accounts maintained by the assessee. – – – If the assessee is maintaining false accounts to evade taxes, it is not possible for the Assessing Officer to find out precisely the turnover suppressed. He can only make an estimate of the suppressed turnover on the basis of the material before him. So long as the estimate made by him is not arbitrary and has nexus with facts discovered, the same cannot be questioned. In the very nature of things, the estimate made may be overestimate or an under-estimate. But, that is no ground for interfering with his ‘best judgment’. – . – . – . – . – . – If the estimate made by assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. The ‘best judgment’ is of the Assessing Officer and of nobody else. – . – . – High Court cannot substitute its best judgment for that of Assessing Officer – . – . – Court will have to first see whether accounts maintained by assessee were rightly rejected as unreliable’.
In Dhakeswari Cotton Mills v. CIT AIR 1955 SC 65 = (1954) 26 ITR 775 (SC 5 member), it was held that technical rules of evidence and pleadings are not applicable in ‘best judgment assessment’, but it cannot be pure guess. There must be something more than mere suspicion to support assessment.
The best judgment assessment should be based on some material and basis must be disclosed to dealer. Dealer’s explanation has to be considered. – S Mohammed v. CCT (1999) 116 STC 28 (Karn HC DB) * Dwijendra Kumar v. Suptd. of Taxes (1990) 78 STC 393 (Gau HC) * Sankar Trading v. State of
Tripura (1991) 92 STC 22 (Gau HC DB).
In New Vishwakarma Engg Works v. CTT (1998) 110 STC 412 (All HC), it was held that even in case of best judgment assessment, principles of natural justice are required to be followed. Dealer should be informed of the material on which charge was going to be imposed and dealer must be given opportunity to rebut the effect of material, if he can.
Estimate of turnover on the basis of particulars available in dealer’s books is not a best judgment assessment – Arul Constructions v. State of Tamil Nadu (2011) 43 VST 157 (Mad HC DB).