Can the Assessing Officer estimate income on departmental material the assessee has never been shown?
The officer estimated gross profit by comparing the assessee with other mills, without disclosing the comparative data or letting the assessee lead rebuttal evidence. The Supreme Court set the assessment aside, holding that an estimate cannot rest on pure guess and that the material relied on must be disclosed to the assessee. It is the foundational Indian authority on natural justice at the assessment stage.
Decided by the Supreme Court on 1954-10-29, reported as (1954) 26 ITR 775 (SC); AIR 1955 SC 65; 1955 SCR (1) 941. It bears on section 144, section 143(3), section 145 of the Income Tax Act 1961, in Assessment & Scrutiny and Evidence & Burden of Proof matters.
Binding on every court and authority in India.
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The assessee's account books had been seized by a magistrate, and it sought time to file its return. The Income-tax Officer made an assessment estimating gross profit at a rate drawn from comparisons with other mills. The comparative departmental material was never put to the assessee, the assessee's request to produce evidence in rebuttal was refused, and its books and supporting documents were not examined. The Appellate Tribunal upheld the assessment and the matter reached the Supreme Court.
The Income-tax Officer is not entitled to make an assessment on pure guess without reference to any evidence or material. Although he is not bound by technical rules of evidence and may act on material that would not be admissible in a court, he must disclose to the assessee the material on which he proposes to found his estimate and must give the assessee an opportunity to rebut it. Refusing to look at the assessee's evidence while relying on undisclosed departmental data vitiates the assessment.
The power to estimate is an assessing power, not an arbitrary one; it presupposes some material from which a rational conclusion can be drawn. Because the assessee cannot answer what it has not seen, an estimate built on undisclosed comparative figures denies the very opportunity the assessment procedure is meant to give. The Tribunal compounded the error by declining to receive the assessee's rebuttal material and by refusing to examine the books that bore on the profit rate. The combination of undisclosed material and refused evidence amounted to a violation of the principles of natural justice, and the assessment could not stand.
The Income-tax Officer is not entitled to base the assessment on pure guess without reference to any evidence or material.
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Handle my notice → Ask a CA on WhatsAppThe officer estimated gross profit by comparing the assessee with other mills, without disclosing the comparative data or letting the assessee lead rebuttal evidence. The Supreme Court set the assessment aside, holding that an estimate cannot rest on pure guess and that the material relied on must be disclosed to the assessee. It is the foundational Indian authority on natural justice at the assessment stage. This was decided by the Supreme Court and bears on section 144, section 143(3), section 145 of the Income Tax Act 1961. It is reported as (1954) 26 ITR 775 (SC); AIR 1955 SC 65; 1955 SCR (1) 941. If it applies to you, the first step is this: Ask in writing for copies of every comparable, third-party return, inspector's report or database extract the officer proposes to use.
The assessee's account books had been seized by a magistrate, and it sought time to file its return. The Income-tax Officer made an assessment estimating gross profit at a rate drawn from comparisons with other mills. The comparative departmental material was never put to the assessee, the assessee's request to produce evidence in rebuttal was refused, and its books and supporting documents were not examined. The Appellate Tribunal upheld the assessment and the matter reached the Supreme Court. The matter was decided on 1954-10-29 by the Supreme Court. On those facts the Supreme Court held as follows. The Income-tax Officer is not entitled to make an assessment on pure guess without reference to any evidence or material. Although he is not bound by technical rules of evidence and may act on material that would not be admissible in a court, he must disclose to the assessee the material on which he proposes to found his estimate and must give the assessee an opportunity to rebut it. Refusing to look at the assessee's evidence while relying on undisclosed departmental data vitiates the assessment.
The power to estimate is an assessing power, not an arbitrary one; it presupposes some material from which a rational conclusion can be drawn. Because the assessee cannot answer what it has not seen, an estimate built on undisclosed comparative figures denies the very opportunity the assessment procedure is meant to give. The Tribunal compounded the error by declining to receive the assessee's rebuttal material and by refusing to examine the books that bore on the profit rate. The combination of undisclosed material and refused evidence amounted to a violation of the principles of natural justice, and the assessment could not stand. In the words reproduced by the source cited on this page: "The Income-tax Officer is not entitled to base the assessment on pure guess without reference to any evidence or material."
It was decided by the Supreme Court on 1954-10-29 and is reported as (1954) 26 ITR 775 (SC); AIR 1955 SC 65; 1955 SCR (1) 941. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 144, section 143(3), section 145, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The Income-tax Officer is not entitled to make an assessment on pure guess without reference to any evidence or material. Although he is not bound by technical rules of evidence and may act on material that would not be admissible in a court, he must disclose to the assessee the material on which he proposes to found his estimate and must give the assessee an opportunity to rebut it. Refusing to look at the assessee's evidence while relying on undisclosed departmental data vitiates the assessment. It arises in Assessment & Scrutiny and Evidence & Burden of Proof matters, on section 144, section 143(3), section 145 of the Income Tax Act 1961. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the material is withheld, record the refusal in your reply and take it as a ground of appeal. Offer rebuttal evidence on the record at the assessment stage, and get the offer noted in the order sheet even if it is declined. Attack an estimate by showing the absence of any material with a rational nexus to the figure adopted, not merely that a lower figure is fairer. Read Dhakeswari together with the cross-examination line of cases where the material is a third party's statement.
Still good law. Separate check: still treated as the cornerstone authority on natural justice and estimation in assessment, cited in current practitioner and institute material on s.144 alongside Kachwala Gems and Velukutty; no overruling or statutory supersession found. That finding was checked against a published source, which is linked on this page, on 2026-08-19. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Income-tax Officer is not entitled to make an assessment on pure guess without reference to any evidence or material. Although he is not bound by technical rules of evidence and may act on material that would not be admissible in a court, he must disclose to the assessee the material on which he proposes to found his estimate and must give the assessee an opportunity to rebut it. Refusing to look at the assessee's evidence while relying on undisclosed departmental data vitiates the assessment.
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