What are the outer limits on a 'best of judgment' estimate, and can suppression found in one place be projected onto another?
A suppression detected in the head office accounts was mechanically applied to estimate turnover of the branch. The Supreme Court held that the words 'best of his judgment' import limits: the estimate must be a judicial exercise, and although guesswork is involved it must not be a wild one and must have a reasonable nexus to the available material. It is the source of the 'guess but not a wild guess' formulation used throughout income-tax practice.
Decided by the Supreme Court (Supreme Court of India — J.C. Shah, K. Subba Rao and S.M. Sikri, JJ. (judgment delivered by Subba Rao, J.)) on 1965-12-02, reported as (1966) 60 ITR 239 (SC); (1966) 17 STC 465 (SC); Civil Appeals Nos. 986 and 987 of 1964. It bears on section 144 of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
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Assessments were made under the sales tax law on the basis of best judgment after suppressions were detected. The assessing authority estimated the turnover of the branch by applying the proportion of suppression found in the head office accounts, without any material connecting the two sets of books. The assessee challenged the estimate as arbitrary. The matter travelled to the Supreme Court on the scope of the best judgment power.
The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally, and does not depend on the arbitrary caprice of the officer. Though there is an element of guesswork in a best judgment assessment, it shall not be a wild one but must have a reasonable nexus to the available material and the circumstances of each case. Projecting the head office suppression onto the branch, with nothing linking them, was arbitrary.
The statute confers a power to assess, and every power to assess carries an obligation to act on some rational basis. The phrase 'best of his judgment' is therefore a limitation as much as a grant: it requires the officer to bring judgment, not caprice, to the exercise. An inference drawn from one set of books can be applied to another only if there is material showing the two are connected; otherwise the exercise is speculation dressed as estimation. The Court accordingly struck down the estimate while leaving the power to estimate intact.
Though there is an element of guess-work in a "best judgment assessment", it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case.
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Handle my notice → Ask a CA on WhatsAppA suppression detected in the head office accounts was mechanically applied to estimate turnover of the branch. The Supreme Court held that the words 'best of his judgment' import limits: the estimate must be a judicial exercise, and although guesswork is involved it must not be a wild one and must have a reasonable nexus to the available material. It is the source of the 'guess but not a wild guess' formulation used throughout income-tax practice. This was decided by the Supreme Court (Supreme Court of India — J.C. Shah, K. Subba Rao and S.M. Sikri, JJ. (judgment delivered by Subba Rao, J.)) and bears on section 144 of the Income Tax Act 1961. It is reported as (1966) 60 ITR 239 (SC); (1966) 17 STC 465 (SC); Civil Appeals Nos. 986 and 987 of 1964. If it applies to you, the first step is this: Identify precisely which material the officer used and whether it relates to the year, unit or business actually being assessed.
Assessments were made under the sales tax law on the basis of best judgment after suppressions were detected. The assessing authority estimated the turnover of the branch by applying the proportion of suppression found in the head office accounts, without any material connecting the two sets of books. The assessee challenged the estimate as arbitrary. The matter travelled to the Supreme Court on the scope of the best judgment power. The matter was decided on 1965-12-02 by the Supreme Court (Supreme Court of India — J.C. Shah, K. Subba Rao and S.M. Sikri, JJ. (judgment delivered by Subba Rao, J.)). On those facts the Supreme Court held as follows. The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally, and does not depend on the arbitrary caprice of the officer. Though there is an element of guesswork in a best judgment assessment, it shall not be a wild one but must have a reasonable nexus to the available material and the circumstances of each case. Projecting the head office suppression onto the branch, with nothing linking them, was arbitrary.
The statute confers a power to assess, and every power to assess carries an obligation to act on some rational basis. The phrase 'best of his judgment' is therefore a limitation as much as a grant: it requires the officer to bring judgment, not caprice, to the exercise. An inference drawn from one set of books can be applied to another only if there is material showing the two are connected; otherwise the exercise is speculation dressed as estimation. The Court accordingly struck down the estimate while leaving the power to estimate intact. In the words reproduced by the source cited on this page: "Though there is an element of guess-work in a "best judgment assessment", it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case."
It was decided by the Supreme Court on 1965-12-02 and is reported as (1966) 60 ITR 239 (SC); (1966) 17 STC 465 (SC); Civil Appeals Nos. 986 and 987 of 1964. 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, 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 limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally, and does not depend on the arbitrary caprice of the officer. Though there is an element of guesswork in a best judgment assessment, it shall not be a wild one but must have a reasonable nexus to the available material and the circumstances of each case. Projecting the head office suppression onto the branch, with nothing linking them, was arbitrary. It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 144 of the Income Tax Act 1961, and was decided by Supreme Court of India — J.C. Shah, K. Subba Rao and S.M. Sikri, JJ. (judgment delivered by Subba Rao, J.). 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. Resist extrapolation across years, branches or entities unless the Department shows a factual link. Ask for the working of the estimate to be set out in the order so the nexus can be tested in appeal. Frame the appeal ground as absence of nexus and arbitrariness, which is a question of law, rather than as a plea for a lower figure. Pair this with Dhakeswari where the material relied on was also never disclosed.
Still good law. This is a sales tax judgment, not an income-tax one: it construes section 12(2)(b) of the Travancore-Cochin General Sales Tax Act, 1125 M.E. (XI of 1125), and the words it interprets are "to the best of his judgment" in that Act. Separate check: still cited as the foundational authority limiting best judgment estimates in current commentary on s.144, alongside Kachwala Gems; no overruling or supersession found, and the 2025 Act carries forward an equivalent best judgment power. 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 limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom truly and legally, and does not depend on the arbitrary caprice of the officer. Though there is an element of guesswork in a best judgment assessment, it shall not be a wild one but must have a reasonable nexus to the available material and the circumstances of each case. Projecting the head office suppression onto the branch, with nothing linking them, was arbitrary.
TaxSphere, “State of Kerala v C. Velukutty”, https://taxnotice.vittsphere.com/caselaw/case/state-of-kerala-v-velukutty-not-a-wild-guess/ (validity last checked 2026-08-19)
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