The officer rejected my books and then simply picked a figure, and the appellate authority enhanced it without saying why. Can an estimate be made like that?
No. The Supreme Court dismissed the State's appeals and upheld the Orissa High Court, which had set aside an enhancement made in a best judgment assessment. The Assistant Collector had found the assessee's material unreliable and had then enhanced the income without giving any reason and without disclosing the basis of the enhancement. The Court held that unreliability of the assessee's material does not empower the authorities to make an arbitrary order. The power to assess to the best of judgment is not an arbitrary power; the assessment must be based on some relevant material. The Tribunal had erred in affirming it without reasons.
Decided by the Supreme Court (Supreme Court of India - J.C. Shah and K.S. Hegde, JJ (judgment delivered by Hegde, J)) on 1969-12-01, reported as AIR 1970 SC 670; (1970) 76 ITR 690 (SC); (1971) 3 SCC 52. It bears on section 29(iii) of the Orissa Agricultural Income-tax Act, section 144, section 145(3) of the Income Tax Act 1961, in Assessment & Scrutiny matters.
This is the shortest and bluntest statement of the discipline of a best judgment assessment, and it is cited far outside the agricultural income-tax statute it arose under. It answers the argument that once the books are rejected the officer is at large: rejection of the assessee's material is the occasion for an estimate, not a licence to fix any figure. Two things follow that a practitioner can use on any estimate. The order must disclose the basis on which the figure was arrived at. And an appellate authority that merely affirms such an order, without reasons of its own, is itself in error. Read it with Brij Bhushan Lal Parduman Kumar, decided nine years later, which supplies the fuller statement of the same principle in income-tax.
Binding on every court and authority in India.
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The assessee was assessed to agricultural income-tax in Orissa for 1952-53 and 1953-54. The Agricultural Income-tax Officer was unable to rely on the books produced and made a best judgment assessment, estimating net income at Rs 34,233 for the first year and Rs 35,100 for the second. On appeal the Assistant Collector of Agricultural Income-tax called for further books listed in his notice; the assessee produced some and not the rest, and the Assistant Collector, for reasons stated in his order, declined to rely on those produced. Having rejected that additional material, he not only dismissed the appeal but, after giving notice to show cause, enhanced the assessable income by Rs 30,000 for 1952-53 and by Rs 20,000 for 1953-54. The Agricultural Income-tax Appellate Tribunal affirmed that decision, giving no reasons of its own. The Orissa High Court, exercising its powers under section 29(iii) of the Act, set aside the orders of the Tribunal and of the Assistant Collector. The State appealed by certificate. By the time the matter reached the Supreme Court the original assessment made by the Agricultural Income-tax Officer was no longer in dispute; the only question was whether the enhancement was justified.
The appeals were dismissed with costs, one set of hearing fee, and the High Court's interference was upheld. Apart from concluding that the material the assessee had placed before him was unreliable, the Assistant Collector gave no reason for enhancing the assessment, and his order did not disclose the basis on which he had enhanced it. The mere fact that the assessee's material is unreliable does not empower the authorities to make an arbitrary order. The power to levy an assessment on the basis of best judgment is not an arbitrary power; the assessment must be based on some relevant material, and the power is not one to be exercised at the sweet will and pleasure of the authorities. The Tribunal gave no reasons for affirming the Assistant Collector and appeared to think that once the material placed before them is rejected as unreliable the authorities may levy whatever tax they choose. It had failed to bear in mind the scope of the power, and was clearly in error in confirming the Assistant Collector's decision.
The reasoning is compressed into a single step, and its force lies in the distinction the Court draws. Rejection of the assessee's books establishes only that the return cannot be accepted as it stands; it says nothing about what the true figure is. The statutory power that then arises is a power to assess to the best of the authority's judgment, and the Court reads the words as a limitation rather than a licence - judgment implies material to judge on, so the estimate must rest on some relevant material and the order must show what that material was. The Court noted that the scope of this power had been explained by it over and over again. The corollary drawn for the appellate stage is that the failure of the Assistant Collector to disclose any basis was not cured by affirmance: a Tribunal which affirms without reasons, on the view that unreliable material leaves the authorities free to levy what they like, has misdirected itself on the nature of the power, and the High Court was therefore justified in interfering with a decision that would otherwise be a finding of fact.
The mere fact that the material placed by the assessee before the assessing authorities is unreliable does not empower those authorities to make an arbitrary order.
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court dismissed the State's appeals and upheld the Orissa High Court, which had set aside an enhancement made in a best judgment assessment. The Assistant Collector had found the assessee's material unreliable and had then enhanced the income without giving any reason and without disclosing the basis of the enhancement. The Court held that unreliability of the assessee's material does not empower the authorities to make an arbitrary order. The power to assess to the best of judgment is not an arbitrary power; the assessment must be based on some relevant material. The Tribunal had erred in affirming it without reasons. This was decided by the Supreme Court (Supreme Court of India - J.C. Shah and K.S. Hegde, JJ (judgment delivered by Hegde, J)) and bears on section 29(iii) of the Orissa Agricultural Income-tax Act, section 144, section 145(3) of the Income Tax Act 1961. It is reported as AIR 1970 SC 670; (1970) 76 ITR 690 (SC); (1971) 3 SCC 52. This is the shortest and bluntest statement of the discipline of a best judgment assessment, and it is cited far outside the agricultural income-tax statute it arose under. It answers the argument that once the books are rejected the officer is at large: rejection of the assessee's material is the occasion for an estimate, not a licence to fix any figure. Two things follow that a practitioner can use on any estimate. The order must disclose the basis on which the figure was arrived at. And an appellate authority that merely affirms such an order, without reasons of its own, is itself in error. Read it with Brij Bhushan Lal Parduman Kumar, decided nine years later, which supplies the fuller statement of the same principle in income-tax. If it applies to you, the first step is this: Ask, in writing, for the basis of the estimate, and record that the order gives none if it gives none; the absence of a disclosed basis is the ground of attack.
The assessee was assessed to agricultural income-tax in Orissa for 1952-53 and 1953-54. The Agricultural Income-tax Officer was unable to rely on the books produced and made a best judgment assessment, estimating net income at Rs 34,233 for the first year and Rs 35,100 for the second. On appeal the Assistant Collector of Agricultural Income-tax called for further books listed in his notice; the assessee produced some and not the rest, and the Assistant Collector, for reasons stated in his order, declined to rely on those produced. Having rejected that additional material, he not only dismissed the appeal but, after giving notice to show cause, enhanced the assessable income by Rs 30,000 for 1952-53 and by Rs 20,000 for 1953-54. The Agricultural Income-tax Appellate Tribunal affirmed that decision, giving no reasons of its own. The Orissa High Court, exercising its powers under section 29(iii) of the Act, set aside the orders of the Tribunal and of the Assistant Collector. The State appealed by certificate. By the time the matter reached the Supreme Court the original assessment made by the Agricultural Income-tax Officer was no longer in dispute; the only question was whether the enhancement was justified. The matter was decided on 1969-12-01 by the Supreme Court (Supreme Court of India - J.C. Shah and K.S. Hegde, JJ (judgment delivered by Hegde, J)). On those facts the Supreme Court held as follows. The appeals were dismissed with costs, one set of hearing fee, and the High Court's interference was upheld. Apart from concluding that the material the assessee had placed before him was unreliable, the Assistant Collector gave no reason for enhancing the assessment, and his order did not disclose the basis on which he had enhanced it. The mere fact that the assessee's material is unreliable does not empower the authorities to make an arbitrary order. The power to levy an assessment on the basis of best judgment is not an arbitrary power; the assessment must be based on some relevant material, and the power is not one to be exercised at the sweet will and pleasure of the authorities. The Tribunal gave no reasons for affirming the Assistant Collector and appeared to think that once the material placed before them is rejected as unreliable the authorities may levy whatever tax they choose. It had failed to bear in mind the scope of the power, and was clearly in error in confirming the Assistant Collector's decision.
The reasoning is compressed into a single step, and its force lies in the distinction the Court draws. Rejection of the assessee's books establishes only that the return cannot be accepted as it stands; it says nothing about what the true figure is. The statutory power that then arises is a power to assess to the best of the authority's judgment, and the Court reads the words as a limitation rather than a licence - judgment implies material to judge on, so the estimate must rest on some relevant material and the order must show what that material was. The Court noted that the scope of this power had been explained by it over and over again. The corollary drawn for the appellate stage is that the failure of the Assistant Collector to disclose any basis was not cured by affirmance: a Tribunal which affirms without reasons, on the view that unreliable material leaves the authorities free to levy what they like, has misdirected itself on the nature of the power, and the High Court was therefore justified in interfering with a decision that would otherwise be a finding of fact. In the words reproduced by the source cited on this page: "The mere fact that the material placed by the assessee before the assessing authorities is unreliable does not empower those authorities to make an arbitrary order."
It was decided by the Supreme Court on 1969-12-01 and is reported as AIR 1970 SC 670; (1970) 76 ITR 690 (SC); (1971) 3 SCC 52. 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 29(iii) of the Orissa Agricultural Income-tax Act, section 144, section 145(3), 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 helps the taxpayer. The appeals were dismissed with costs, one set of hearing fee, and the High Court's interference was upheld. Apart from concluding that the material the assessee had placed before him was unreliable, the Assistant Collector gave no reason for enhancing the assessment, and his order did not disclose the basis on which he had enhanced it. The mere fact that the assessee's material is unreliable does not empower the authorities to make an arbitrary order. The power to levy an assessment on the basis of best judgment is not an arbitrary power; the assessment must be based on some relevant material, and the power is not one to be exercised at the sweet will and pleasure of the authorities. The Tribunal gave no reasons for affirming the Assistant Collector and appeared to think that once the material placed before them is rejected as unreliable the authorities may levy whatever tax they choose. It had failed to bear in mind the scope of the power, and was clearly in error in confirming the Assistant Collector's decision. It arises in Assessment & Scrutiny matters, on section 29(iii) of the Orissa Agricultural Income-tax Act, section 144, section 145(3) of the Income Tax Act 1961, and was decided by Supreme Court of India - J.C. Shah and K.S. Hegde, JJ (judgment delivered by Hegde, 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. Do not fight only about whether the books were rightly rejected - even if they were, the figure that follows still has to rest on relevant material. Where an appellate authority enhances, insist that it state its own reasons; an enhancement founded on nothing but the unreliability of your material will not stand. Give the authority material it can work from - comparable cases, your own past history, yields and rates - so that any estimate has a nexus to something on the record.
Still good law. Constantly cited on the limits of an estimate; the harvested page records it as followed in more than eighty later decisions. No later decision doubting it was read as part of this exercise. No source could be cited for that finding. 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 case arose under the Orissa Agricultural Income-tax Act, not the Income-tax Act; the reference to the High Court was under section 29(iii) of that Act. The batch line's sections 144 and 145(3) of the 1961 Act are where the same principle is applied in income-tax, but neither was before the Court and the judgment cites no section of either income-tax statute. The judgment is very short and names none of its own earlier decisions, saying only that the scope of the power has been explained over and over again. It does not disturb the Agricultural Income-tax Officer's original estimate, which was no longer disputed, so nothing here decides what basis would have been sufficient - only that none was disclosed for the enhancement. The batch line dates the case to 1970, the year of the reports; the judgment was delivered on 1 December 1969 and that date has been used. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with costs, one set of hearing fee, and the High Court's interference was upheld. Apart from concluding that the material the assessee had placed before him was unreliable, the Assistant Collector gave no reason for enhancing the assessment, and his order did not disclose the basis on which he had enhanced it. The mere fact that the assessee's material is unreliable does not empower the authorities to make an arbitrary order. The power to levy an assessment on the basis of best judgment is not an arbitrary power; the assessment must be based on some relevant material, and the power is not one to be exercised at the sweet will and pleasure of the authorities. The Tribunal gave no reasons for affirming the Assistant Collector and appeared to think that once the material placed before them is rejected as unreliable the authorities may levy whatever tax they choose. It had failed to bear in mind the scope of the power, and was clearly in error in confirming the Assistant Collector's decision.
TaxSphere, “State of Orissa v Maharaja Shri B.P. Singh Deo”, https://taxnotice.vittsphere.com/caselaw/case/state-of-orissa-v-maharaja-shri-b-p-singh-deo/ (validity last checked 2026-08-29)
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