JAYANTHILAL R TUNK Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Petitioner who is an Income-tax assessee has preferred these writ petitions challenging the best judgment assessment made by the second respondent-ITO, Gulbarga and the order of the CIT Karnataka Circle I, Central Revenue Buildings, Bangalore-1, passed u/s 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 :

(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-assessee. Therefore, even the ld. counsel for the petitioner concedes that the said income is arrived at on the basis of some material so far as asst. yr. 1970-71 is concerned and states that he does not press his attack in respect of the same. So far as the other two assessment years are concerned, from the records made available by the ld. counsel for respondents, it is disclosed therein that there was no material on the basis of which the ITO could have made best judgment assessment. In fact, it is argued by Sri. S. R. Rajashekhara Murthy, ld. counsel for respondents that the material before the ITO was that the previous year's income determined by him had been accepted by the assessee and therefore the total taxable income on the same would constitute a firm and reasonable basis. This could not be correct inasmuch as at the time when the assessment order was made, it was still open to the petitioner-assessee to challenge the income determined for the previous year. Therefore, to proceed on the basis that the assessee accepted the determination of the previous year's income would be erroneous. I have already pointed out that the ITO proceeded to pass assessment orders for the years 1975-76 and 1976-77 without any material. With regard to this, the law is well settled. In the case of State of Orissa v. Maharaja Sri B. P. Singh Deo AIR1970 SC 670 , [1970 ]76 ITR690 (SC ), (1971 )3 SCC52 , Hegde, J, as he then was, construing best judgment assessment under the Orissa Agrl. IT Act, 1947, held, that the power 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 AIR1971 SC 2451 , [1971 ]82 ITR147 (SC ), (1972 )3 SCC234 , [1972 ]1 SCR175 , 1971 (III )UJ802 (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 jurisdiction if the reason for his belief that the conditions were satisfied did not exist or was not material or relevant or to the belief required by the section.