Principles of Best Judgement assessment

The Hon'ble Supreme Court has categorically laid down in the case of State of Orissa v. Maharaja Shri B.P. Singh Deo, 76 ITR 690 (SC), that the mere fact that the material placed by the assessee before the Assessing Officer is unreliable, does not empower the Officer to make an arbitrary order. The power to make the best judgment assessment is not arbitrary one. The Assessing Officer in making a best judgment assessment does not possess absolute arbitrary authority to assess the income at any figure as he likes. Although he is not bound by strict judicial principles, he should be guided by the Rules of Justice, equity and good conscience. The Assessing Officer must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be fair estimate of the proper figure of assessment, and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. There is nothing in section 144 for holding an assessment made by an officer u/s. 144 without conducting a local enquiry and without recording the details and results of that enquiry cannot have been made to the best of his judgment within the meaning of that section. The best judgment is to be based on a fair and proper estimate of assessee's income and the inference to be drawn from the available material should be properly inferable inference. The assessment is to be based on material to the extent to which the materials are discovered. This clearly supposes the Assessing Officer should make an intelligent well-grounded estimate. Such estimate must be based on adequate and relevant material. What is irrelevant material depends on the facts and circumstances of the case