Law:

Section:

Section 144, of the Income-tax Act, 1961 - Best assessment - Assessment year 1974-75 - Whether while making a best assessment, though there must necessarily be guess work in matter, it must not be arbitrary - Held, yes - Assessee-contractor did not main books of account - He filed his return of income on estimate basis by computing profit at flat rate of 10 per cent on gross receipts - ITO, however, computed net profit at rate of 15 per cent - Revision petition filed by assessee was dismissed by Commissioner - Whether since neither ITO nor Commissioner had referred to any material for applying flat rate of 15 percent while estimating net profits, impugned orders passed by them deserved to be set aside - Held, yes FACTS The petitioner assessee, who was carrying on business as a contractor filed his return on estimated basis by computing the profit at a flat rate of 10 per cent, on gross receipts, as he did not maintain any books of account. The ITO, however, computed the net profit at 15 per cent, on the contract payments received by the assessee. The revision petition filed under section 263 was dismissed by the Commissioner. On writ: HELD It is now well settled that while making a best assessment, though there must necessarily be guess-work in the matter, it must not be arbitrary. In the instant case, the basis on which the computation was made was not disclosed in the order. Neither the ITO nor the Commissioner had referred to any material for applying the flat rate of 15 per cent while estimating the net profits. In such circumstances, the assessment order could not but be held to be arbitrary. The order passed by the ITO and that passed by the Commissioner, therefore, deserved to be set aside. The petition was allowed accordingly. Note: The case has been decided in favour of the petitioner-assessee. JUDGMENT Sohani, J.-This is a petition under arts. 226 and 227 of the Constitution. The material facts giving rise to this petition briefly are as follows : The petitioner carries on business as a contractor and is an assessee under the I.T. Act, 1961, hereinafter called "the Act". For the assessment year 1974-75, the petitioner filed his return on estimate…

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