Chandrakantaraj Urs, J.
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 :
The assessee is running a hotel under the name and style Sharada Sweets', Fort Road, Gulbarga. The revenue had information that the assessee was having a taxable income from that business and that he had not filed the returns. The second respondent-ITO, issued notices u/s 148 of the IT Act (hereinafter referred to as the Act) for the asst. yrs. 1970-71, 1975-76 and 1976-77. Assessment orders were also passed u/s 144 of the Act, for the asst. yrs. 1970-71, 1975-76 and 1976-77. Petitioner filed return for the aforementioned three years declaring income Rs. 3,800 for each of those years. On 31-8-1974 and 2-9-1974 he presented his revised returns for the asst. yrs. 1970-71 to 1974-75 declaring his income as Rs. 7,000 for each of those years. In the accompanying letter he had disclosed that in the period for which he had filed the revised returns he had purchased three motor vehicles investing Rs. 11,000 in the year 1973. Assessee had not maintained any books or records which came to be know at the time of the assessment proceedings. The Petitioner prayed for an adjournment on account of illness of his consultant representative but the adjournment was refused and in the absence of books, the second respondent did not accept the returns and proceeded to assess the income on best judgment basis. In the result, for the assessment years with which we are concerned, petitioner's income was assessed at Rs. 8,000 for the asst. yr. 1970-71; Rs. 15,000 for the asst. yr. 1975-76 and Rs. 18,000 for the asst. yr. 1976-77. Aggrieved by the same the petitioner assessee preferred a Revision Petition to the first respondent. The CIT, Bangalore, u/s 264 of the Act. The Commr. after hearing the representative of the petitioner passed the impugned order at Annexure-D. Not satisfied with relief given by the CIT who has sustained the assessment for the asst. yrs. 1970-71 and 1975-76 and reduced the taxable income for asst. yr. 1976-77 from Rs. 18,000 to Rs. 16,000, he has approached this Court u/Arts 226 and 227 of the Constitution, inter-aria contending that the assessment orders passed by the second respondent for the asst. yrs. 1970-71, 1975-76 and 1976-77 are contrary to law and are passed without an adequate opportunity to the petitioner and in any event capricious arbitrary inasmuch as there was no material before second respondent on the basis of which he could make best judgment assessments and therefore, the first respondent-Commr. ought to have set aside the assessment order and remitted the same to the ITO for fresh assessment and not having done that, the Commr. had failed to exercise his jurisdiction.
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-assesses. 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 assesses-petitioner 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 : 76ITR690(SC) , 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 : 82ITR147(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.
4. Mr. Desai argued on the basis of the above decisions that the ITO could only proceed after taking into account all relevant materials which he might have gathered and make assessment of the total income on the basis of his best judgment. In other words, his assessment without reference to any material gathered. He should not make his best judgment assessment on more suspicion, capriciously or arbitrarily. Even this Court in the case of S. Adappa v. Transport Commr. (1968) 2 Mys. LJ 581 : AIR 1969 Mys. 222 considering best judgment assessment provisions under the Karnataka Motor Vehicles (Taxation on Goods and Passengers) Act, 1961 held that best judgment assessment must be based on the material on record which could be gathered by the ITO on proper investigation.
5. In the light of the above decision, assessment orders for 1975-76 and 1976-77 cannot be sustained. The Commr. should have noticed this defect, and instead of giving relief for one of the years he should have set aside the orders in so far as they related to this asst. yrs. 1975-76 and 1976-77, and remitted the matter to the ITO for fresh disposal in accordance with law. The Commr. having failed to exercise his jurisdiction u/s 264 of the Act, it is necessary, to set aside the order of the Commr. in so far as they relate to the asst. yrs. 1975-76 and 1976-77. Accordingly, it is set aside and the matter is remitted to the observations made in the course of this order.
6. Rule is made absolute. The order as it relates to asst. yrs. 1975-76 and 1976-77. Therefore writ petition Nos. 4684 and 4685 are allowed and the writ petition No. 4683/80 is dismissed.
There will be no order as to costs.