Dipak Kumar Sen, J.
1. In this reference under Section 256(2) of the Income-tax Act, 1961, at the instance of M/s. Anand Rice & Oil Mills, Calcutta, the assessee, the Tribunal has been directed to refer to this court the following question :
'Whether the sustenance of the addition of Rs. 55,000 was based upon conjectures, suspicions and surmises and on a failure to consider the relevant material on record ?'
2. The facts found or admitted as appearing from the statement of the case and the annexures thereto are shortly as follows :
In the assessment year in question, i.e., 1960-61, the relevant previous year being from 22nd October, 1958, to 10th October, 1959, the assessee had owned and run a rice mill at Bolpuv in the district of Birbhum. In that year the assessee purchased paddy from local suppliers, viz , 'byaparis' and also from the cultivators. In the assessment for the said assessment year the Income-tax Officer noted that the purchases of paddy were supported only by the assessee's own documents being bills containing signatures and thumb impressions of the sellers. The Income-tax Officer also took note that the average cost price of paddy so purchased was Rs. 13.44 per maund. The cost of rice obtained from such paddy including the manufacturing andother expenses came to Rs. 22.17 per maund but the same rice was sold at a lower rate, viz., Rs. 21.84 per maund.
3. The Income-tax Officer accepted the sale figures of the assessee inasmuch as the same were vouched and were found to have been made at the prevailing market rate. It also appears that the Income-tax Officer accepted the quantity of paddy purchased by the assessee, viz., 53,043 maunds, during the said assessment year. But he did not accept the purchase price of the paddy on the ground that by reason of the aforesaid defects in the supporting documents there was a great possibility of inflating such price. Accordingly, he estimated the average cost price of such paddy at Rs. 12 per maund. On that basis he added a sum of Rs. 6,36,516 to the accounts.
4. Being aggrieved, the assessee preferred an appeal to the Appellate Assistant Commissioner before whom farther figures and particulars were furnished. It was contended on behalf of the assessee that all purchases from suppliers, i.e., 'byaparis', were fully supported by vouchers ; out of the total quantity of paddy purchased for an aggregate of Rs. 6,96,280, it was contended that purchases made directly from the cultivators amounted only to Rs. 2,77,970. Even in respect of such purchases from the cultivators during the period 1st January, 1959, to 23rd June, 1959 (within the said assessment year) it was contended that the price of paddy was controlled by the Government and that the assessee had purchased paddy from the cultivators during the period at such controlled price for an aggregate amount of Rs. 1,01,105. In respect of the balance purchases from the cultivators aggregating Rs. 1,76,865 it was urged that only in the months of December, 1958, July, 1959, and September, 1959, within the said assessment year, the assessee had paid the higher price to the cultivators than that paid to the other suppliers, viz., 'byaparis'. This higher price was sought to be justified on the ground that the paddy which was purchased from the cultivators during these months were old and dry but the paddy purchased from the other suppliers was new and contained a higher percentage of moisture.
5. The Appellate Assistant Commissioner appears to have accepted most of the contentions of the assessee. He only rejected the contention that it has been proved that during the months of December, 1958, July, 1959, and September, 1959, the assessee had purchased from the cultivators paddy of a quality different from that of the paddy purchased from the other suppliers. The total quantity of paddy purchased from the cultivators during three months were 538, 2,779 and 1,160 maunds, respectively. The difference in price on account of the excess rate paid to the cultivators on this amount aggregated to Rs. 3,303 according to the assessee's own case. The Appellate Assistant Commissioner added on estimate a sum ofRs. 5,000 on this account in respect of the paddy purchased during these three months.
6. From the order of the Appellate Assistant Commissioner, the revenue went up on further appeal to the Tribunal. Before the Tribunal, the only contention on behalf of the revenue was that the Appellate Assistant Commissioner not having accepted the explanation of the assesee he was not justified in reducing the addition made by the Income-tax Officer. It was also pointed out to the Tribunal that where the purchases were made direct from the cultivators the intermediary profits available to the authorised dealers were saved by the assessee and, therefore, the Appellate Assistant Commissioner 'erred in sustaining the additions for the rate higher than the dealers'.
7. The Tribunal accepted the submissions of the revenue. The Tribunal did not find that the paddy purchased from the cultivators was dry and that the paddy purchased from the dealers contained moisture. The Tribunal concluded that 'an addition of Rs. 55,000 in this account would meet the ends of justice'.
8. Mr. Pranab Pal, learned counsel for the assessee, has contended before us that the Tribunal has ignored important relevant materials on record and has come to a conclusion taking into account only some of the facts in respect of a part of the entire transactions for the year. Mr. S. Sen, learned counsel for the revenue, has contended otherwise.
9. We have carefully considered the respective submissions of the parties. It appears to us that the contentions made on behalf of the assessee are not without substance. It appears that contentions were raised and the Tribunal applied its mind only in respect of the purchases, for the three months, viz., December, 1958, July, 1959, and September, 1959. For purchases in these months, it was the contention of the assessee that higher price had been paid to the cultivators because the cultivators were selling a better quality of paddy. This was not accepted by the Appellate Assistant Commissioner nor by the Tribunal. But the basis on which the Tribunal added a sum of Rs. 55,000 is not at all clear, the Tribunal not having accepted the prices claimed by the assessee in respect of purchase of paddy in these three months aggregating 4,477 maunds only. On the rate as estimated by the Income-tax Officer the addition on this account could not exceed Rs. 6,600. The Tribunal has not given any basis of its own estimate. It is also not clear whether this sum of Rs. 55,000 added on estimate was in respect of the entire transactions in paddy in the year. If so, then the other facts and particulars which were before the Appellate Assistant Commissioner and on the basis of which the Appellate Assistant Commissioner made his order does not appear to have been considered by the Tribunal at all. The Tribunal, it is to be noted, did not reject the findings of the AppellateAssistant Commissioner on any point except that the final estimate of the Appellate Assistant Commissioner was rejected.
10. Law on this point, i.e., law in respect of assessments made on the basis of best judgment or estimate is well-settled. One of the later decisions of the Supreme Court in the case of Commissioner of Sales Tax v. H. M. Esufali H. M. Abdulali : 90ITR271(SC) , which was cited, lays down the law as follows :
'The distinction between a 'best judgment' assessment and assessment based on the accounts submitted by an assessee must be borne in mind. Sometimes there may be innocent or trivial mistakes in the accounts maintained by the assessee. There may be even certain unintended or unimportant omissions in those accounts ; but yet the accounts may be accept-ed as genuine and substantially correct. In such cases, the assessments are made on the basis of the accounts maintained even though the assessing officer may add back to the accounts price of items that might have been omitted to be included in the accounts. In such a case, the assessment made is not a 'best judgment' assessment. It is primarily made on the basis of the accounts maintained by the assessee. But, when the assessing officer comes to the conclusion that no reliance can be placed on the accounts maintained by the assessee, he proceeds to assess the assessee on the basis of his 'best judgment'. In doing so, he may take such assistance as the assessee's accounts may afford ; he may also rely on other information gathered by him as well as the surrounding circumstances of the case. The assessments made on the basis of the assessee's accounts and those made on 'best judgment' basis are totally different types of assessments.....'
'In estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing authority while making the 'best judgment' assessment, no doubt, should arrive at its conclusion without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his 'best judgment' and not of anyone else. The High Court could not substitute its 'best judgment' for that of the assessing authority. In the case of 'best judgment' assessments the courts will have to first see whether the accounts maintained by the assessee were rightly rejected as unreliable. If they come to the conclusion that they were rightly rejected, the next question that arises for consideration is whether the basis adopted in estimating the turnover has reasonable nexus with the estimate made. If the basis adopted is held to be a relevant basis even though the courts may think that it is not the mostappropriate basis, the estimate made by the assessing authority cannot be disturbed.'
11. In the abave case the Supreme Court also quoted with approval an observation, of Subba Rao J. (as he then was) in an earlier decision of the Supreme Court in the case of Stale of Kerala v. C. Velukulty : 60ITR239(SC) . This observation is at page 244 of the report and is as follows :
'The limits of the power are implicit in the expression 'best of his judgment'. Judgment is a faculty to decide matters with wisdom, truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a 'best judgment' assessment, it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case.'
12. As noted earlier, in the facts and circumstances of the instant case, it is not possible to discover any basis rational or otherwise from the order of the Tribunal and this order is apparently arbitrary.
13. In view of the law as laid down by the Supreme Court and in the facts and circumstances of the case, we answer the question referred to us in the affirmative and in favour of the assessee.
14. We make it clear that the matter before the Tribunal has now to be disposed of in accordance with law as has been stated above and on the basis and in consideration of the entire material on record. In the facts and circumstances of the case, there will be no order as to costs.
15. I agree.