When making an assessment, the assessing officer is not entitled to make a pure guess without any evidence or any material at all. A criminal practice, like that of selling by short measure (Hirabai vs CIT (4 ITR 95)), or at prices in excess of controlled rates (Sivan vs CIT (34 ITR. 328)), or selling smuggled goods (Lalchand vs CIT (37 ITR 288 (SC))), cannot be attributed to the assessee in the absence of any evidence to show that the assessee followed such practice. There must be something more than bare suspicion to support an assessment (CIT vs Bombay Trust Corpn (4ITR 323, 331.3 (PC).

In Dhirajlal Girdharilal vs CIT (26 ITR 736), CIT vs Daulatram Rawatmull (87 ITR 349), Dhakeswari Cotton Mills Ltd vs CIT (26 ITR 775), Omar Salay Mohammed vs CIT (37 ITR 151) and Lalchand Bhagat Ambica Ram vs CIT (37 ITR 288) the Supreme Court set aside the assessment on the ground that it was based on bare suspicion, conjectures and surmises and further held in the first two cases that a finding of fact would be vitiated if it is based partly on conjectures or on material which is partly inadmissible or irrelevant, even though there may be some other relevant and admissible material to support the finding.

No hard and fast rule has been laid down by courts to define the sort of material on which the assessing officer's estimate of income should be based (Gangaram vs CIT (5 ITR 464, 484-5)). The material need not be direct evidence; it may be circumstantial evidence (CIT vs Kameshwar (1 ITR 94, 106 (PC).

The word "material" is used advisedly, because the assessing officer is notconfined to what would be evidence in a court of law. He may use his local knowledge (Forest Side Properties vs Pearce (39 TC 665,678 (CA))). "Past history' may be legitimate material, but is not sufficient by itself without more, to justify assessment in a particular year", for there must be some material related to the accounting year to justify a finding of concealed income (Bansidhar vs CIT (23 ITR 353,360).

From one proved or admitted incident of suppression of income, the department may be entitled to infer that there were other similar incidents (CST vs Esufali (90 ITR 271 (SC))). Documents recovered during a search illegally conducted can be utilised for the purposes of assessment.

The assessing officer may disbelieve the oral testimony of the assessee and other witnesses and hold that certain items in the accounts represent profits from undisclosed sources (Mohammed Ayub (9 ITR 610)). He may reject account books which he believes to be false and unreliable, although there may be no direct anddefinite evidence to prove them incorrect.

However, if the assessing officer proposes to make an estimate in disregard of the evidence, oral or documentary, led by the assessee, he should in fairness disclose to the assessee the material on which he is going to found that estimate.

The assessing officer is not debarred from relying on private sources of information, which sources he may not disclose to the assessee at all (CIT vs Khemchand (8 ITR 159)). In case he proposes to use against the assessee the result of any private inquiry made by him, he should communicate to the assessee the substance of such information so as to put the assessee in possession of full particulars of the case he is expected to meet and should further give him sufficient opportunity to meet it (Bhogilal vs CIT (74 ITR 692, 713).

The Income Tax Act makes an express statutory provision empowering the assessing officer to make the necessary inquiry (Section 142(2) and directing him to give the assessee an opportunity of beingheard in respect of any material proposed to be utilised for the purpose of assessment under Section 143(3) (Section 142(3). Further, the assessing officer should satisfy himself about the correctness of the information which he has received before acting upon it (Chiranjilal vs CIT (84 ITR 222)).

It was held in Gopinath vs CIT (4 ITR 1) that a finding, so far as it is based on private inquiries, of which the substance was not disclosed to the assessee, would be vitiated; but if it is also based on or can be supported by other materials which are relevant and admissible, the finding would be legal and the assessment would be upheld by the court. However, such cases seem to be no longer good law after the decision of the Supreme Court in Dhirajlal Girdharilal vs CIT (26 ITR 736,740) where a finding based on material which was only partly irrelevant or inadmissible was held to be vitiated.

In Traders & Traders vs CIT (236 ITR 269), the assessee was a registered firm having branches at various places. Forthe assessment years 1966-67 and 1967-68, the assessing officer made additions to its income treating it as a beneficiary of customs clearance permits issued in the name of French India Traders.

The tribunal came to the conclusion on the basis of materials and evidence on record, that the assessee was a beneficiary. The tribunal found that the exploitation took place amounting to Rs 20 lakh and it took note of the general practice that no one liked to openly associate with the exploitation as the exploitation by any person other than the owner of the permits would be considered as an infringement of the permits.

Therefore, the tribunal concluded that on account of the exploitation, a certain amount of secrecy surrounded the transactions and taking into account all other factors, particularly, the interest of the assessee and the fact that the permits were not standing in the name of the assessee, it estimated that out of total receipts of Rs 12 lakh, 50 per cent could be attributable to theassessee.

The estimate was also supported by the entries in the accounts of LGA, which was a partner of the assessee wherein two major amounts had been found and, therefore, the tribunal concluded that when the two amounts were taken into account, the profit of exploitation of customs clearance permits could roughly be estimated to be Rs 6 lakh, and on the basis of its own estimate arrived at on the materials on record, the tribunal held that Rs 1.50 lakh should be assessed for assessment year 1966-67 and the balance of Rs 4.5 lakh should be assessed for the assessment year 1967-68.

In the assessment year 1967-68, an amount of Rs 60,000 shown as credit in the name of DR was included in the total income of the assessee. The tribunal found that there was an admission by the creditor that the transaction was bogus. The creditor not only denied the transaction, but also filed an affidavit to the effect that the transaction was not a genuine one. The tribunal sustained the addition.

On a reference, theMadras High Court held that with regard to the income from undisclosed sources, the finding of the tribunal was arrived at on the basis of materials on record. The tribunal on an overall consideration came to the conclusion that out of a sum of Rs 6 lakh, Rs 1.50 lakh should be assessed for the assessment year 1966-67 and the balance of Rs 4.5 lakh should be assessed during the next assessment year. The tribunal estimated the profit attributable to the transaction and arrived at the figure of Rs 6 lakh. It also held that as far as Rs 60,000 was concerned, in the face of the denial by the creditor, the burden was cast on the assessee to prove that the transaction was a genuine one and in the absence of any convincing explanation from the assessee, the tribunal rightly came to the conclusion that the sum of Rs 60,000 with interest thereon should be added to the income of the assessee.

In conclusion, it may be pointed out that in some cases the assessing officer may be justified in estimating the assessee'sprofits after taking into account the average rate of profits made by other tradesmen in the same line (CIT vs Pilliah (63 ITR 411 (SC))). However, as the Supreme Court held in the case of Dhakeswari Cotton Mills Ltd, the assessee is entitled to get so much of the information regarding the comparable cases as can possibly be disclosed by the department with a view to appraising him of the basis on which his income is sought to be estimated.

The author is a Supreme Court advocate