K. Shivashankar Bhat, J.Under the provisions of the Income Tax Act, 1961, the following question has been referred for our consideration :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not admitting the assessment order dated October 31, 1977.of the Commercial Tax Officer in evidence and examining the same on merits "

2. The assessee produces sugar. The relevant assessment year is 1976-77. The assessment was completed to the best of the Income Tax Officers judgment on the basis of the materials gathered by him. The Income Tax Officer had obtained the figures pertaining to the turnover of the assessee as available with the Commercial Tax Department. From this, he estimated the gross profit and from that he inferred the taxable income as 25 per cent. of the turnover. The Income Tax Officer also referred to the previous years assessment records. The assessee appealed to the Commissioner of Income Tax (Appeals) and, along with the appeal memo, enclosed the order of assessment passed by the Commercial Tax Department would not convey a proper figures of the assessees turnover resulting in its income because, under the provisions of the Sales Tax Act, taxable turnover is confined to sugarcane purchased by the assessee; but the sugar as such is not taxed. The taxable income will have to be estimated by reference to the sales turnover of sugar. Therefore, according to the assessee, a fair and proper estimate of the taxable income of the assessee could be made by looking into the assessment order under the Sales Tax Act which would disclose the turnover which was taxed and which was not taxed thereunder. The Commissioner rejected the prayer of the assessee to look into the assessment order under the Sales Tax Act on the ground that the assessee had several opportunities before the Income Tax Officer to produce the same and the assessee has not explained the belated production of this material. This order was affirmed by the Appellate Tribunal. Hence, this reference.

3. According to the assessee, the material collected by the Income Tax Officer was incomplete since the taxable turnover would not include the turnover of sugar; when the Income Tax Officer has called for the particulars relating to the turnover of the assessee under the provisions of the Sales Tax Act, nothing prevented him from calling for the assessment order also. Since the Income Tax Officer proceeded to tax the assessee to the best of his judgment, it was for him to gather materials which will be self-contained or material which would throw light on the other material already collected. At any rate, the assessee contends that fairness in procedure required the Appellate Assistant Commissioner to look into the assessment order produced by the assessee even though the assessee failed to explain the reason for the belated production of the same.

4. Best judgment assessment is not a provision to penalise the assessee for failure to file the return, etc. It is a machinery provision to enable the Revenue to assess a person when the situation warrants an assessment. The order u/s 144 is to be made to the best of the judgment of the Income Tax Officer which means that the order has to be rational and is to be based on honest guess work for which some valid basis is available to the Income Tax Officer. The order involves exercise of "judgment" by the Officer. A fair estimate of the income has to be made. Therefore, it has been held that the Income Tax Officer must take into consideration, inter alia, local knowledge and repute in regard to the assessees circumstances, including all other matters which will assist him in arriving at a "fair and proper estimate." The assessment after enquiry, but the enquiry is summary unlike the case of a normal assessment. The assessment is to be based on materials to the extent to which the materials are discovered.

5. Guess work is inevitable; but, it cannot be a wild guess; the guess work should have a reasonable nexus to the available material and the circumstances of each case.

6. The appellate power is found in section 251. It is quite wide; it is not necessarily limited to the materials available with the Income Tax Officer.

7. From these various principles derived from several judicial pronouncements, it is clear that the best judgment assessment ought to be based on a fair and proper estimate of the assessees income and the inferences to be drawn from the available material should be a properly inferable inference.

8. Mr. Chanderkumar pointed out that, when once material is brought on record and the Income Tax Officer makes it the basis for his estimate of the income, estimate has to be accepted unless the material is entirely irrelevant. Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 was cited in this regard. Similarly, T. Devasahaya Nadar Vs. Commissioner of Income Tax, Madras., , wherein the Madras High Court held that the weight to be attached to the evidence collected by the Income Tax Officer is for him to decide. These principles are not in doubt. Here, we are concerned with the propriety and fairness of the estimate made regarding the income of the assessee on the available material and whether the appellate authority was justified in ignoring the further material produced by the assessee along with the appeal.

9. Income is estimated on the basis of the assessees turnover furnished by the Commercial Tax Officer. Income of the assessee is only from the sale of sugar; there can be no dispute on this. Therefore, the "turnover" which is the basis for estimating the income shall be the proximate or relatable to the turnover of sugar. If, on the face of it, the "turnover" of the assessee furnished by the Commercial Tax Officer is not confined to the turnover regarding sugar, then, out of the turnover furnished by the Commercial Tax Officer, a fair percentage should have been excluded before estimating the "turnover" regarding sugar. But, if the entire turnover of the assessee is the sole foundation for estimating the income of the assessee from sale of sugar, that estimate would not be a fair and proper estimate; the resultant guess work would partake of the character of wild guess work. It will be a case of relying on a partly relevant and party irrelevant material to make an order of assessment, if it is established that conclusive material was available to show the turnover from sugar as distinct from the gross turnover of the assessee.

10. The Commercial Tax Officer gave the total turnover figures of the assessee; it is clear that the Commercial Tax Officer had before him the finalised figures, i.e., the figures acted upon by him; this could be only if he had made an order of assessment; the simplest procedure would have been for the Income Tax Officer to seek this assessment order made by the Commercial Tax Officer.

11. It is also true that the assessee could have produced the sale tax assessment order. But here, we are concerned with the propriety and fairness of the estimate made by the Income Tax Officer who ventured upon an investigation which, on the face of it, is found to be incomplete. The Income Tax Officer should have in fairness sought the details of the sales tax assessment order so that he could have obtained the real figures of turnover regarding sales of sugar. In view of item No. 31B of the Fifth Schedule to the Karnataka Sales Tax Act, 1957, turnover under the Sales Tax Act would not disclose the real turnover pertaining to sugar.

12. This background to the case has to be appreciated while considering the legality of the appellate authoritys order rejecting the order of assessment made by the Commercial Tax Officer produced by the assessee. The appellate authority should have accepted the material produced by the assessee as clarificatory in nature and considered the same to test the fairness and propriety of the estimate of income made by the Income Tax Officer. Though it was belated production of very relevant material, no prejudice (in its legal sense) would have resulted to the Revenue by considering the material produced by the assessee. Consideration of such a material by the appellate authority would have rendered the best judgment assessment a fair proceeding and the resultant assessment order would have been a most rational one.

13. Mr. Chanderkumar contended that the assessee could have invoked section 146 of theand his failure to do so read with the circumstance that no explanation is forthcoming for the delayed production of the assessment order disentitles the assessee to any equitable considerations. This approach is acceptable only in case the best judgment assessment is to be understood as a penal provision, enacted to penalise a defaulting assessee. The Revenue must act fairly in the matter of assessment as much as it is interested in collecting the tax. In the absence of any prejudice to the Revenue, and the basis of the tax under the being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the. An appeal is but a continuation of the original proceeding and what the Income Tax Officer could have done, the appellate authority also could do.

14. Therefore, our answer to the question referred is in the negative and in favour of the assessee.