It does not belong in formal writing, but it's used in conversation all the time.
Based on the trail of blood, the killer went through the kitchen and...
Based on your appearance, you had a close encounter with a mud puddle.
These stand for the internal speculation, such as:
Based on the trail of blood, it appears that the killer went through the kitchen and...
Based on your appearance, I'm guessing you had a close encounter with a mud puddle.
In careful writing, it would be something like "The tail of blood indicates that..." or "Your appearance suggestions..." or "This picture makes it clear that..."
To avoid the ambuiguity, rephrase slightly and get rid of "based on": Using the picture as a guide, they rebuilt ...