Section 144 Of Income Tax Act: Best Judgement Assessment

Tax assessment is an integral part of the Indian taxation system, ensuring that taxpayers contribute their share of tax and fulfil necessary obligations. In cases where a taxpayer fails to file his/her income tax return, Section 144 of the Income Tax Act allows Assessing Officers to assess tax liability by following the Best judgment assessment process.

In this article, we will guide you with all the necessary details mentioned below regarding Section 144 and how the AO offers his best judgement assessment based on your circumstances.

• Meaning of Section 144
• Understanding of the Best Judgement Assessment
• Situations requiring Best Judgement Assessment
• Notice Under Section 144
• Time Limit to initiate Assessment
• Conclusion

What Is Section 144 Of Income Tax Act?

Section 144 of the Income Tax Act 1961 deals with the assessment of a taxpayer that is carried out by the Assessing Officer (AO) as per his best judgement and based on all relevant information gathered. Such assessments are generally done in cases where any taxpayer fails to comply with the requirements of other sections of the act, and will be discussed in detail. 

Best Judgement Assessment In Income Tax

As per the Income Tax Act, a best judgement assessment signifies the assessment performed by an assessing officer with specific knowledge of an assessee’s financial circumstance. If a taxpayer is unable to produce necessary documents or fails to file tax returns, the taxation authorities might initiate a best judgement assessment to determine his/her tax liability.

There are certain conditions that the assessing officer considers before applying the best judgement assessment. It helps to ensure the judgement is fair, unbiased and accurate. Some of them are:

• Documentation

The authorities need to maintain proper documents for the process of best judgement assessment. It involves any efforts made to gather information, record reasons to initiate such assessment, examination criteria and final decision.

• Lack of information

This process begins when any taxpayer fails to provide accurate and complete information. In the case of assessing tax, if a taxpayer fails to file an IT return or provide required documents, tax authorities might initiate the best judgement assessment based on the information available.

• Objective criteria

This process is based on the objective criteria of the assessment rather than personal biases or opinions. The assessing officer (AO) needs to consider relevant precedents, laws, principles and regulations during the assessment process.

Situation Of Best Judgement Assessments

The assessing officer initiates best judgement assessment under Section 144 of the Income Tax Act. AO will apply best of judgement assessment for the following reasons:

• If any taxpayer is unable to file an IT return within the prescribed due date under Section 139(1), any belated return as per Section 139(4), any revised return as per Section 139(5), or an updated return under Section 139(8A),
• If any taxpayer fails to comply with all the terms of a notice issued as per Section 142(1),
• If a taxpayer fails to comply with all the directions mentioned under Section 142(2A)
• If any AO is not satisfied with the completeness or accuracy of a taxpayer's accounts or if a taxpayer has not used a consistent accounting procedure.
• After filing an IT return, if a taxpayer fails to comply with all the terms of a notice issued as per Section 143(2), that is a notice of scrutiny assessment.

Notice Under Section 144 Of Income Tax Act

As per the above-discussed criteria, best judgement assessment gets resorted to cases where a taxpayer does not file an IT return or the taxpayer does not cooperate to furnish an explanation or information related to his/her tax assessment. 

The assessing officer must issue notice to the taxpayer before implementing such a judgement.

• The AO can issue notices as per Section 142(1) by asking the taxpayer to file an income tax return if he still hasn't filed the same.
• The officer could also ask the taxpayer to produce required documents or accounts and furnish them in writing, verifying in the prescribed way on such matters or points as needed.

Note: This can also include a statement of liabilities and assets, irrespective of their presence in the accounts.

Section 144 Of Income Tax Act Time Limit

The time limit to initiate assessment as per Section 144 is discussed in Section 153. They are:

• For assessment years 2017-18 or before: Within 21 months from the end of the assessment year in which the income is first assessed.
• For the assessment year 2018-19: 18 months from the end of fiscal year when the income is assessable for the first time.
• For the assessment year 2019-20: Within 12 months of first assessing the income, by the end of assessment year.
• For assessment year 2020-21: Within 18 months of the end of the financial year, where income was originally assessed.
• For assessment year 2021-22: Within 9 months from the end of assessment year when income is assessable for the first time.
• For assessment year 2022-23 onwards: 12 months from the end of fiscal year where income was originally assessed.

Conclusion

Section 144 deals with provisions of best judgement assessment by an assessing officer if you fail to file your returns or provide required documentation. An AO is responsible for issuing a notice to the taxpayer regarding this. Moreover, the time limit available to initiate such an assessment varies according to the assessment year. 

Therefore, you must be careful while filing your returns and show all the necessary information on your income to avoid the applicability of best judgement assessment provisions.