Section 144 of the Income Tax Act: Best Judgement Assessment

Overview of Topics Covered:

• Definition of Section 144
  
  

• Concept of Best Judgement Assessment
  
  

• Scenarios Triggering Best Judgement Assessment
  
  

• Notice under Section 144
  
  

• Deadline for Initiating the Assessment
  
  

• Final Thoughts
  
  

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What is Section 144 of the Income Tax Act?

Section 144 of the Income Tax Act, 1961, pertains to the assessment of income by the Assessing Officer using their best Judgement, based on available data and evidence. This process is typically followed when a taxpayer does not comply with the provisions of other sections of the Act. The assessment is conducted using the information on hand and relevant material gathered by the AO.

Best Judgement Assessment in Income Tax

Under the Income Tax Act, a best Judgement assessment refers to an evaluation made by the Assessing Officer (AO) using their discretion and understanding of the taxpayer’s financial position. When a taxpayer does not submit the required documents or fails to file their return, the tax authorities may proceed with this form of assessment to determine the appropriate tax liability.

Before initiating a best Judgement assessment, certain factors are taken into account by the Assessing Officer to ensure that the process remains fair and just. These include:

Documentation

Proper documentation must be maintained throughout the best Judgement assessment process. This includes efforts taken to collect information, reasons for initiating the assessment, examination of relevant materials, and the final outcome.

Lack of Information

This type of assessment is triggered when a taxpayer does not provide complete and accurate information. In cases where returns are not filed or documents are missing, the AO may rely on available information to carry out the assessment.

Objective Evaluation

The assessment must be based on objective standards rather than subjective opinions. The AO is required to consider applicable laws, judicial precedents, and prescribed rules while making the assessment.

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When is Best Judgement Assessment Applied?

A best Judgement assessment under Section 144 of the Income Tax Act is initiated by the AO in the following situations:

• When a taxpayer does not file the return within the due date under Section 139(1), or fails to submit a belated return under Section 139(4), a revised return under Section 139(5), or an updated return under Section 139(8A).
  
  

• When the taxpayer does not comply with a notice served under Section 142(1).
  
  

• When the directions issued under Section 142(2A) are not followed.
  
  

• If the AO finds that the taxpayer’s accounts are inaccurate or incomplete, or if an inconsistent accounting method has been used.
  
  

• If, after the return is filed, the taxpayer fails to respond to a notice served under Section 143(2) for scrutiny assessment.
  
  

Notice Under Section 144 of the Income Tax Act

As previously outlined, the Best Judgement Assessment is applicable in situations where a taxpayer either fails to file their income tax return or does not cooperate in providing required details or explanations related to their tax matters.

Before proceeding with such an assessment, it is mandatory for the Assessing Officer (AO) to issue a formal notice to the taxpayer.

• The AO may issue a notice under Section 142(1), requesting the taxpayer to file their income tax return if it has not been filed already.
  
  

• Additionally, the AO can ask the taxpayer to present necessary books of accounts or documents, and submit information in writing, verified in the format specified.
  
  

• Note: This request may also involve submitting a statement detailing assets and liabilities, even if they are not included in the financial accounts.
  
  

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Time Limit for Assessment Under Section 144

The deadlines for completing assessments under Section 144 are governed by Section 153 of the Income Tax Act, and they vary depending on the assessment year:

• Assessment Year 2017-18 or earlier: Must be completed within 21 months from the end of the assessment year.
  
  

• Assessment Year 2018-19: The assessment should be completed within 18 months from the end of the financial year in which the income was first assessable.
  
  

• Assessment Year 2019-20: Completion deadline is 12 months from the end of the assessment year.
  
  

• Assessment Year 2020-21: Assessment must be done within 18 months from the end of the financial year when the income was first assessed.
  
  

• Assessment Year 2021-22: Deadline is 9 months from the end of the assessment year in which the income was assessable.
  
  

• Assessment Year 2022-23 onwards: The time limit is 12 months from the end of the relevant financial year when the income was initially assessed.

Conclusion

Section 144 of the Income Tax Act outlines the provisions related to Best Judgement Assessment, which is carried out by the Assessing Officer (AO) when a taxpayer fails to file their income tax return or does not furnish the required details and documents. In such cases, the AO has the authority to estimate the tax liability based on available data and proceed accordingly after issuing a notice.

The time allowed for conducting such assessments depends on the assessment year, as defined under Section 153. Hence, it’s crucial for taxpayers to timely file their returns and provide all relevant information to avoid facing a best judgement assessment.