Best Judgment Assessment Income Tax Notice U/s 144
Section 144 in Income Tax Act, 1961 gives the guidelines that an Assessment Officer (AO) should follow while conducting an assessment on assessee’s ITR
return/tax liabilities using his/her best possible line of logical justification in certain specific situations. The specific situations, where an Assessment Officer
is compelled to assess ITR/Tax liability based on his/her own best logical justification are given as:
1. Assessee failing to submit ITR u/s 139(1)
2. Assessee failing to submit belated ITR u/s 139(4)
3. Assessee failing to submit revised ITR u/s 139(5)
4. Assessee failing to satisfy 142(1) Notice terms and conditions
5. Assessee failing to satisfy the Auditing of Accounts Guidelines u/s 142(2A)
6. Assessee failing to respond 143(2) Notice of Scrutiny Assessment
7. AO is doubtful on the authenticity of the information furnished in assessee’s Evidences/Books of Accounts
For these cases, AO should use Best Judgement Assessment procedure as per Section 144 of IT Act, 1961.
Types of Best Judgement Assessment
A. Compulsory Best Judgement Assessment: Where assessee is not cooperating with AO or not furnishing necessary evidences. Such
decision may be taken, if assessee mentions of not having necessary documents as required for the assessment in response of AO’s Notice.
B. Discretionary Best Judgement Assessment: Where AO identifies major errors in income tax computation and doubts about the authenticity of
information given in ITR/documents/Books of Accounts.
Incomplete/unsigned/unverified ITR may lead to such decision. Best Judgement Assessment u/s 144 is done by AO by gathering all the
available valid information, which may not be sufficient for thorough assessment. For that, AO follows the guidelines u/s 144 to use his/her own
Important Conditions of Best Judgement Assessment u/s 144
1. Before conducting Best Judgement Assessment u/s 144, the assessee should be called as given opportunity to clarify himself/herself before
AO. In that context, a show cause Notice u/s 144 is sent to the assessee.
In case, assessee requests for more time to acquire evidence documents, AO should consider the appeal with reasonable justification
rather than discarding abruptly. AO’s decision should not be biased/result of prejudice.
2. Best Judgement Assessment u/s 144 cannot be concluded by AO in these cases:
i- Insignificant mistakes
ii- Non-rectification of errors/filing return from assessee’s end within due date, where relevant action (issue of further notice by AO) to be taken against assessee’s conduct at first, other than conclusion based on Best Judgement Assessment. In case of non-response, Best Judgement Assessment may be conducted.
iii- tax return is found to be less than assessee’s declared return in ITR or loss higher than assessee’s declared loss
iv- Rejecting evidences without proper reason by AO
v- Based on invalid Notices
3. No refund is granted based on Best Judgement Assessment u/s 144.
4. AO has the power to reject assessee’s Books of Accounts, if these conditions are satisfied:
i- AO finds the Books of Accounts to be incomplete and not satisfactory for concluding actual assessee’s tax liability
ii- Assessee’s Books of Account does not follow the norms of Accounting considered to be the standard for income tax computation or is found to be incomplete, such as, there are unexplained cash credits, account mismatch, non-maintenance of stock register, etc.
iii- Income is not computed as per the standard mentioned u/s 145(2)
5. AO cannot discard Books of Accounts records, based on the following
i- Insignificant mistakes
ii- Only on the ground of non-maintenance of stock register, unless AO feels it to be scrutinized based on the concerned situation
iii- AO cannot indicate significant discrepancy/assessee provides explanation considered satisfactory by the tribunal
iv- Lack of substantial evidences