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

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

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 their 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 Section 144.

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 understand their 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 as per the available information.

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.

Best Judgement Assessment Under Section 144

The assessing officer initiates best judgement assessment under Section 144 of the Income Tax Act. The AO will apply the 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) or any belated return as per Section 139(4) or 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 their tax assessment.

However, the assessing officer issues 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 they still haven’t filed the same.

The officer could also ask the taxpayer to produce required documents or accounts as required and furnish the same in writing and verify 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 year 2017-18 or before: Within 21 months from the end of assessment year where the income is first assessed.

For assessment year 2018-19: 18 months from the end of the fiscal year when the income is assessable for the first time.

For assessment year 2019-20: Within 12 months of first assessing the income, by the end of the 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 the assessment year when income is assessable for the first time.

For assessment year 2022-23 onwards: 12 months from the end of the fiscal year where income was originally assessed.

Final Word

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 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.

Frequently Asked Questions

Certainly! Here are some frequently asked questions along with their answers regarding Section 144 of the Income Tax Act:

1. What is the purpose of Section 144 of the Income Tax Act?

   – Section 144 allows Assessing Officers to make best judgement assessments when a taxpayer fails to file income tax returns or provide necessary information.

2. Under what circumstances does Section 144 apply?

   – Section 144 applies when a taxpayer:

     – Fails to file an income tax return within the prescribed due date.

     – Does not comply with the terms of a notice issued by the Assessing Officer.

     – Fails to comply with directions mentioned under Section 142(2A).

     – The Assessing Officer is not satisfied with the completeness or accuracy of the taxpayer’s accounts.

3. What is a best judgement assessment?

   – A best judgement assessment is made by the Assessing Officer based on their best judgement and available information when the taxpayer fails to provide necessary documentation or information.

4. Can a taxpayer challenge a best judgement assessment under Section 144?

   – Yes, a taxpayer can appeal against a best judgement assessment made under Section 144 by following the prescribed procedures for filing appeals.

5. What happens if a taxpayer receives a notice under Section 144?

   – If a taxpayer receives a notice under Section 144, they are required to provide the necessary documentation and information to the Assessing Officer within the specified time frame.

6. Is there a time limit for completing an assessment under Section 144?

   – Yes, Section 153 of the Income Tax Act specifies the time limit for completing an assessment under Section 144. The duration varies depending on the assessment year.

7. What are the consequences of not complying with a notice issued under Section 144?

   – Failure to comply with a notice issued under Section 144 may result in penalties or further legal action by the tax authorities.

These FAQs provide a basic understanding of Section 144 of the Income Tax Act and its implications for taxpayers. It’s important for taxpayers to be aware of their obligations under this section to avoid any potential issues with tax assessments.

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