Best Judgement Assessment [Section 144 & 145]

A best judgement assessment is an assessment by the A.O. to the best of his judgement after taking into account all relevant material which he has gathered.  Applying his own intelligence deciding on the question of income tax, if an A.O. completes an assessment it is called best judgement assessment.

Best Judgement Assessment may be-

• Compulsory, or
• Discretionary

(A) Compulsory best judgement assessment [Section 144]

• When best judgement assessment is Mandatory: In the following cases, the A.O. is required to make a best judgement assessment.
  • If any person fails to furnish the return in compliance with Sec. 139(1), or does not furnish a delayed return under section 139(4) or a revised return u/s 139(5).
  • If any person fails to comply with all the terms if a notice under Sec. 142(1) requiring him to produce the books of account and documents.
  • If any person fails to comply with direction under Section 142(2A) for audit of his accounts by a nominated auditor; or
  • If any person, having furnished the return, fails to comply with a notice under section 143(2), requiring his presence before the AO, or production of evidence in support of the return.
• Opportunity to assessee of being heard: Best judgement assessment will only be made after giving the assesee an opportunity of being heard.  Such opportunity will be given by the AO by a notice requiring the assessee to show cause, on a specified date and time, why best judgement assessment should not be made in his case. 
• Principles of best judgement assessment: Best judgement assessment is a penal provision to be invoked only if any default as specified in Sec. 144 is proved.
• Consequences of compulsory best judgement assessment: the following consequences may arise from a compulsory best judgement assessment.
  • For non-compliance with the terms of the notice under Section 142(1)(2)  and (2A) – the assessee may be liable to penalties under Sec.271.
  • For failure to file return – the assessee may be liable to penalty under Sec. 271 and prosecution under Sec. 276CC, and for failure to comply with the notices as per Sec. 142(1) or (2A), he may be liable under Sec. 276D

(B) Discretionary best judgement assessment Section 145(2)

• When discretionary best judgement may be made: In the following cases the A.O. may make the assessment on an assessee in the matter provided in Sec. 144:
  • If he is not satisfied about the completeness or correctness of the accounts of the assessee (or)
  • If no method of accounting has been regularly employed by the assessee.
• Assessment of interest on Securities:  If no method of accounting is regularly employed by the assessee, any income by way of interest on securities will be chargeable as income of the previous year in which it became due to the assessee, and if it has not been so charges in any earlier previous year, then in the previous year of receipt.