Best Judgement Assessment under Income Tax Act, 1961

SECTION 139(1) requires that every person;

a) Being a Company or a firm or;

b) Being a person other than a Company or a firm if (i) his /her total income or (ii) the total income of any other person in respect of which he is assess able under the Income Tax Act, during the previous year, exceeded the maximum amount which is not chargeable to income tax.

Shall furnish a return of his income or income of such other person.

Such income tax return should be filed before due date and in form as may be specified and setting forth other particulars as may be prescribed.

SELF ASSESSMENT SECTION 140A OF INCOME TAX ACT, 1961 provides that every person before submitting return of income under;

(i) Section 139 or

(ii) Section 142(1) or

(iii) Section 148 or

(iv) Section 153A

Is under an obligation to make a self-assessment of his income and after taking into account the amount of tax, if any, already paid, pay the self-ASSESSMENT tax, if due.

SECTION 142 DEALS WITH INQUIRY BEFORE ASSESSMENT BY ASSESSING OFFICER;

1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 139 or in whose case the time allowed under sub- section (1) of that section for furnishing the return has expired a notice requiring him, on a date to be therein specified,-

(i) where such person has not made a return within the time allowed under sub- section (1) of section 139, to furnish a return of his income or the income of any other person in respect of which he is assess able under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or

(ii) to produce or cause to be produced, such accounts or documents as the Assessing Officer may require, or

(iii) to furnish in writing and verified in the prescribed manners information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require.

Provided that-

(a) the previous approval of the Deputy Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts;

(b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.

SECTION 143(3) DEALS WITH REGULAR/SCRUTINY ASSESSMENT;

The Assessing Officer will issue a notice to the assessee under section 143(2) to take the case in scrutiny. Such notice shall be served on the assessee within a period of 6 months from the end of the financial year in which return is furnished.

After hearing such evidence as the assessee may produce and after taking into account all relevant materials which the Assessing Officer has gathered, he shall pass an assessment order in writing determining the total income or loss of the assessee, and the sum payable by (or refundable to) the assessee on the basis of such assessment order.

PURPOSE OF SCRUTINY ASSESSMENT

In the cases selected for scrutiny, the assessing officer conducts necessary enquiries during assessment proceedings to ensure that:

i) the assessee has not Understated the income, or.

ii) the assessee has not Computed excessive loss, or

iii) the assessee has not Underpaid tax in any manner.

Also, the cases where searches, surveys and enquiries have been conducted finally culminate into scrutiny assessments determining the taxable income and the tax liability of the concerned persons and entities.

While framing the assessments, all information gathered about the relevant financial transactions through search, survey or enquiry is logically analysed with a view to determining the correct taxable income.

The assessee is given an opportunity to explain their stand and rebut the findings of the enquiry. The process for completing scrutiny assessment in these cases is the same as in the case of returns selected for scrutiny assessment.

BEST JUDGMENT ASSESSMENT SECTION 144

The Assessing Officer, after taking into account all relevant material which he has gathered, is under an obligation to make anassessment of the total income or loss to the best of his judgement and determines the tax payable by the assessee in the following cases;

i) where any person fails to make return under Section 139(1) and has not made a return or revised return under Section 139(4) or Belated Return under Section 139(5);

ii) where any person;

– fails to comply, with all of the terms of a notice issued under Section 142(1); or

– fails to comply with directions issued under Section 142(2A) for getting the account audited.

iii) Where any person, having made a return, fails to comply with all terms and conditions of a notice issued under Section 143(2).

IMPORTANT POINTS TO BE CONSIDERED;

i) The best judgement assessment can be made only after giving the assessee an opportunity of being heard giving notice to the assessee to show cause, why the assessment should not be completed under Section 144 of the Income Tax Act, 1961.

ii) Assessing Officer cannot assesses income under Section 144 for an assessment below the returned income or cannot assesses the loss higher than returned loss.

iii) If an assessment under Section 144 is made without giving show cause notice under Section 144 [except where a notice has been issued under Section 142(1)], then the assessment is void-ab-initio.

iv) No refund can be granted under Section 144.

PADAM CHAND VS. CST(1986) 62 STC(ALL) & MAKHALI WINE STORE VS. CST (1987) 67 STC 416(ALL) it was held that even where such show-cause notice was required under statutory rule , the same was held to be mandatory and the non-issuance of such notice and not giving an opportunity to the assessee was held to vitiate the best judgement assessment.

DWIJENDRA KUMAR BHATTACHARJEE VS. SUPERINTENDENT OF TAXES (1990) 78 STC 393(GUJ) the opportunity to be given to the assessee to heard must be real and reasonable. If an assessee, which is asked to furnish certain particulars or submit explanations within a specifiedtime, prays for further time stating his difficulties and /or reasons, his prayer should be considered judiciously. Sometimes, proceedings for assessment for a number of years are taken up together and the assessee is asked to appear and produce evidence in support his returns. It might not be possible for the assessee to submit such evidences instantaneously or at short notice and may pray for further time to do so. Such prayers cannot be summarily rejected without considering the grounds given by the assessee merely because, the assessing officer is hard-pressed for time and has to complete the assessment by a specified date or for administrative expediency. Such rejection would amount to denial of reasonable opportunity of hearing to the assessee and vitiate the Best Judgement assessment.

SUPREME COURT IN CIT Vs. SEGU BUCHIAH SETTY (1970) ITR539(SC) held that conditions mentioned in Clause (i), (ii) & (iii) of Section 144 (as referred above) are alternative and not cumulative. Thus, the presence of even one of the three defaults (though there may be more or all in a given case) requires the Assessing Officer to proceed to a Best Judgment assessment.

SHREERAM DURGAPRASAD & FATEHCHAND NARSIGDAS (export) FIRM(RB SETH) Vs. CIT (1988)170 ITR 23 (Bom); it has been held that where an assessee dose not respond to the notice issued under Section 148 ( issue of notice where income has escaped assessment) of the Income Tax Act, 1961 ,it is permissible for the taxing authority to assess him on best judgement basis.

CONCLUSION: every person, whose income surpasses threshold limit is required to furnish his return of income through prescribed manner and within prescribed time period. If an assessee fails to file his return or income under Sections 139(1), 139(4), or 139(5) and has not responded notices under Sections 142(1), 142(2A) & 148 of the Income Tax Act, 1961, then assessing officer is authorised to assess his income on the basis of best judgment. The Best Judgment assessment should be made by giving notice of intention and an opportunity to assessee to file his reply and evidences against Best Judgement assessment.

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