Navigating the complexities of the income tax system, one may encounter
various assessment procedures initiated by the Income Tax Department. Among
these, the Best Judgment Assessment under Section 144 of the Income Tax Act
stands out for its unique application. This mechanism is employed when an
assessee fails to comply with the tax assessment process, necessitating an
estimation of taxable income by the Assessing Officer based on the available
information. Understanding the nuances of Best Judgment Assessment is crucial
for taxpayers to ensure compliance and mitigate potential disputes.
What is Best
Judgment Assessment?
Best Judgment Assessment entails the estimation of an assessee's taxable
income by the Assessing Officer, utilizing the information and resources at
hand. This form of assessment is typically invoked in instances where the
assessee either does not cooperate in the assessment proceedings or if
determining the correct profit based on the maintained books of accounts is
infeasible.
This assessment is
bifurcated into two distinct categories:
·
Compulsory Best Judgment Assessment
·
Discretionary Best Judgment Assessment
Compulsory Best
Judgment Assessment
In certain specified scenarios, the Assessing Officer is mandated to
conduct an assessment to the best of his judgment. These scenarios include:
·
Failure to file a valid return: This encompasses
situations where the assessee has not filed the income tax return by the due
date, failed to file a belated or updated return, or did not respond to a
notice under Section 142 demanding the filing of the return.
·
Failure to produce evidence: If an individual,
after submitting a return, does not comply with a notice under section 143(2)
that requires their presence or the production of evidence and documents, a
judgment-based assessment is warranted.
·
Failure to get the special audit or inventory
valued: Non-compliance with a directive issued under Section 142(2A)
necessitating an audit of accounts or valuation of inventory results in a best
judgment assessment.
·
In case of a defective return: An assessee
failing to rectify defects within the allowed timeframe can request the
Assessing Officer for condonation of the delay. If the defects are rectified
following the condonation, the return is deemed valid.
Discretionary Best
Judgment Assessment
The Assessing Officer may opt for a best judgment assessment if he
doubts the accuracy or completeness of the assessee's accounts, or if no
consistent accounting method or standards have been applied by the assessee.
Time Limit for
Completion of Best Judgment Assessment
The timeline for conducting a Best Judgment Assessment under Section 144
is within 12 months from the end of the assessment year in which the income
first became assessable, applicable from the assessment year 2022-23 onwards.
Notably, if a reference is made to a Transfer Pricing Officer (TPO), this
period extends by an additional 12 months. Similarly, if a return is furnished
under section 139(8A), the assessment order must be passed within 12 months
from the end of the fiscal year in which such return was submitted.
Appeal against Best
Judgment Assessment
An assessee dissatisfied with the assessment order under this provision
has the right to appeal before the Commissioner of Income Tax (Appeals) or
initiate an application for revision. This step ensures that taxpayers have a
recourse to challenge the assessment if they believe it to be unjust or
inaccurate.
In conclusion, the Best Judgment Assessment serves as a critical tool
for the Income Tax Department to ensure tax compliance in cases of
non-cooperation or inadequacy of information from the assessee. Taxpayers
should be aware of the conditions triggering such assessments and the
procedural aspects to safeguard their interests effectively
Income Escaping
Assessment under Section 147 of the Income Tax Act is a critical mechanism for
correcting under-assessments or omissions in the taxation process. This
provision allows the Assessing Officer (AO) to reassess previously unassessed
incomes. However, specific conditions and procedural guidelines govern the
application of this section to ensure fairness and transparency in its
execution. Herein, we delve into the nuances of when and how re-assessment
under Section 147 can be initiated.
Initiation of Re-assessment by the
Assessing Officer
The AO is empowered
to reassess an income if two primary conditions are met: (a) Existence of an
income chargeable to tax that has escaped assessment for any assessment year;
(b) Adherence to the procedural requisites specified in Sections 148 to 153.
Upon satisfying
these conditions, the AO is entitled to reassess the income that has escaped
assessment, regardless of whether the initiation process aligns perfectly with
the prescribed procedure, provided that the discovery occurs during the
re-assessment proceedings.
Criteria for Deeming Income as Escaped
Assessment
Income is
considered to have escaped assessment when the AO possesses information
suggesting such a scenario. This includes information arising from:
·
Risk Management Strategies by the CBDT;
·
Audit objections;
·
Information received under international agreements;
·
Notifications under Section 135A;
·
Judicial orders necessitating action.
In cases involving
search, survey, or requisition, specific circumstances automatically imply
escaped income, such as initiation of a search under Section 132 or a survey
under Section 133A.
Mandatory Notice for Filing Return of
Income
Prior to issuing a
notice under Section 148, the AO is required to conduct necessary enquiries,
provide a hearing opportunity to the assessee, and decide on the
appropriateness of proceeding under Section 147. The assessee must submit a
return within three months from the notice date or within an extended period as
permitted by the AO.
Conditions for Issuance of Notice
A notice under
Section 148 is contingent upon the AO having information that suggests income
has escaped assessment and obtaining prior approval from designated
authorities, except in circumstances dictated by Section 148A(d).
Time Limitations for Issuing Notice
The timeframe for
issuing a notice varies based on the nature of the escaped income:
·
Generally, no notice is issued after three years from the relevant
assessment year's end.
·
For significant cases involving assets, transactions, or entries
amounting to or likely to amount to Rs. 50 lakhs or more, notices can be issued
up to ten years from the assessment year's end.
Assessee's Course of Action
Upon receiving a
notice, the assessee is advised to cooperate with the AO, file a truthful
income tax return, and actively participate in the assessment proceedings. An
appeal can be filed against adverse orders.
Completion Timeline and Dropping of
Re-assessment Proceedings
Re-assessment under
Section 147 must conclude within 12 months from the financial year end in which
the notice was served. Additionally, an assessee can request the dropping of
re-assessment proceedings by demonstrating accurate initial assessments.
Legal Validity and Appeals
Notices, even if improperly served, attain validity if the assessee has participated in proceedings without raising timely objections. Aggrieved parties have the right to appeal against the reassessment order, ensuring a layer of judicial scrutiny over the reassessment process.
