Assessment in the common parlance means the determination of the value of the
assets which has been held by the person for deciding the quantum of tax he is
going to be liable to pay. Assessment generally takes place annually, i.e. how
the property related to business is assessed every year for deciding the quantum
of tax, the assesse will be asked to pay. Some assessment takes place after
every five years
Assessment means the process of appraising, evaluating, estimating and measuring
or making a judgment, etc. When we talk about how the assessment has been
defined under the Income Tax Act, it is defined as the process of estimating,
evaluating or measuring the income for the determination of the tax to be paid
by the assesse. The term assessment
has a definite meaning under the Income
The meaning given under the Act is very comprehensive in nature and it
often includes myriad range of activities as well as procedures. There is no
specific meaning defined under the Income Tax Act, i.e., it's definition has not
been defined under the Act, but by carefully examining the term gives us the
impression that it means the process of investigating or the process of
ascertainment of the correctness of the returns and the accounts which has been
filed by the assessee. Evidently is meant by the process of determining the
amount of taxable turnover or the quantum of taxable amount which the tax payer
would be liable or asked to pay.
The process of this assessment is made after taking into consideration the
accounts and the returns which have been provided by the assesse but is
generally made upon an estimate by the authorities based upon the documents
which have been furnished by the assesse.
It has a wider scope under the
provisions of this Act irrespective the assessment was done correctly or
wrongly. So when the assessment has been made by the assessing authorities based
upon the documents provided by the assesse, then it would be considered as an
assessment done by the assessing authority under the said act and nowhere it
would be defined as assessment correctly or assessment properly done, thereby
giving the impression of the wider definition of the assessment under the Act.
It is basically an estimation of the amount which has to be paid by the tax
payer. It is considered as a compulsory/ mandatory contribution which has to be
made by the taxpayer for supporting the government.
Self-assessment is the process in which the assesse on its own make the
assessment on the basis of the returns or the accounts he has furnished and pay
the taxes on the basis of that to the government. The quantum of tax paid by the
assesse on the basis of the self-assessment shall be deemed to have been paid
towards the regular assessment.
Regular assessment on the other hand means the ordinary process of assessment
where the assessee will furnish the documents, return and the account and after
its examination by the assessing authorities, the intimation will be send to the
assessee determining the amount of tax which he is liable to pay or the amount
which will be refunded to him.4
Under the Income Escaping Assessment, if the assessing officer has some genuine
reasons which make him believe that an amount of income that could have been
subjected to tax has been escaped the process of assessment for any the
assessment year then the assessing authorities assesses the income which has
been escaped. They can also assess the income which has been brought to their
notice during the course of proceedings.
Lastly, under the precautionary assessment, when the assessing authorities has
no clue or they are uncertain as to the amount to be taxed or the person to be
charged, they have the authority to commence the proceedings against any persons
so as to determine the question as to who has the ultimate responsibility or he
is going to be liable for paying the tax and also the quantum of amount to be
paid by him.
Best Judgment Assessment
Sometimes there are situations in which the assessee tries to evade taxes by
furnishing or maintaining false accounts and due to that it becomes difficult
for the taxing authorities or the assessing officer to assess the quantum of
turnover that the assessee has concealed.
So as to avoid difficulties in such situations, the assessing officer tries to
make an assessment to the best of his judgement as long as the assessment
carried out by the assessing officer is not arbitrary and hence his decision
will be considered as a final decision and leaving behind no scope for its
alteration. Under this the assessing officer should make the assessment to his
best judgement. There should not be any capricious or dishonest intention of the
assessing officer behind the assessment.
Section 144 of the Income Tax Act, 1961, talks about the duty of the assessing
officer to make the assessment to his best judgment and to determine the tax
which the assessee would be asked to pay after taking into consideration or
after examining all the all the documents or the accounts he have.
Following are the circumstances in which the best judgment assessment
place. These circumstances were mentioned under the Income Tax Act of 1922 and
which were also carry forwarded under the Income Tax Act of 1961.
circumstances are as follows:
- Firstly, under section 139(1) of the Income Tax Act, 1961, the assessee is
under an obligation to provide his return of income in cases where the taxable
income of the assessee has exceeded the limit which has been mentioned under the
relevant assessment year.
That return has to be filed within the due date has
been mentioned under the section itself. In case of the default on the part of
the assessee for furnishing the return within the due date, he has an option to
file the belated return of income enshrined under section 139(4) of the Income
Tax Act, 1961 before the ending of the relevant assessment year.
If the assessee
thinks that a mistake has been committed by him while furnishing the return of
income or any omission has been made on account of his mistake, he has a remedy
to revise the original return but the same has to be done within one year from
the end of the relevant assessment year. Now, if the assessee has defaulted on
all the above given circumstances, i.e., he has failed to furnish his return,
then the assessing officer makes the assessment to his best judgment.
- Secondly, under section 142(1) of the Income Tax Act, 1961, the
assessing officer has a duty to send a notice to the assessee because of his failure to
not provide the return within the due date of the relevant assessment year
whereby directing him to furnish the return of his income or his accounts. Under
Section 142(2A) he can also direct the assessee to get his accounts audited by
any practicing Chartered Accountant.
And if there is any default on the part of
the assessee in complying the above two notices which have been provided by the
assessing officer, the assessing officer gets the right to make the assessment
to his best judgment.
- Thirdly, when the return has been furnished by the assessee under the
above-mentioned two circumstances if the assessing officer finds that some
expenditure has been claimed by the assessing assessee which he thinks is
inadmissible, then a notice under section 143(2) will be issued by the assessing
officer requiring the assessee to produce any evidences on which he can rely for
advocating his claim and if the assessee fails in complying with the terms under
section 143(2), the assessing officer gets the right to make an assessment
to his best judgment under section 144 of the Income Tax Act, 1961.
- Fourthly, if the assessing officer is not satisfied with the method of
accounting which the assessee regularly employs under section 145 of the Income Tax Act, 1961 or the
assessing officer is not satisfied with the correctness or accuracy of the
completeness of accounts. Then the assessing officer gets the right to make an
assessment to the best of his judgment under section 144 of the Income Tax Act
1961 and that should not be done with the dishonest intention.
Now in the case of CIT v. Segu Buchiah Setty
, the Hon'ble Court held that the
circumstances mentioned above are not cumulative but are alternatives, i.e.,
there is no need to prove that all the four circumstances exist and then only
the assessing officer can make the assessment best to his judgment.
This can be
better explained through an illustration. For example, if the assessee has made
a default under section 142(1)(i) of the Income Tax Act, 1961 and he failed to
comply with the notice sent by the assessing officer and he didn't file the
return. He also failed to comply with the notice provided to him under section
142(1) of the same Act for the production of accounts. Now, if the taxing
authorities made an assessment, the assessee must show that there are sufficient
reasons for not complying with bot the provisions.
He has to satisfy all the
conditions and not one.
Some general points related to the Best Judgement
- The assessment can also be made in the situations where the return
furnished by the assessee has not been signed or verified.
- The assessee will
be issued a notice and thereby providing him the opportunity before making the
best judgment assessment under section 144 of the Income Tax Act, 1961.
Basis For Best Judgment Assessment
The concept of the best judgment assessment as deliberated above depends upon
the noncompliance of the provisions of the Income Tax Act, 1961. So if there is
any default for furnishing the return of income, the assessing office is given
the powers or is free to choose any basis which is important for the case.
There is an element of guess work in it which the assessing officer is the best
person to deal in it. At this point, the correctness of accounts is not the only
criteria for accepting the returned figures of best judgement assessment. There
are other external factors such as the conduct of the dealer, the business
volume and other past records which can be act as the basis of the best judgment
It is also important to discuss that when the assessee files the return
belatedly, the assessing officer does not has a freedom to ignore the return
filed by the assessee and applies the best judgment assessment under Section 144
of the Income Tax, Act, 1961. So when the assessing officer thinks that the
records or documents provided to him is incomplete, he still have to follow the
procedure and has to give the reasonable opportunity to the assessee of being
Situations in which there is non- compliance of the filing of return, the notice
to be provided to the assessee is an optional one. The assessing officer or the
assessing authorities may have the option to go to the dealer directly and then
to inspect the books of accounts in the presence of the dealer at his premises
only. In those conditions, the issuance of notice is an optional choice in the
hands of the assessing authorities.
Object Of The Best Judgment Assessment
The motive or the main purpose is to arrive at the proper or fair estimates of
the dealers turnover but it should not be misunderstood as the process of
enhancing the turnover of the dealer.
While doing the best judgment assessment, it should be kept in mind that the
principles of Natural Justice are one of the most important bases while doing
the best judgment assessment. The assessee before the process of best judgment
is being carried out should be given the reasonable opportunity of being heard
as elucidated under the principles of natural justice.
Cases in which the
information has been received by the assessing officer or the taxing authorities
from any outsider or any other institution which is outside the business, the
same should be disclosed to the assessee before doing the best judgment
When the return filed by the assessee is dubious or there are doubts
on its credibility after taking into consideration the material provided by the
third party, the assessee has the right to call that third party and to cross
examine so as to reveal the truth and to expose the falsehood.
Penalty can be imposed in the cases where it has been shown that the return has
not been filed by the dealer and he has on the same time been involved in some
transactions and the
income from that transaction is taxable. Penalty cannot be imposed on the
assessee if there is no relevant material to substantiate that the assessee has
been involved in wilful suppression of the taxable income.
Cases in which the concerned applicant died and the books of accounts has been
washed away in the floods, since the curfew was imposed in the city so the
appropriate person was not in a situation to provide the return or documents,
then in those cases the reduction of the turnover by making the best judgment
assessment was held to be valid provided that there was no malice on the part of
the assessing officer.
Types Of Best Judgment Assessment
Compulsory best judgment assessment- this type of best judgement assessment is
done in the situations where the assessing officer or the taxing authorities
find out that there is a default on the part of the assessee on non-compliance
with the provisions of the act or in cases where it is found that the assessee
was a defaulter in supplying the information to the department. So in these
types of situations it is mandatory to do the best judgment assessment and
adhering to the principles of Natural Justice.
Discretionary Best Judgment Assessment- In the situations where the assessing
officer or the taxing authorities are not satisfied with the correctness of the
accounts or its authenticity which has been furnished by the assessee or in the
cases where there is no uniform method of accounting has been followed by the
assessee. So in the above mentioned situations, the assessing officer or the
taxing authorities have the discretion to do the best judgment assessment or
Best Judgment Assessment Vis-À-Vis Assessment On Account
At this juncture, it is important to state that there exist a difference between
the concept of best judgment assessment and the assessment made on accounts by
the assessee. There may be cases in which the assessee may commit trivial
mistakes which may be honest or innocent while making the books of accounts.
Hence, these accounts must be considered as genuine and must be corrected.
The concept of best Judgment will only arise in the cases in which a default has
been made on the part of assessee when he was asked to furnish the relevant
information. It is important to mention and it must be kept in mind that the
assessing officer or the authorities while making the best judgment assessment
must work without any dishonest intention and or in a capricious manner.
He should make an honest estimate of the proper figure of the assessment for
which me may or use apply any method which could be applicable. It can also
include the concept of guess work provided that it should be with honest
Therefore from the above discussion it can be inferred that the jurisdiction of
the assessing authorities or officer is no way absolute or arbitrary. They
should adhere to the principles of natural justice while making the best
judgment assessment. The assessee must also be given the reasonable opportunity
of being heard.
Procedure Of The Best Judgment Assessment
When the returns and the books of account are rejected, the Assessing officer or
the taxing authorities indulges themselves into some guesswork and makes an
estimation based upon some evidence. The estimation made here is not merely a
suspicion but it should be based upon the materials which are available with the
assessing officer. This will help him to arrive at a fair estimation.
There may be situations in which the assessment made is arbitrary, in such a
situation; the assessment must be set aside. The estimation of the turnover must
be bonafide and should be done without any bias and there should be some
material evidences available so as to substantiate the claim of that
Hence, the assessing officer or the assessing authority is the best judge to
make a judgment.
Best Judgment Assessment Under The GST
Under GST, the process of the Best Judgement is applied under two situations:
- When the assessee or the taxable person has failed to file the return;
- When the person was liable to registered for the GST but he failed to
Section 62 of the CGST act, 2017 relates to the assessment due to the non-filing
of the return by the taxable person, the given provision is only applicable when
the person is registered and the same person has not filed any return under
section 39 of the same act. The assessing officer may proceed to determine the
tax liability of the assessee to the best of his judgment after taking into
consideration every type of material available with him.
If the registered assessee furnishes the valid return within 30 days from the
date on which the assessment order was furnished to him, then the said
assessment order must be withdrawn. But the assessee will be asked to pay the
interest and also the late fees, they wont be considered as to be withdrawn.
There are certain decisions of the Honble Courts which has laid down certain
guidelines which need to be followed while making the best judgment assessment.
So following are the cases:
Supreme Court in the case of CST v. H.M.
Esufali H.M. Abdulali
has laid won that while making the best judgment
assessment, the assessing officer should try to make an estimate or should reach
the conclusion without any bias and that the assessment should be made on
rational basis after examining various materials or the documents which have
been furnished by the assessee. The assessing officer should not be vindictive
or capricious or should not indulge into assessment with the dishonest intention
and also the basis adopted for the process of the estimating of the turnover
must have a reasonable nexus with the estimation done.
In the case of State of Kerala v. Velukutty
, the Hon'ble Supreme Court
has laid down that the powers of the assessing officer are not unfettered but
are limited as it has been implied by the expression best of his
Generally in the judgment there is a judicial determination, i.e., there exist
the application of mind and the matter is decided with wisdom.
The judgment does not depend on the arbitrariness of the judge, but it is based
upon some invariable principles of natural justice. Since the best judgment
assessment also includes the guess work so that guess work must have a
reasonable nexus to the material which have been provided to the assessing
In the case of CIT v. Laxminarayan Badridas
, the Hon'ble Court said that
the provisions related to the best judgment assessment are the classic one and
says that the assessing officer must not act with a dishonest intention, or
vindictively. He must make a fair estimate which he believes to be honest, he
should take into consideration the local knowledge and all other matters which
he thinks are necessary and will definitely assist him in arriving at a fair and
Nexus For Guess Work
While the assessing officer is indulged under the process of estimating, he may
sometimes overestimate or underestimating the income. That alone is not
sufficient to question the determination by the assessee. The term to the best
judgment of the assessing officer envisages his judgement, i.e., the judgement
must not be arbitrary, vindictive; if it is then it wont be considered as his
The assessing office must take into consideration the external factors and all
other documents which have been provided to the assessing officer by the
assessee and then he should make the assessment to his best judgment out of the
documents furnished to him. He can take into consideration the turnovers of the
previous years, reputation and the length of the business.
Time Limit For The Best Judgment Assessment
The Time Limit prescribed for the completion of Best Judgement Assessment under
Section 144 of the Income Tax Act is 21 months from the end of the relevant
Remedies Available To The Assessee
There are various remedies which are available to the Assessee under the Income
Tax Act, 1961. After the completion of the process of the best judgment
assessment carried out by the assessing officer under section 144 of the Income
Tax Act, the assessee has a right to appeal to the Deputy Commissioner or the
Commissioner for the grant of relief under the section 246A. However the above
remedy is restricted to few or rare cases only. There is also another remedy of
revision is available to the assessee under section 264. He can ask for the
fresh assessment by the assessing officer.
The officer often makes an estimate or it takes part in some guess work after
taking into consideration the various materials and documents which are
furnished by the assessee to the assessing officer. The assessing officer also
takes into consideration other factors and then makes an assessment which is
best to his judgment. The guess work made by the assessing officer should be an
honest one devoid of the dishonest and vindictive behaviour. If the assessee
finds out that the judgment of the assessing officer was arbitrary then the
assessment carried out by the assessing officer is liable to be set aside.
Interface Between The Principles Of Natural Justice And Proceedings Under The Income Tax Act
The provisions related to the best judgment assessment are mentioned under the
section 144 of the Income Tax Act, 1961 and this provision specifically talks
about the principles of natural justice. There is a clear cut distinction
between the assessment made by the assessing officer based upon the assessess
accounts and the best judgment assessment under this particular section. Under
the best judgment assessment, the Assessing officer is under an obligation to
give the reasonable opportunity of being heard as mentioned under the
sub-section (1) of the section 144.
The notice has to be served to the assessee by the assessing officer asking him
to come at a particular place and a particular time as specified under the
notice so as to argue as to why the best judgment assessment should not be
In the case of Dhanalakshmi Pictures v. CIT
, the hon'ble Court held that
the assessee should be given a reasonable opportunity of being heard and he has
a right to object to the correctness or the authenticity of the materials or the
documents on which the assessing officer will be making the best judgment.
The assessment under section 144 of the Income tax act is a quasi- judicial
process and it includes the decision based upon the materials or the documents
provided to the assessing officer. Every quasi-judicial process requires that a
reasonable opportunity should be given to the person before making the decision.
Best judgment will only be given when a reasonable opportunity of being heard
has been given to the assessee based upon the principles of natural justice.
Thus from the above discussion we can infer that the natural justice has been
expressly recognized under the various proceedings of the Income Tax Act. And
this whole idea revolves around the reasonable opportunity of being heard has
been given to the assessee before arriving to the particular decision.
There has been incorporation of the principles of natural justice in the Income
Tax Act in the various form, but the provision related to the reasonable
opportunity of being heard is the primary one and which has been expressly
recognized under the Income Tax Act of 1961 so as to ensure justice and fair
If there is the violation of the principles of natural justice and to be very
specific of the audi alteram partem, then the decision would be liable to set
aside. Denial of the principles of natural justice is in itself a prejudice and
such as prejudice is considered as an antithesis to the concept of rule of law
which is considered as a basic feature of our constitution.
From the above deliberation of the section 144 of the Income Tax Act, 1961 shows
that the best judgment assessment has given wide discretionary powers in the
hand of the assessing officer to make an assessment to his best judgement in the
cases where the assessee has willfully suppressed and concealed the income/
The above powers are so wide that the assessing officer has the power
to overestimate and also to underestimate the turnover based upon the documents
which have been furnished to the assessing officer by the assessee himself. This
might involve some guess work and that should be done with the honest intention
and also adhering to the principles of natural justice by providing the
opportunity of being heard to the assessee.