The assessee is required to make a self assessment and pay the tax on the basis of the returns furnished. Any tax paid by the assessee under self assessment is deemed to have been paid towards regular assessment.
On the basis of thereturn of income chargeable to tax furnished by the assessee an intimation shall be sent to the assessee informing him about the tax or interest payable or refundable to him.
Income escaping assessment or re-assessment
If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year assess or reassess such income and also nay other income chargeable to tax which has escaped assessment and which comes to his notice in course of the proceedings or any other allowance, as the case may be.
Where it is not clear as to who has received the income, the assessing officer can commence proceedings against the persons to determine the question as to who is responsible to pay the tax.
In a best judgement assessment the assessing officer should really base the assessment on his best judgement i.e. he must not act dishonestly or vindictively or capriciously. There are two types of judgement assessment :
Discretionary best judgement assessment is doen even in cases where the assessing officer is not satisfied about the correctness or the completeness of the accounts of the assessee or where no method of accounting has been regularly and consistently employed by the assessee
There are four circumstances for making a Best Judgement Assessment which was rendered in the context of 1922 Act, and has also been held in the context of 1961 Act.
Firstly, An Assessee is required to furnish his return of income u/s 139(1) where his taxable income exceeds the limit prescribed for the relevant Assessment Year, within the due date as mentioned in the section. If the return is not filed as per Section 139(1), the assessee can file his Belated Return u/s 139(4) within the end of the relevant Assessment Year and if the assessee finds that there exists any mistake or omission in the return, the original return can be revised within one year from the end of the relevant Assessment Year. If the assessee fails to submit his return in all the three circumstances mentioned above, the AO is required to make assessment to the best of his judgement.
Secondly, the AO can serve a notice to the assessee u/s 142(1) who has not filed his return within the due date requiring him to file his return or production of accounts and documents. The AO may also issue a notice u/s 142(2A) which may require the assessee to get his accounts audited by a practicing Chartered Accountant, having regard the nature of the accounts and interest of revenue of the assessee. The default in compliance of the above two notices will result in Best Judgement Asssessment.
Thirdly, when the return is filed as per circumstance (1) and (2) and if the AO finds that the assessee has claim any expenditure which is inadmissible in nature may issue a notice u/s 143(2) stating the assessee to produce any evidence or cause to be produced on which the assessee may rely in support of the return. If the assessee fails to comply with the terms u/s 143(2) the AO may take assessment u/s 144 of the Act.
Lastly, if the AO is not satisfied with the method of accounting regularly employed by the assessee u/s 145 or the correctness or accuracy or completeness of accounts. The AO will take best of its Judgement.
These circumstances are alternative and not cumulative as upheld in the case of CIT v Segu Buchiah Setty (77 ITR 539). The assessee made a default u/s 142(1)(i) of the Income-tax Act by not filing the return pursuant to a notice thereunder, and he also did not comply with the notice u/s 142(1) of the Act for production of accounts. The Income Tax Officer (ITO) then made a best judgment assessment. It was upheld in the case that the assessee must show sufficient reasons for non-compliance with both the provisions. He cannot get the best judgment assessment order passed u/s 144 of the Act cancelled merely by showing sufficient cause only for one of the two defaults. It means even in the presence of any one or more or all conditions in a case, assessment u/s 144 will apply.
• The assessment can be made if the return is not signed or verified.
• The assessee will be given an opportunity of being heard by issuing a notice before making a Best Judgement Assessment. It is to be noted that where notice u/s 142(1) has already been issued, opportunity of being heard will not be necessary.
The Time Limit for the completion of Assessment u/s 144 is 21 months from the end of the relevant Assessment Year
In case of Best Judgement the assessment has to proceed upon relevant material or data. The authority passes an order u/s 144 only on availability of certain definite data and not on the pleasure of the concerned authorities. The net taxable income arrived after the assessment should be arrived after taking into consideration all allowances and deductions permissible.
One of the consequences of Best Judgement is the refusal to register the assessee where it is a firm seeking registration or the cancellation of its registration if already granted, in any of the above four contingencies.
Remedies available to assessee:
After completion of the assessment u/s 144, the assessee has a right to appeal to the Deputy Commissioner or the Commissioner for the grant of Relief u/s 246A; however it is resorted to in rare cases, if at all. Revision of the same is available u/s 264. An assessee can ask for a fresh assessment.
An officer makes an assessment in view of his knowledge, assessee’s circumstances and other matters which helps him in arriving at a fair and proper estimate of his net taxable income. The officer makes guess work but it should be an honest guess work arrived from the available definite data. The judgement as concluded by the officer should be fair and on rational basis, without any bias or prejudice.