Best Judgment Assessment and Income Escaping Assessment

Best Judgment Assessment under section 144

As per section 144 of the Income Tax Act, 1961, where any person -

1. Fails to make the return required under section 139(1) and has not made a belated return under section 139(4) or revised return under section 139(5) or
2. Fails to comply with all the terms of the notice issued under section 142(1) or fails to comply with the direction issued under section 142(2A) or
3. Having made a return, fails to comply with all the terms of a notice issued under section 143(2)

The assessing officer shall after taking into account all the relevant material gathered and after giving an opportunity of being heard to the assessee, make an assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment.

First proviso to section 144 states that the opportunity of being heard to the assessee shall be given by the assessing officer by serving a notice calling upon him to show cause,on a specified date and time, as to why the assessment should not be completed to the best of his judgment. However, the opportunity of being heard shall not be necessary in a situation where a notice under section 142(1) has been issued prior to making the best judgment assessment.

Income Escaping Assessment under section 147

Where the assessing officer believes that any income which is chargeable to tax has escaped assessment for any assessment year, he may subject to provisions of section 148 to 153-

1. Assess or reassess the income which has escaped assessment
2. Recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year.

The following situations may be considered as deemed cases of the escapement-

1. Where no return has been filed and no assessment is done but his total income or total income of any other person in respect of which he is assessable, exceeds the maximum amount which is not chargeable to tax
2. Where a return of income is filed but no assessment is done and the assessing officer notices understatement of income or excessive claim of loss, deduction, allowance or relief etc.
3. Where assessee fails to report international transactions u/s 92E
4. Where assessment u/s 143(3) / 144 has been made but income chargeable to tax:

(i) has been under-assessed; or
(ii) has been assessed at a low rate; or
(iii)has been assessed with excessive relief; or
(iv) excessive loss or depreciation or other allowance has been computed

Before making any assessment u/s 147, the assessing officer is required to serve a notice under section 148(1) requiring the assessee to furnish a return of his income or income of any other person in respect of which he is assessable during the previous year corresponding to the relevant assessment year within such period as may be specified in the notice.

Further, as per section 149, No notice under section 148 shall be issued for the relevant assessment year,—

1. if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
2. if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year.

No notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if such notice could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021.

The provision of section 149(1) shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021.

For the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded. Where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly.