BEST JUDGEMENT ASSESSMENT

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What is Best Judgement Assessment? In what circumstances can it be made ? Are there any remedies available to the Assessee against such Assessment?

BEST JUDGEMENT ASSESSMENT

• In process of making assessment of an assessee, the Assessing Officer calls for certain information through notices from such assessee . In case an assessee fails to comply with notices , the Act has armed the Assessing Officer with powers to deal with such cases. So the Best Judgement Assessment is the assessment which is performed by assessing officer about the financial circumstances of assessee.

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• Assessing Officer , in the absence of required information which is required for assessment, can proceed with assessment on the basis of
• Information available
• Previous returns
• Local knowledge
• Judgement
• His own ability
• Repute of Assessee’s circumstances and all other matters.

• An Assessment under section 144 is quasi- judicial process requires that before arriving at the decision , the assessee must be given an opportunity of being heard and tge assessment is to be made on material gathered by Assessing Officer not on guess work. He should rely on evidence

In case Hardeodas Jagan Nath vs. Assessing Officer 43 it was clearly held that the Best Judgement Assessment would not be justified unless a valid and proper notice has beem duly served to the Assessee.

Commissioner of Income Tax v/s Laxminarain, 1934

This case explained the whole process of best judgement assessment as follows:

• The officer is to make an assessment to the best of his judgement against a person who is in default as against supplying information.
• He must not act dishonesty because he must exercise judgement in the matter.
• Assessing Officer must be able to take into consideration local knowledge and repute in regard to Assessee’s circumstances and his own knowledge of previous returns .

Types of Best Judgement Assessment

1. Compulsory Best Judgement Assessment: It is the judgement in which the assessing officer make the judgement when the assessee is either not cooperating or when the Assessee has defaulted in supplying any information.

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• Discretionary Best Judgement Assessment: It is the best judgement assessment which is being done by the assessing officer if there is inconsistency in the method of accounting or when the AO is not satisfied with the correctness or completeness of the accounts.

CASES WHEN BEST JUDGEMENT ASSESSMENT CAN BE MADE�

An assessment made u/s 144 is known as compulsory best judgement assessment. A compulsory best judgement assessment shall be made, if any person; �

• Fails to file the return u/s139(1) and has not made a return or a revised return u/s139(4) and 139(5)

�139(1)-Mandatory and Voluntary Returns.

MANDATORY- The taxpayers who are needed to file mandatory income tax return are:

1. Any LLP and unlimited LP.
2. Any domestic, private, public or domestic co.
3. Any individual whose total income is exceeding the tax exemption limit.

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VOLUNTARY- if it is not mandatory for an individual to file an income tax return, then the income tax return filed by that person is called voluntary return.�

139(4)-BELATED RETURN�In case an assessee has not furnished a return within the time allowed to him, he may furnish the return-

Before the end of relevant assessment year OR Before the completion of assessment which ever is earlier.

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139(5)- ( Revised Return)

If after filing return any omission or wrong statement is discovered , Assessee can furnish a revised statement upto the end of relevant assessment year or before the complition of assessment which ever is earlier.

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• Fails to comply with all the terms of a notice issued u/s142(1);

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Section 142(1) Inquiry Notice Before Assessment

Section 142(1) tax notice is the notice that is usually served, in a case where the return has been filed, to call for further details and documents from the assessee and to take a particular case under assessment. This notice can also be sent to require him to file his return where he has not furnished it.

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Before finalising the assessment of an assessee , the Assessing Officer may be interested to go through certain books, accounts, documents, statement of the assessee and certain other inquiries, which the Assessing Officer may think desirable before finalising the Assessment. Section 142(1) empowers the Assessing officer to issue notice to Assessee for required information.

• Fails to comply with the directions issued under section 142(2A)for getting the accounts audited;

142(2A) SPECIAL AUDIT

This section provides for special audit that maybe ordered by the assessing officer, having regards to the-

1. Nature and complexity of accounts
2. Volume of accounts
3. The interest of the revenue

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• Having made a return , fails to comply with all the terms of a noticed issued u/s 143(2)

143(2) (Compulsory service of notice)

1. If assessing officer has reason to believe that the assessee has claimed loss, exemption, deduction, allowance or rebate which is not admissible under the act, a notice requiring him to produce proof of such claims on a specified date, shall be issued.
2. Such notice can also be served to an assessee who has either understand his income or has computed excessive loss or has under paid tax, asking him to produce evidence to support the case.

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Issue of direction by Joint Commissioner (section 144A)�

In case Joint Commissioner is of view that keeping in view the nature of the case or amount of tax involved, it is necessary to issue directions to the Assessing Officer, he may issue such instructions which may enable the Assessing Officer to complete the Assessment. Such directions may be provided the Joint Commissioner either-

1. Of his own motion or
2. On request from Assessing Officer

Consequences

Along with the best judgement assessment, the assessee will also face the following consequences:

1. When the assessee files an application of appeal against the best judgement assessment, he is prevented from bringing on record any mew facts before the appellate authorities.
2. No refund is granted.
3. The assessee becomes liable for penalties and prosecution under section 271, 276CC and 276 D

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Section 276 CC ( Failure to furnish return of income )

If a person fails to furnish the return in due time he shall be punishable:

• Where amount of tax evaded is more than 25 lakh – imprisonment not less than 6 months but may exceed to 7 years and with fine;
• In any other case, with imprisonment which shall not be less than 3 months but which may extend to 3 years and with fine.

Section 276 D (Failure to produce accounts and documents )

If a person willfully fails to comply with the provisions of the notice under section 142(1) regarding production of accounts, books or other documents or willfully fails to comply with section 142 2A such a person shall be punishable with imprisonment of a term which may extend to 1 year with fine.

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Section 271

A penalty under Section 271 of the Income Tax Act would be levied in case of concealment of particulars of income or fringe benefits or furnishing of inaccurate particulars of income or fringe benefits. The minimum penalty for offences charged under Section 271 of the Income Tax Act is 100% of the tax sought to be evaded plus tax payable. The maximum penalty leviable under this section is 300% of tax sought to be evaded in addition to the tax payable.

Remedies

When the best judgement assessment is made against any assessee , he has only two remedies:

1. Filing of an application with the Assessing Officer for the cancellation of the best judgement assessment –

Within 1 Month of the service of the notice of demand on the basis of best judgement assessment The assessee can apply to the assessing officer for the cancellation of such assessment. Section 146 empowers the Assessing officer to cancel the best judgement assessment only if the assessee applies on the basis of following grounds;

• That the assessee was prevented by sufficient cause from making the return
• That he did not receive the notice issued under section 142(1) and 143(2) or
• That he did not have reasonable opportunity to comply or was prevented ny sufficient cause from complying with the noticr issued under section 142(1) and 143(2)

If the assessing officer is satisfied with the reasons for non compliance he must cancel the best judgement assessment.

2. Filing of an appeal against such assessment to the commissioner under section 246 A

Against a best judgement assessment, an assessee has a right to file an appeal under section 246 A of the Act or to apply for revision under section 246 before the income tax commissioner.

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Discretionary Best Judgement Assessment under section 145

1. For computing the income under the head profits and gains of business and profession the assessee may adopt either cash or mercantile system of accounting. (section 145(1)
2. The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income.(section 145(2)
3. Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub- section (1) or accounting standards as notified under sub- section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.

CONCLUSION

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The term Best Judgement Assessment is however not a term of art . Best Judgement Assessment is quasi judicial in nature as before arriving at the decisions, the assessee must be given an opportunity of being heard. Assessing Officer should make decisions with honesty , only then right assessment can be made.