Summary of Best Judgment Assessment
Assessment refers to evaluation or judgment. As per the income tax law it refers to evaluation of income. It includes various procedures. Though in the strict sense assessment has not been defined in the Income Tax Act, but it refers to an investigation for judging the correctness of the returns and documents filed by the tax payers.
Assessment includes determination of the amount of taxable income as well as the amount of tax payable by an assessee.
This assessment is an estimate made by the income tax authority which is based on the accounts and documents filed by the assessee. The term “assessment” has a wide scope in the Income Tax Act. An assessment whether is correct or not would signify all assessments made under the Act.
Section 144 of the Income Tax Act: Best judgment assessment:
Section 144 of the Income Tax Act deals with the provisions relating to “best judgment assessment”. In a best judgment assessment an assessing officer makes an assessment based on his best reasoning. He should neither be dishonest in his assessment, nor should he not have a vindictive attitude.
Kinds of best judgment assessment:
There are two kinds of best judgment assessment:
a. Compulsory best judgment assessment – It is done when the assessing officer finds that there is an act amounting to non-co-operation by the assessee or where the assessee is found to be a defaulter in supplying information to the department.
b. Discretionary best judgment assessment – It is done in cases where the assessing officer is dissatisfied with the authenticity of the accounts given by the assessee or where no regular method of accounting has been applied by the assessee.
Principle of application of best judgment assessment:
The process of Best Judgment Assessment is applied in conformity with the principles of natural justice. As per the provisions of Section 144 of the Income Tax Act, 1961, the Assessing Officer is supposed to make an assessment of the income of an assessee to the best of his judgment in the following cases:
1. When an assessee fails to file a return under section 139(1) of the Act or a revised return under section 139(4) or 139(5) of the Act;
2. When an assessee fails to comply with the terms and conditions laid down in the provisions relating to a notice under section 142 or fails to get his accounts audited as per section 142(2A) of the Act;
3. When an assessee after filing a return fails to comply with the terms of a notice as given in section 143(2) for production of evidence or documents.
Options available to an assessee after receiving best judgment assessment:
Upon receiving best judgment assessment an assessee can file an appeal under Section 246A of the Act or can file a revision under Section 246 of the Act before the Income Tax Commissioner. An assessee gets an opportunity of being heard before the best judgment assessment is made. A notice by means of a show cause is issued to the assessee before such assessment is made.
A general understanding of the procedure shows that the best judgment assessment procedure has given wide discretionary powers to the assessing authority to assess in the instances where there has been willful suppression and concealment of income and turnover by the assessee. The power so provided is wide to the extent that the AO has the authority to assume from the documents so present as to provide an assessment with an increased or a decreased turnover based on the documents so provided. Even though the assumption may be guesswork it has a valid justification that all the turnover so recorded in order to correctly assume the turnover and thereby the returns in case of an attempt to intentionally conceal the tax payable by not displaying in the books of accounts and the other official documents.
Tax assessment being a difficult area of work it is but imperative that the assessing authority should be provided with adequate powers for encountering tax evaders. The assessing officers in this respect have been given wide powers in that regard. It also aids in honest tax disclosures so as to avoid the rising concerns of tax evasion which had panicked the economy of the country thereby giving rise to a parallel unaccounted economy.
A mandatory best judgment is done in the event of failure to furnish requisites books of accounts by the assessee and further the discretionary assessment made where the AO is under the firm belief that the records are not true or the same are not admissible by him or rejected of any of the grounds which the assessing officer deems fit for the case. However this power is not absolute and there is an imperative understanding that the actions of the assessing authority will be honestly and diligently performed. Further the assessee is given the power to furnish reasons for failure to provide adequate reasons for the non disclosure or concealment of the material documents and as to why an assessment should not be made according to the best understanding of the assessing authority. Moreover, an assessee has a right to file an appeal under S. 246A or to make an application for revision under s. 246 to the Income Tax Commissioner if he is not pleased with the decision made against him. The AO should be asked to provide and furnish proof for his actions as opposed to that of the assessee and only after a deduction of both sides of the documents provided should the tribunal come to a decision.