In context with the Income Tax laws in India, Assessment is an evaluation and verification process in which the Income Tax Department assesses correctness and true and fairness of the information and data furnished by the taxpayer. It is a comprehensive term that involves a number of procedures and processes to be carried out throughout the whole assessment process. It usually determines the quantum of the turnover that is taxable and the amount to be paid on them as taxes by the taxpayer.
Best Judgment Assessment is one of the different types of Income Tax Assessment in India, in which the Assessing Officer provides their best judgment in the assessment cases on the basis of all the documents and data furnished by the taxpayer and where the taxpayer has not responded to the assessment notices sent to them by the taxation authority. In such an assessment the AO assess the whole case based on his personal thoughtful judgment which have to be honest and truthful and not vindictive or dishonest. It is based on his analysis and interpretation of all the submitted documents and records.
Types of Best Judgment Assessment:
There are two types of Best Judgment Assessment that an Assessing Officer can make-
- Compulsory Best Judgment Assessment: It is made by the AO in those cases where assesses have not co-operated with the department in the assessment. It is ordered where assesses is in default for not submitting the required information and records.
- Discretionary Best Judgment Assessment: It is passed by the AO in cases where they are not completely satisfied about the accuracy and fairness of assesses accounts and financial statements. It is also used when assesses have not employed a regular and consistent accounting method in the books of accounts.
Procedure involved in Best Judgment Assessment:
The scope of assessment and litigation has a wider scope as per the Income Tax Act’s purpose. Whether the assessment is correct or not is not the matter of the concern in the initial stages, what really matters here is that it must take place and that too as per the prescribed provisions of the Act. It is mainly carried out to get an accurate estimation of the amount paid during the Income taxes payment. Best Judgment Assessment acts as tool for supporting the government in order to provide a necessary and compulsory contribution. Under the Income Tax Act, 1961, the Best Judgment Assessment is a procedure for complying with the principles and rules of natural justice.
The Assessing Officer is obligated by the Section 144 of the Act for making best of his judgment while assessing, the total income or less of the taxpayer in one of the following cases-
- As per section 139(1), when the taxpayer has failed to file the required returns.
- When the person has not made or revised the returns as per Section 139(4) or Section 139(5) of the Act.
- When a person fails to comply with the conditions specified in the notice issued under Section 142.
- When the taxpayer fails to comply with the terms and directions laid in Section 142(2A) of the Act that requires the taxpayer to get their accounts audited annually.
- If a person fails to comply with the terms and condition provided in the notice issued under Section 143(2), after he has filed the returns. In this the taxpayer is required to be present and produce essential documents to the AO.
- Where the AO is not completely satisfied by the true and fairness of the documents and accounts of the taxpayer because they haven’t used ample accounting methods regularly in the books of accounts.