Section 144 of ITA, 1961 : Section 144: Best Judgment Assessment

Explanation using Example

Imagine a scenario where Mr. Sharma, a business owner, has failed to file his income tax return for the financial year by the due date as per sub-section (1) of section 139 of the Income-tax Act, 1961. Despite receiving a notice from the Income Tax Department under section 142(1) asking him to submit specific documents and information for the assessment, Mr. Sharma does not comply with the terms of the notice.

In this case, the Assessing Officer (AO) can invoke Section 144 of the Income-tax Act. The AO will gather all relevant material on his own to make an assessment of Mr. Sharma's total income or loss. Before proceeding, the AO will issue a notice to Mr. Sharma, giving him an opportunity to be heard and to show cause why the assessment should not be made to the best of the AO's judgment.

If Mr. Sharma still does not respond or fails to provide a satisfactory explanation, the AO may proceed to assess the income to the best of his judgment and determine the tax payable by Mr. Sharma. This assessment is done based on the information the AO has, which may result in a higher tax liability for Mr. Sharma due to the absence of his cooperation and the possible disallowances of deductions and exemptions he might have claimed if he had filed his return properly.