Section 144 of the Income Tax Act: A Detailed Overview
Updated: Aug 27
Assuring that taxpayers pay their fair share of taxes and complete all requirements, tax assessment is a crucial component of the Indian tax system. Section 144 of the Income Tax Act permits Assessing Officers to determine tax liability through the Best judgement assessment method in situations where a taxpayer neglects to file their income tax return. This article will provide you with all the information you need to understand Section 144 and how the AO makes his evaluation using his best judgement given the circumstances.
Table of content
What is Section 144 of the Income Tax Act?
According to Section 144 of the Income Tax Act, an Assessing Officer (AO) may make an assessment of a person using their best judgement after gathering all pertinent information. When a taxpayer violates the terms of Section 144 of the Income Tax Act, this process takes place. These assessments, which will be covered in depth, are typically made when a taxpayer disregards the obligations outlined in other act sections. The government values Section 144 of the Income Tax Act, 1961 because it makes sure that taxpayers abide by the tax regulations. In situations where the taxpayer has not complied with the Act's obligations, it gives the assessing officer the authority to make an assessment based on best judgement. This supports the government's efforts to ensure that taxpayers pay their fair share of taxes and to increase tax compliance.
Applicability of Section 144 of the Income Tax Act
Section 144 of the Income Tax Act grants an Assessing Officer the authority to provide a decision in the following situations:
When a taxpayer misses the deadline for filing income tax returns. Furthermore, Section 139 (1), Section 139 (4) for a late return, and Section 139 (5) for an amended return also specify this deadline.
If a taxpayer disregards any of the conditions specified in the notification and directive provided under Section 142 (1).
If a taxpayer files returns but then fails to abide by all of the notice requirements under Section 143(2).
If a taxpayer is unable to persuade an AO of the accuracy and completeness of the information. Furthermore, the taxpayer has not used any regular accounting procedure.
However, it is crucial to remember that an AO may, under Section 142(1), request that a taxpayer file income reports if they have not already done so. In addition, Section 142(2A) addresses exceptional audits. Accordingly, an Assessing Officer has the authority to request that a taxpayer have a chartered account audited. Additionally, the charter accountant must be nominated for audit by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner. In addition, the reports must be provided to the assessor by the CA.
What is the Best Judgement Assessment?
According to the Income Tax Act, an assessment made using best judgement is one that is carried out by an assessing officer who has particular knowledge of the financial situation of the assessee. Tax authorities may begin a best judgement assessment to ascertain a taxpayer's tax liability if the taxpayer is unable to provide required documentation or does not file tax returns. Before resorting to the best judgement evaluation, the assessing officer considered several factors to ensure the judgment's accuracy, impartiality, and fairness. These include:
Documentation: The authorities must keep accurate records for the evaluation of their best judgement. It includes all activities for information-gathering, documentation of the rationale for the inception of the assessment, examination standards, and eventual determination.
Lack of information: Any taxpayer who fails to give correct and comprehensive information triggers the start of this process. When assessing taxes, tax authorities may use their best judgement assessment based on the information at hand if a taxpayer neglects to submit an IT return or provide the necessary documentation.
Objective criteria: Rather than being influenced by one's own prejudices or ideas, this approach is based on the assessment's objective standards. During the assessment process, the evaluating officer (AO) must take into account pertinent laws, regulations, precedents, and principles.
Assessment Notice under Section 144 of the Income Tax Act
When a taxpayer fails to submit an IT return or refuses to participate in providing an explanation or information about their tax assessment, the best judgement assessment is used.
Before implementing such a decision, the assessing officer has to notify the taxpayer.
If the taxpayer still hasn't submitted a return, the AO may, as per Section 142(1), give notices requesting that he do so.
Also, the officer may request that the taxpayer give any necessary accounts or papers in writing and verify in the manner required on any essential points or matters.
Regardless of whether they are included in the accounts, this can also include a statement of assets and liabilities.
Time Limit of Section 144 of the Income Tax Act
Section 153 discusses the time limit under Section 144 to begin the evaluation process. These are:
Within 21 months of the assessment year in which the income is initially assessed, if the assessment year is 2017–18 or earlier.
For the assessment year 2018–19, the income becomes taxable for the first time eighteen months after the fiscal year ends.
For the 2019–20 assessment year, within a year of the assessment year's conclusion, following the initial income assessment.
Within eighteen months following the conclusion of the fiscal year in which income was first evaluated, for the assessment year 2020–21.
For the assessment year 2021–2022, within nine months of the assessment year's conclusion, on the first day that income is subject to assessment.
Starting in the assessment year 2022–2023, the period is 12 months from the end of the fiscal year in which the income was first assessed.
Consequences of Section 144
Invoking section 144 has the following consequences:
Tax liability: If the assessing officer fails to account for the taxpayer's available deductions and exemptions, the taxpayer may be faced with a greater tax liability.
Interest and Penalty: If the taxpayer fails to comply, they may also be required to pay interest and a penalty.
Appeal: Under Section 144 of the Income Tax Act of 1961, the taxpayer may lodge an appeal against the assessment order.
Precautions by Taxpayers
To avoid the repercussions of using Section 144, taxpayers are required to take the following safety measures:
File tax returns on time: To prevent the assessing officer from using section 144, taxpayers must make sure they file their tax returns on time.
Give accurate information: To prevent the assessing officer from using section 144, taxpayers must give accurate information and disclose all of their income.
Follow notices: To prevent the assessing officer from invoking section 144, taxpayers must abide by all notices sent by the government, including a notice for assessment.
Comply with the department: To prevent the assessing officer from invoking section 144, taxpayers must comply with the department during the assessment process.
Conclusion
If you fail to file your returns or provide the necessary evidence, Section 144 deals with the provisions of an assessing officer using their best judgement in analysing your situation. The taxpayer receives a notice about this from an AO. Additionally, depending on the assessment year, different deadlines are set for starting these assessments. As a result, in order to prevent the applicability of the best judgement assessment requirements, you must file your returns carefully and provide all relevant information about your income.
FAQ
Q1. What is the best Judgement assessment 144?
If you fail to file income tax returns, fail to supply all the necessary information, or omit information, an assessing officer may apply his best judgement against you under Section 144, best judgement assessment.
Q2. What is the time limit for Section 144?
The Income Tax Act's Section 153 lays out the deadline for finishing an assessment under Section 144. The period is nine, twelve, or twenty-one months from the end of the year when your income was first determined. The deadline is set at 12 months from the end of the financial year when the income was first assessed, effective from FY 22–23.
Q3. What happens if I don’t respond to the notice within 30 days?
You may end up facing several repercussions if you ignore a notification from an Assessing Officer and fail to reply within the allotted timeline. The assessment is the result of the Income Tax department's examination, which comes next.
Q4. What is Section 144 of the Income Tax Act?
When a taxpayer violates any of the Act's provisions, the Assessing Officer (AO) is authorised by Section 144 of the Income Tax Act, 1961 to make an assessment based on their best judgement.
Q5. When is Section 144 invoked?
When a taxpayer neglects to file their tax returns, withhold information or documents that are required, or are uncooperative with the department during the assessment process, Section 144 is triggered.
Q6. What is the procedure for invoking Section 144?
The process for applying section 144 includes notifying the taxpayer, providing them with a chance to be heard, assessing the situation using best judgement, and then issuing an assessment order.
Q7. How can taxpayers steer clear of the consequences of invoking Section 144?
By submitting their tax returns on time, giving proper information, heeding reminders, and working with the government during the assessment process, taxpayers can avoid the penalties associated with using section 144.
Q8. Is Section 144 applicable to all taxpayers?
Yes, all taxpayers who disregard certain provisions under the Income Tax Act, 1961 are subject to section 144.
Q9. Can the assessing officer invoke Section 144 if the taxpayer has already filed the tax returns?
No, if the taxpayer has previously filed their taxes and is satisfied with all procedures under the Income Tax Act of 1961, the assessing officer cannot utilise section 144.
Q10. When is a best judgment assessment under Section 144 initiated?
A best judgment assessment under Section 144 is initiated when a taxpayer fails to file a return on time, does not comply with a notice under Sections 142(1) or 143(2), or fails to provide necessary information during the assessment.
Q11. What are the consequences of a best judgment assessment under Section 144?
The consequences include the tax liability being determined by the Assessing Officer based on available data, leading to potentially higher tax dues, penalties, and interest since the assessment is made without the taxpayer’s input.
Q12. Can a taxpayer appeal against a best judgment assessment under Section 144?
Yes, a taxpayer can appeal against a best judgment assessment under Section 144 by filing an appeal with the Commissioner of Income Tax (Appeals) or higher authorities, but it is essential to have valid grounds for the appeal.
Q13. How can a taxpayer avoid a best judgment assessment under Section 144?
A taxpayer can avoid a best judgment assessment by filing their income tax returns on time, responding promptly to notices from the Income Tax Department, and providing all necessary documents and information during the assessment process.
Related Posts
See AllA dividend is an amount that a business distributes to its shareholders from the profits it makes that specific year. In the hands of the...
Cost of acquisition is the term used to describe the expenses made by an individual or corporation in the process of purchasing an asset....
The collection and recovery of taxes are fundamental processes that ensure the government has the necessary funds to provide public...
Comments