Income tax assessments are a crucial part of the Indian tax system. One such important provision is Section 144 of the Income Tax Act, which empowers the Assessing Officer (AO) to assess a taxpayer’s income based on their best judgment when the taxpayer fails to comply with the law. This section plays a key role in maintaining tax discipline & ensuring compliance, especially when taxpayers either do not file returns or fail to respond to notices.
What is Section 144 of the Income Tax Act?
Section 144 of the Income Tax Act is commonly known as the Best Judgment Assessment section. It empowers the Assessing Officer (AO) to make an assessment based on their judgment when:
- The taxpayer fails to file an income tax return as required under section 139.
- The taxpayer fails to comply with a notice issued under section 142(1) or section 143(2)."
- The taxpayer fails to comply with directions issued under section 142(2A) for special audits.
In such situations, the AO is permitted to determine tax liability & compute the taxpayer's total income to the best of his judgment. This is not arbitrary, but rather based on available material, previous returns, or other reasonable grounds.
Faceless Assessments under Section 144
One of the most remarkable developments in recent years is the introduction of faceless assessments. Section 144 of the Income Tax Act outlines the procedural framework for conducting faceless assessments of income tax returns, eliminating personal interaction between taxpayers & tax officials. The move aims to reduce corruption, bring transparency, & speed up the process of assessments.
Faceless assessments under Section 144 are conducted through electronic communication & use a centralized system where assessments are allocated to officers in different parts of the country, ensuring unbiased judgment.
When Does Section 144 Apply?
The Assessing Officer may invoke Section 144 of the Income Tax Act in the following cases:
- Failure to File Return: If an individual or company does not file their income tax return within the specified time.
- Failure to Respond to Notices: If the taxpayer ignores notices or does not provide the necessary documents when required.
- Non-compliance with Special Audit: If a taxpayer fails to follow the direction for a special audit under section 142(2A).
In such situations, the AO is empowered to carry out the assessment independently.
Powers of Assessing Officer under Section 144
Section 144 permits Assessing Officers to determine tax liability based on their analysis of the taxpayer's situation. The AO may use any available data such as:
- Past tax filings
- Financial transactions
- Bank statements
- Third-party information
The AO can make the assessment of the total income or loss to the best of his judgment, & issue a demand notice accordingly.
However, before finalising the assessment, the taxpayer is usually allowed to be heard, unless they completely ignore previous notices."
Time Limit for Assessment under Section 144
The time limit for assessment under Section 144 follows the general timelines specified in the Income Tax Act. The assessment must generally be completed within:
- 12 months from the end of the relevant assessment year for standard cases.
- Extensions may apply in case of transfer pricing, international transactions, or other special circumstances.
Penalties & Consequences under Section 144
If assessed under Section 144:
- The taxpayer may face higher tax liability since the AO uses estimated figures.
- Penalties may be levied for non-compliance.
- In some cases, prosecution can also be initiated for willful default.
The taxpayer still retains the right to appeal against the order under Section 246A of the Income Tax Act.
Case Laws and Supreme Court Judgments
There have been several Supreme Court judgments on Section 144 of the Income Tax Act, which clarify the scope & limitations of the Assessing Officer's powers. Courts have consistently held that while the AO has discretion, the assessment must be fair, reasonable, & based on evidence. Arbitrary assessments can be challenged successfully.
There are also many case laws on Section 144 of the Income Tax Act where courts have ruled in favour of the assessee, especially when procedural lapses or violations of principles of natural justice were involved.
Section 144b and Technological Reforms
Apart from Section 144, the Income Tax Act also includes Section 144b, which lays down procedures for faceless assessments. This complements Section 144 & brings in a technology-driven approach to ensure fairness & transparency in income tax proceedings.
Final Thoughts
In summary, Section 144 of the Income Tax Act is a powerful tool that allows tax authorities to ensure compliance & collect rightful taxes when taxpayers fail to fulfil their obligations. It:
- Empower the Assessing Officer (AO) to act in cases of non-compliance.
- Permits Assessing Officers to determine tax liability using their best judgment.
- Outlines the procedural framework for conducting faceless assessments.
- Ensures that income is assessed fairly, even in the absence of full cooperation from the taxpayer.
While it ensures the integrity of the tax system, it also protects taxpayers' rights by mandating that assessments are done judiciously & within legal parameters.
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