SECTION 144

ASSESSMENT - BEST JUDGMENT ASSESSMENT
[SEC. 144]

SCOPE OF THE PROVISION - Failure of any of the conditions mentioned in clauses (a) to (c ) of section 144(1) need not always lead to best judgment assessment under section 144. For example, if an assessee fails to file return in time, but he produces entire books of account against the notice issued by the Assessing Officer, still assessment can be completed based on the book results and such assessment is certainly not a best judgment assessment under section 144. A best judgment assessment arises only when the Assessing Officer determines income based on materials gathered by him and not when assessment is made based on books of account submitted by the assessee. A best judgment assessment can arise even in case of income escaping assessment under section 147 because section 148 makes it clear that a return filed against notice issued under section 148 should be proceeded with as if it is a return under section 139. This means that in a proceeding initiated under section 147, the Assessing Officer can make a best judgment assessment if the books of account produced by the assessee are unacceptable. Even though word ‘or’ is used in clauses (a) to (c) of section 144, yet a best judgment assessment is called for only when there is cumulative failure of all conditions including failure to furnish his details of income and to prove same through his accounts and documents - Mubarak Trading Co. v. CIT [2008] 174 Taxman 339 (Ker.).

BEST JUDGMENT ASSESSMENT IS DIFFERENT FROM REGULAR ASSESSMENT - The assessments made or the basis of the assessee’s accounts and those made on ‘best judgment’ basis are totally different types of assessments - CST v. H.M. Esufali H.M. Abdulai [1973] 90 ITR 271 (SC).

POWER IS NOT ARBITRARY - The mere fact that the material placed by the assessee before the assessing officer is unreliable does not empower the officer to make an arbitrary order. The power to make a best judgment assessment is not an arbitrary power - State of Orissa v. Maharaja Shri B.P. Singh Deo [1970] 76 ITR 690 (SC).

ASSESSING OFFICER SHOULD BE GUIDED BY RULES OF JUSTICE, EQUITY AND GOOD CONSCIENCE - In making a best judgment assessment, the Assessing Officer does not possess absolute arbitrary authority to assess any figure he likes. Although he is not bound by strict judicial principles, he should be guided by rules of justice, equity and good conscience - CIT v. Ranicherra Tea Co. Ltd. [1994] 207 ITR 979 (Cal.).

SPECIFIC FINDING IS NECESSARY - Where there was no finding by the ITO that there had been any non-compliance with any of the notices mentioned in sub-clauses (a ), (b) and (c ) of section 144, the order of best judgment assessment should be struck down, even if there was valid service of notice under section 131 and there had been non-compliance with the terms of such notice - Mohini Debi Malpani v. ITO [1970] 77 ITR 674 (Cal.).

PROVISION APPLIES TO REASSESSMENT PROCEEDINGS ALSO - There is no merit in the submission that the words ‘so far as may be’ in section 148 exclude the applicability of the provisions of section 144 to an assessment made under section 147 - R.B. Seth Shreeram Durgaprasad and Fatehchand Narsingdas (Export) Firm v. CIT [1988] 170 ITR 23 (Bom.).

ASSESSMENT CAN BE MADE EVEN WHERE RETURN IS NOT SIGNED OR VERIFIED - A best judgment assessment can be made when the return is not signed and verified - Behari Lal Chatterji v. CIT [1934] 2 ITR 377 (All.).

ASSESSMENT CAN BE MADE WHEN A BLANK RETURN IS FILED - Where the assessee filed a return with all columns blank, the assessee must be treated as having failed to file a return, and a best judgment assessment could be made - Rattan Chand Dunichand of Guru Bazar v. CIT 3 ITC 69 (Lahore).

WHERE APPROXIMATE FIGURES ARE RETURNED, ASSESSMENT CAN BE MADE TO THE BEST OF JUDGMENT - Where the assessee had furnished only approximate figures in his return of income without any further details, a best judgment assessment made by ignoring that return was valid - A.R.A.N. Chettiar Firm v. CIT 2 ITC 477 (Rangoon).

OPPORTUNITY MUST BE GIVEN TO ASSESSEE - The assessee will have to be given an opportunity of being heard and a right to question the correctness or the relevancy of the materials on the basis of which the ITO proposes to make the best judgment assessment - Dhanalakshmi Pictures v. CIT [1983] 144 ITR 452 (Mad.); T.C.N. Menon v. ITO [1974] 96 ITR 148 (Ker.).

NON-PRODUCTION OF BOOKS NOT PROVED TO EXIST IS NOT A VALID GROUND - Mere non-production of books, without proof of the existence of things not produced, would not fall within the mischief of section 144 - J.M. Sheth v. CIT [1965] 56 ITR 293 (Mad.).

ASSESSEE MUST BE APPRISED OF COMPARABLE CASES - While making a best judgment assessment on the basis of comparable cases, the assessee must be apprised of those cases and given an opportunity to have his say in the matter - K. Baliah v. CIT [1965] 56 ITR 182 (Mys.).

ESTIMATE MUST BE HONEST AND FAIR - The authority making a best judgment assessment must make an honest and fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such an estimate, the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case - Brij Bhushan Lal Parduman Kumar v. CIT [1978] 115 ITR 524 (SC).

No doubt, authorities concerned should try to make an honest and fair estimate of income even in a best judgment assessment, and should not act totally arbitrarily but there is necessarily some amount of guess work involved in a best judgment assessment, and it is assessee himself who is to blame as he did not submit proper accounts. Where Assessing Officer, on finding that assessee had not maintained and kept any quantitative details/stock register for goods traded in by it; that there was no evidence on record or document to verify basis of valuation of closing stock shown by assessee; and that GP rate declared by assessee during assessment year did not match result declared by assessee itself in previous assessment years, rejected assessee’s books of account and resorted to best judgment assessment under section 144, it was held that since cogent reasons had been given by Assessing Officer for doing so, there was no reason to take a different view - Kachwala Gems v. Jt. CIT [2007] 158 Taxman 71 (SC).

GUESSWORK SHOULD NOT BE WILD BUT REASONABLY CONNECTED TO AVAILABLE MATERIAL - Though there is an element of guesswork in a ‘best judgment assessment’, it should not be a wild one, but should have a reasonable nexus to the available material and the circumstances of each case. Though the section provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard to the available material - State of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC).

ACTION MUST NOT BE DISHONEST, VINDICTIVE OR CAPRICIOUS - The officer making a best judgment assessment must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for the purpose he must be able to take into consideration local knowledge and repute in regard to the assessee’s circumstances and his own knowledge of previous returns/assessments of the assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork - CIT v. Laxminarain Badridas [1937] 5 ITR 170 (PC).

REFUSAL BY CHARTERED ACCOUNTANT UNDER SECTION 142(2A) CANNOT LEAD TO BEST JUDGMENT ASSESSMENT - If, for a frivolous reason, the chartered accountant declines to undertake the audit of a company’s accounts under a direction issued under section 142(2A), obviously the company could not be held responsible. There is neither default nor failure to comply with the direction issued under section 142(2A) on the part of the company so as to attract a best judgment assessment by invoking section 144(b) - Swadeshi Polytex Ltd. v. ITO [1983] 144 ITR 171 (SC).