s.144 — Best judgment assessment
The provision that lets the Assessing Officer assess to the best of his judgment when the assessee does not file, does not comply or does not answer the scrutiny notice, and the procedural steps that must still be taken first.
Stable in structure for decades. The reference in clause (c) to a failure to comply with a notice under section 143(2) has been in the sub-section since at least the Finance Act 1967 text; what has changed around it is clause (a), now keyed to section 139(1) with its sub-sections (4) and (5), and clause (b), which has acquired the limb on a direction under section 142(2A). The two provisos, requiring a show cause notice and dispensing with it where a notice under section 142(1) was issued before the assessment, are the operative procedural safeguard. Sub-section (2) is a saving under the Direct Tax Laws (Amendment) Act 1987 for assessment year 1988-89 and earlier. The text here follows the Department's Year 2020 edition, and clause (c) stood in the same terms in the Year 1967 edition.
Income-tax Act, 1961
s.144
Income-tax Act, 2025
s.271
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 144(1) of the Income-tax Act, 1961 applies where a person (a) fails to make the return required under section 139(1) and has not made a return or revised return under section 139(4) or (5), (b) fails to comply with all the terms of a notice under section 142(1) or with a direction under section 142(2A), or (c) having made a return, fails to comply with all the terms of a notice under section 143(2). In any of those cases the Assessing Officer, after taking into account all relevant material he has gathered and after giving the assessee an opportunity of being heard, shall make the assessment of the total income or loss to the best of his judgment and determine the sum payable. The first proviso requires that the opportunity be given by serving a notice calling on the assessee to show cause, on a date and time specified, why the assessment should not be completed to the best of his judgment. The second proviso dispenses with that notice where a notice under section 142(1) was issued before the assessment was made. Clause (a) is the provision that answers the case where no return at all has been furnished, which is why the Revenue says a notice under section 143(2) cannot be required in that situation: section 143(2) opens with the words "Where a return has been furnished", and section 144(1)(a) is the route Parliament provided for the case where none has been. Clause (c) is the converse and assumes a notice under section 143(2) that has in fact been issued. The counterpart in the Income-tax Act, 2025 is section 271, whose clause (1)(c) points at section 270(8).
What the provision does
Permits an estimate where the assessee has defaulted, and confines the estimate by requiring that all relevant material gathered be taken into account and that the assessee be heard. It does not license a guess, it does not relieve the Assessing Officer of the show cause step unless a section 142(1) notice preceded the assessment, and it does not cure a jurisdictional defect elsewhere in the proceeding: an assessment framed under this section is as open to attack for want of a valid notice as one framed under section 143(3), as the Bombay High Court held in Ashok Commercial Enterprises. Nor does it apply of its own force merely because the assessee was uncooperative; one of the three statutory failures must be made out.
Threshold questions
- Which of the three clauses the Assessing Officer is acting under, because each requires a different default to be established
- Whether the assessee in fact failed to comply with all the terms of the notice relied on, rather than complying partly or late
- Whether a show cause notice under the first proviso was served, specifying a date and time
- Whether a notice under section 142(1) had been issued before the assessment, since that dispenses with the show cause notice under the second proviso
- Whether all relevant material gathered was in fact taken into account, which is a statutory condition and not a formula
- Whether the estimate has a disclosed basis capable of being tested, as distinct from a figure
In practice
The recurring disputes.
Whether no return at all removes the need for a scrutiny notice
The Revenue's case rests on the words of both sections. Section 143(2) operates only "Where a return has been furnished", and section 144(1)(a) is written for the case where none has been, so Parliament provided a complete route that does not pass through section 143(2). The Kerala High Court so held in CIT v. V. R. Sreekumar (7 April 2014) at paragraph 12, on a reassessment where the return filed in response to the section 148 notice was invalid. The assessee's case is that the authority is thinner than the proposition sounds. V. R. Sreekumar holds at its paragraph 8 that the Department could not contend the assessee had filed no return and then at paragraphs 10 to 12 treats the same filing as invalid. The Madras decision in C. B. Srinivasan (21 March 2016), which is often offered alongside it, is a single judge in writ jurisdiction whose reasoning on the point is one paragraph, and it decides only that a notice under section 143(2) cannot precede the section 148 notice and does not arise where no return is filed in response to it; section 144 is not mentioned in it at all. The assessee adds that the exception cannot reach a case where the assessee adopted his earlier return, since the Supreme Court held in Orissa Mining Corporation at paragraph 18 that doing so is a sufficient answer to the notice by which the assessee remains bound. The Supreme Court has never decided the no return case, and there is no Gujarat decision on it.
Whether a best judgment assessment can be attacked for want of a notice under section 143(2)
The Revenue has the stronger starting point on the text. Section 144 prescribes its own conditions, in the three clauses of sub-section (1) and in the two provisos, and the Revenue's case is that those are the only jurisdictional conditions of an order made under it: an officer proceeding under section 144 is not making an assessment under section 143(3), so the condition in section 143(2) is never engaged. It adds that this is the reading Hotel Blue Moon itself supports, because at paragraph 15 the Supreme Court said that where the returned income is accepted there is no reason to issue the notice, the notice belonging to an assessment under section 143(3). On that footing the scrutiny notice is the instrument of an enquiry into a return, and it has no place where the officer is not enquiring into a return at all but estimating because the assessee has defaulted. The assessee's case is that this proves too much, because it would let the Department cure the absence of a scrutiny notice by relabelling the order, and that the clauses of section 144(1) are conditions precedent which must independently be made out before the section can be used at all. The Bombay High Court took the second view in Ashok Commercial Enterprises (4 September 2023), working the limbs through separately. At paragraph 17(a) it held the recorded basis that no return had been filed to be demonstrably erroneous, a return having been filed, so clause (a) could not apply. At 17(b) clause (c) could not apply because the assessment order itself recorded that no notice under section 143(2) had been issued. At 17(c) clause (b) failed for want of any non-compliance with a notice under section 142(1). At 17(d) no show cause opportunity of the kind the first proviso requires had been given, and the second proviso did not apply. At 17(e) the Court held that the order could at most have been passed under section 153C read with section 143(3), for which a notice under section 143(2) is a jurisdictional condition precedent. The decision therefore rests on findings that none of the three clauses was made out on those facts, which is some distance from a proposition that a section 143(2) notice is required wherever section 144 is properly invoked. How far it travels to a case where one of the clauses is squarely satisfied has not been tested.
How far the estimate must be reasoned
The sub-section requires the Assessing Officer to take into account all relevant material he has gathered and to make the assessment to the best of his judgment. The assessee's case is that this makes the estimate justiciable in its reasoning and not merely in its result, so an order that announces a percentage without disclosing the comparable, the period or the computation is not an exercise of judgment at all. The Revenue's case is that best judgment is by definition an estimate, that exactitude is not required of it, and that an appellate authority should substitute its own figure rather than annul. On relief the structure of the provision does most of the work: a complaint that the estimate is unreasoned goes to the exercise of a power the sub-section confers and not to the existence of the power, so the ordinary answer is substitution of a better figure or a remand rather than annulment, and the ground is a quantum ground that should not be pleaded as though it went to jurisdiction. Where the line falls between an estimate that is merely low on reasoning and one so unreasoned as not to be an exercise of judgment at all has not been fixed.