What is Assessment under Section 144 of the Income-tax Act, 1961? What is Best Judgment Assessment? What is the Time Limit for Completing a Best Judgment Assessment?

Introduction

Assessment under Section 144 of the Income-tax Act, 1961 is commonly known as Best Judgment Assessment. It is made by the Assessing Officer (AO) where the assessee fails to comply with specified statutory requirements, such as filing the return, responding to notices, complying with a special audit direction, or producing the required information and evidence.

Unlike a normal scrutiny assessment under Section 143(3), a best judgment assessment may be completed by the AO on the basis of the relevant material gathered by him, even where the assessee has failed to cooperate with the assessment proceedings.

The expression "best judgment" does not, however, give the Assessing Officer an unrestricted or arbitrary power to determine income. The assessment must be based on relevant material and must be made in accordance with the statutory requirements of Section 144.

The Income-tax Department continues to recognize Section 144 as the provision governing Best Judgment Assessment.

What is Best Judgment Assessment under Section 144?

Section 144 provides for assessment of the total income or loss to the best judgment of the Assessing Officer in specified circumstances.

Under the current provisions, the Assessing Officer is required to consider all relevant material gathered during the proceedings and, subject to the statutory opportunity of being heard, determine the total income or loss and the amount payable by the assessee.

Thus, a Section 144 assessment is generally made when the assessee has failed to comply with the requirements of the Income-tax Act or when the accounts furnished by the assessee cannot be accepted as reliable.

The current statutory text specifically covers failures relating to returns under Section 139, notices under Section 142, directions under Section 142(2A), and notices under Section 143(2).

When can an Assessment be made under Section 144?

Section 144 broadly covers the following situations:

1. Failure to file the required return
The Assessing Officer may proceed under Section 144 where a person fails to furnish the return required under Section 139(1) and has not subsequently furnished a return, revised return or updated return within the applicable statutory framework.

The present provision specifically refers to the updated return under Section 139(8A), which is an important change compared with older versions of Section 144.

2. Failure to comply with notice under Section 142(1)
Section 142(1) enables the Assessing Officer to require an assessee to:
file a return of income;
produce accounts and documents;
furnish information in the prescribed manner; and
provide other information relevant to the assessment.

If the assessee fails to comply with the terms of such notice, the Assessing Officer may proceed to make a best judgment assessment under Section 144.

3. Failure to comply with special audit or inventory valuation direction
Section 142(2A) enables the Assessing Officer, subject to the statutory conditions, to direct the assessee to get accounts audited or inventory valued in accordance with the provisions of that section.

Failure to comply with such direction can result in a best judgment assessment under Section 144.

4. Failure to comply with notice under Section 143(2)
Where the assessee has filed a return but fails to comply with the requirements of a notice issued under Section 143(2), the Assessing Officer may proceed under Section 144.

Section 143(2) is ordinarily associated with scrutiny proceedings.

5. Where the accounts are not reliable
Section 144 also operates in circumstances where the Assessing Officer is not satisfied regarding the correctness or completeness of the accounts, or where the prescribed accounting requirements are not properly followed.

In such circumstances, the Assessing Officer may determine the income on the basis of his best judgment after considering the relevant material.

The Income-tax Department describes these as discretionary best judgment assessments, as distinguished from cases where the statutory defaults require the AO to proceed under Section 144.

Compulsory and Discretionary Best Judgment Assessment
It is useful to distinguish between two broad situations.

A. Compulsory Best Judgment Assessment
The Assessing Officer is required to proceed under Section 144 when the statutory conditions specified in the provision are satisfied, such as specified failures to file the return or comply with notices or directions.

B. Discretionary Best Judgment Assessment
The Assessing Officer may resort to best judgment where the accounts are not satisfactory-for example, where the accounts are incomplete or incorrect or the prescribed accounting method has not been regularly followed.

The Department itself recognizes this distinction in its current assessment guidance.
 

Procedure for Assessment under Section 144

The procedure for a best judgment assessment depends upon the circumstances in which Section 144 is invoked.

Opportunity of being heard
An important safeguard under Section 144 is that the assessee is generally required to be given an opportunity of being heard.

The Assessing Officer is required to issue a show-cause notice calling upon the assessee to explain why the assessment should not be completed to the best of his judgment.

However, the statute provides an exception: a separate show-cause opportunity under Section 144 is not necessary where a notice under Section 142(1) has already been issued before making the assessment.

Therefore, it is not correct to assume that a Section 144 assessment can automatically be made without giving the assessee an opportunity to explain the position.

Basis of Best Judgment Assessment
The Assessing Officer cannot simply estimate income arbitrarily.

Section 144 requires the Assessing Officer to take into account all relevant material which he has gathered.

The assessment should therefore have a rational connection with the material available on record. The expression "best judgment" does not mean that the AO has unlimited discretion to make an assessment based on mere guesswork.

The purpose of the provision is to enable the Revenue to determine taxable income when the assessee has failed to comply with statutory requirements or has not maintained reliable accounts.

Is Section 144 Assessment a Final Assessment?
Yes. An order passed under Section 144 is an assessment order determining the taxable income and tax liability of the assessee.

However, "final" does not mean that the assessee has no further remedy.

An assessee aggrieved by a best judgment assessment can challenge the assessment through the statutory appellate and other remedies available under the Income-tax Act.

The Income-tax Department specifically recognizes the right to appeal against a best judgment assessment.

Difference Between Section 143(3) and Section 144 Assessment

Thus, the principal distinction is that Section 143(3) is ordinarily a scrutiny assessment based upon examination of the return and evidence, whereas Section 144 is a best judgment assessment triggered by specified defaults or deficiencies.

Time Limit for Completing Assessment under Section 144
The time limit for completing a Section 144 assessment is governed principally by Section 153 of the Income-tax Act, 1961.

A significant correction to older articles is necessary here.
The statement that a Section 144 assessment must generally be completed within two years from the end of the relevant assessment year is not the current general rule.

For Assessment Year 2022-23 onwards, the normal statutory time limit for passing an assessment order under Section 143 or Section 144 is 12 months from the end of the assessment year.

Current time limits

These periods are reflected in the current statutory framework and the Income-tax Department's updated guidance.

Example of the Time Limit
Suppose the assessment relates to Assessment Year 2025-26.

The relevant assessment year ends on 31 March 2026.

For AY 2025-26, which falls within AY 2022-23 onwards, the normal time limit under Section 153 is 12 months from the end of the assessment year.

Accordingly, the assessment order under Section 144 would ordinarily have to be completed by 31 March 2027, subject to statutory exclusions, extensions and special provisions applicable to the particular case.

Extension of Time Limit
The 12-month period is not necessarily an absolute period in every case.

Section 153 contains provisions for excluding or extending certain periods in specified circumstances.

For example, where a reference is made to the Transfer Pricing Officer (TPO), the period available for completion of assessment is generally extended by 12 months.

There are also special provisions concerning updated returns and other circumstances that affect the computation of limitation.

Therefore, while determining whether a Section 144 assessment is time-barred, it is necessary to examine the complete assessment record rather than merely adding 12 months to the end of the assessment year.

Section 144 and Faceless Assessment
Best Judgment Assessments may also be conducted through the faceless assessment procedure under Section 144B, subject to the applicability of the faceless assessment framework.

The Income-tax Department identifies Section 144 assessments among the proceedings covered by the faceless assessment system.

Accordingly, the assessee may receive notices, communications and opportunities to respond electronically through the prescribed income-tax portal and assessment mechanism.

Important Safeguards for the Taxpayer
An assessee facing proceedings under Section 144 should not ignore notices issued by the Income-tax Department.

The assessee should, where applicable:
1. respond to the notice within the prescribed time;
2. furnish the return if required;
3. produce books of account and supporting documents;
4. explain discrepancies identified by the Assessing Officer;
5. respond to notices under Sections 142(1) and 143(2);
6. comply with lawful directions relating to audit or inventory valuation;
7. preserve documentary evidence supporting income, expenditure, deductions and claims; and
8. check the statutory limitation period before the assessment order is passed.

Failure to participate in the proceedings can result in income being assessed on the basis of the material available to the Assessing Officer.

Can a Best Judgment Assessment be Challenged?
Yes.
A Section 144 assessment is not immune from challenge merely because it has been made using the "best judgment" of the Assessing Officer.

If the assessee is aggrieved by the assessment, the assessee may avail the appellate remedy provided under the Income-tax Act, subject to the applicable provisions and limitation period.

Possible grounds of challenge may include:
absence of jurisdiction;
violation of principles of natural justice;
failure to consider relevant evidence;
assessment based on irrelevant material;
unreasonable or arbitrary estimation;
failure to comply with mandatory statutory procedure;
incorrect computation of taxable income;
incorrect disallowance of deductions or expenses; and
assessment order being barred by limitation.

The exact remedy depends upon the nature of the assessment order and the facts of the case.

Conclusion
Assessment under Section 144 of the Income-tax Act, 1961 is known as Best Judgment Assessment. It is invoked when the assessee fails to comply with specified statutory requirements or where the Assessing Officer is unable to rely upon the accounts in the manner required by law.

The Assessing Officer must consider the relevant material available on record and, subject to the statutory requirements regarding opportunity of hearing, determine the total income or loss and tax payable.

Most importantly, the old statement that a Section 144 assessment is generally required to be completed within two years is no longer correct for current assessment years. For AY 2022-23 onwards, the general limitation under Section 153 is 12 months from the end of the relevant assessment year, subject to statutory extensions and exclusions.

The limitation applicable to a particular assessment should therefore always be checked with reference to the relevant Assessment Year, the applicable version of Section 153, and any exclusion or extension prescribed by the Act. ([Etds][5])

Related Topics
Assessment under Section 143(1) - Summary Assessment
Assessment under Section 143(3) - Scrutiny Assessment
Assessment under Section 144 - Best Judgment Assessment
Reassessment under Section 147
Notice under Section 148
Faceless Assessment under Section 144B
Time Limit for Completion of Assessment under Section 153
Appeal against Income-tax Assessment Order

Legal Update: This article reflects the Income-tax Act, 1961 provisions and departmental guidance available as of 23 August 2026. The Income-tax Act, 2025 has also come into force from 1 April 2026; the applicable legislation for a particular assessment must therefore be determined with reference to the relevant assessment year and transitional provisions.
 

Reference
https://www.incometaxindia.gov.in

 

Assessments under Income tax Law

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What is Assessment under Section 144 of Income Tax Act, 1961? What is Judgment Assessment? What is the time Limit to complete Judgment Assessment?

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