What Is Best Judgment Assessment?
Best Judgment Assessment is an assessment made by the Assessing Officer where specified statutory defaults occur. Under Section 271 of the Income-tax Act, 2025, the Assessing Officer must take into account the relevant material gathered, give the assessee the opportunity required by law and determine the total income or loss to the best of the Assessing Officer's judgment.
The expression "best judgment" does not authorise an arbitrary assessment. The determination should have a reasonable connection with the relevant material available in the proceedings.
When Can Best Judgment Assessment Be Made under Section 271?
Section 271(1) specifies the present statutory triggers. Best Judgment Assessment may be made where a person:
- fails to furnish a required return under Section 263(1), (4), (5) or (6);
- fails to comply with all the terms of a notice under Section 268(1) or with a direction under Section 268(5); or
- after making a return, fails to comply with all the terms of a scrutiny notice under Section 270(8).
Procedure and Opportunity of Being Heard
Section 271 expressly requires the Assessing Officer to give the assessee an opportunity of being heard before making the assessment. Under Section 271(2), the Assessing Officer ordinarily serves a notice requiring the assessee to show cause why the assessment should not be completed to the best of the officer's judgment.
Section 271(3) provides an exception: a separate show-cause opportunity under Section 271(2) is not necessary where a notice under Section 268(1) had already been issued before making the assessment.
Basis of a Best Judgment Assessment
The Assessing Officer must take into account all relevant material gathered before determining the total income or loss. The power is intended to enable completion of an assessment despite specified non-compliance; it is not a licence for unsupported guesswork.
Depending on the facts, relevant material may include the return, statements, tax information, books or documents already available, third-party information, earlier submissions and other material lawfully gathered during the proceedings.
Difference between Scrutiny Assessment and Best Judgment Assessment
| Particular | Scrutiny Assessment | Best Judgment Assessment |
|---|---|---|
| Current provision | Section 270(8) to 270(10) | Section 271 |
| Normal trigger | Return selected for scrutiny | Specified statutory default or non-compliance |
| Taxpayer participation | Evidence and submissions considered during scrutiny | May arise because required compliance has not been made |
| Basis | Return, evidence and other relevant material | Relevant material gathered by the Assessing Officer |
| Result | Assessment order | Best judgment assessment order |
Time Limit for Best Judgment Assessment under the Income-tax Act, 2025
The general limitation is governed by Section 286. For an assessment order under Section 271, Section 286(1) generally prescribes a period of one year from the end of the financial year succeeding the relevant tax year for which the assessment is made.
Where an updated return is furnished under Section 263(6), the corresponding table entry generally provides one year from the end of the financial year in which the updated return is furnished. Section 286 contains other special starting points, exclusions and extensions that may affect the final deadline.
Where a reference is made to a Transfer Pricing Officer for determination of the arm's length price, the statutory period may be extended by the additional period provided in Section 286.
Faceless Best Judgment Assessment
Section 273 of the Income-tax Act, 2025 provides for faceless assessment in specified cases and expressly includes assessments under Section 271. The Board may specify the territorial areas, persons, incomes or classes of cases covered by the faceless procedure.
Where the faceless framework applies, notices, responses, verification and assessment functions may be handled electronically through the prescribed system and designated assessment, verification, technical and review units.
Legacy Section 144 of the Income-tax Act, 1961
For assessment years and proceedings that continue to be governed by the Income-tax Act, 1961, Section 144 remains the Best Judgment Assessment provision.
Legacy Section 144 applies where, among other prescribed situations, the assessee fails to furnish the return required under Section 139(1) without subsequently furnishing a permitted return, fails to comply with a notice under Section 142(1) or a direction under Section 142(2A), or, after making a return, fails to comply with a notice under Section 143(2).
The Assessing Officer must consider relevant material and ordinarily provide an opportunity of being heard. A separate Section 144 show-cause notice is not required where a Section 142(1) notice has already been issued before the assessment.
Legacy Time Limit under Section 153
For assessments governed by the 1961 Act, the applicable limitation must be determined according to the relevant assessment year and the version of Section 153 governing that proceeding. For AY 2022-23 onwards under the legacy framework, the ordinary statutory period for an order under Section 143 or Section 144 is generally 12 months from the end of the assessment year, subject to statutory exclusions, extensions and special rules.
Historical limitation periods differed for earlier assessment years; therefore, the correct assessment year should always be identified before calculating limitation.
Can a Best Judgment Assessment Be Challenged?
Yes. A best judgment assessment is an assessment order and may be challenged through the statutory remedies available under the applicable law, subject to the relevant procedure and limitation period.
Depending on the facts, issues may include jurisdiction, limitation, non-compliance with mandatory procedure, denial of a required opportunity, failure to consider relevant evidence, reliance on irrelevant material, unreasonable estimation or incorrect computation of income or tax.
What Should a Taxpayer Do after Receiving a Best Judgment Show-Cause Notice?
- Identify the tax year or assessment year and the governing statute.
- Check the provision, date of issue, service and response deadline.
- Cure any outstanding filing or information requirement where legally possible.
- Collect books, bank records, invoices and other supporting evidence relevant to the issues.
- Explain any non-compliance and address the proposed basis of estimation.
- File the response through the prescribed electronic system and retain acknowledgement.
- Check the statutory limitation for completion of the assessment.
Official References
Income Tax Department - Income-tax Act, 2025
Income Tax Department - Income-tax Act, 2025 PDF
Income Tax Department - Section 273, Faceless Assessment
Income Tax Department - Legacy Section 144
Frequently Asked Questions
What replaced Section 144 for current tax years?
For tax years governed by the Income-tax Act, 2025, Best Judgment Assessment is governed by Section 271.
Can the Assessing Officer make a Best Judgment Assessment merely because the taxpayer disagrees with the Department?
No. Section 271 is triggered by the specific statutory failures stated in the provision. The assessment must also be based on relevant material and follow the required procedure.
Is a hearing required before assessment under Section 271?
Ordinarily yes. A show-cause opportunity is prescribed, subject to the statutory exception where a notice under Section 268(1) has already been issued.
What is the general limitation for Section 271 assessment?
Section 286 generally provides one year from the end of the financial year succeeding the relevant tax year, subject to special rules, exclusions and extensions.
Does the legacy Section 144 remain relevant?
Yes. It continues to matter for earlier assessment years and proceedings governed or preserved under the Income-tax Act, 1961.