Section 271 Income Tax Act 2025: When Can Best Judgment Assessment Be Made?
Section 271 authorises a best judgment assessment when specified failures to file an income-tax return or comply with statutory notices prevent the ordinary assessment process from proceeding. It also prescribes procedural safeguards for the assessee.
What is best judgment assessment under Section 271?
Best judgment assessment is a statutory assessment made by the Assessing Officer on the basis of relevant material gathered where a person has failed to comply with specified return-filing or notice requirements. It is not an unrestricted power to estimate income arbitrarily. The Assessing Officer must take into account relevant material, assess the total income or loss to the best of his judgment, and determine the amount payable.
Section 271 contains three subsections. Subsection (1) identifies the defaults and the assessment power; subsection (2) sets out the show-cause notice requirement; and subsection (3) provides a specific exception to that notice requirement.
When can the Assessing Officer invoke Section 271(1)?
| Statutory ground | What triggers best judgment assessment? |
|---|---|
| Section 271(1)(a) | Failure to furnish a return required under Section 263(1), (4), (5) or (6), as stated in the provision. |
| Section 271(1)(b) | Failure to comply with all terms of a notice under Section 268(1), or failure to comply with a direction under Section 268(5). |
| Section 271(1)(c) | After filing a return, failure to comply with all terms of a notice issued under Section 270(8). |
These grounds relate to the return of income, inquiry before assessment, and scrutiny assessment. A mere difference of opinion about a tax claim does not, by itself, establish one of the specific defaults listed in Section 271(1).
What procedure must the Assessing Officer follow?
- Identify a statutory default: The case must fall within one of the circumstances in Section 271(1).
- Gather and consider relevant material: The Assessing Officer must base the assessment on material available, rather than unsupported speculation.
- Provide an opportunity of being heard: Section 271(1) expressly requires an opportunity of hearing before the assessment is made.
- Serve a show-cause notice: Under Section 271(2), and subject to subsection (3), the Assessing Officer must serve notice specifying the date and time for the assessee to explain why best judgment assessment should not be made.
- Pass an assessment: The officer assesses total income or loss and determines the sum payable on that basis.
Important exception: Under Section 271(3), the separate opportunity referred to in Section 271(2) need not be given if a notice under Section 268(1) was issued before the assessment. This exception concerns the specific subsection (2) opportunity; Section 271(1) must also be read in full, including its requirement to give the assessee an opportunity of being heard.
Section 271 explained subsection by subsection
Section 271(1): Grounds and power to assess
The provision applies when a person fails to file the specified return, fails to comply with a notice or direction under Section 268, or fails to comply with a scrutiny notice under Section 270(8). The Assessing Officer must consider the relevant materials gathered and determine total income or loss and the resulting amount payable after giving an opportunity of being heard.
Section 271(2): Show-cause notice
Before making a best judgment assessment, the Assessing Officer must, subject to Section 271(3), serve a notice asking the assessee to show cause on the specified date and at the specified time why the assessment should not be completed to the best of the officer's judgment. The taxpayer should respond with facts, records and explanations within the prescribed opportunity.
Section 271(3): Exception to separate show-cause opportunity
The additional opportunity contemplated in Section 271(2) is not mandatory where a notice under Section 268(1) was already issued before the assessment under Section 271. Whether the statutory requirements and principles of natural justice were satisfied depends on the notice history and circumstances of the particular case.
Relevant statutory terms and concepts
Practical examples
Example 1 - Return not filed: A person required to furnish a return under Section 263 fails to do so. If the requirements of Section 271(1)(a) are satisfied, the Assessing Officer may proceed with a best judgment assessment after following the applicable procedure.
Example 2 - Records not produced: A business receives a lawful notice under Section 268(1) requiring specified books of account and does not comply with its terms. Section 271(1)(b) may become applicable. The officer must still consider relevant material and the hearing requirements.
Example 3 - Scrutiny notice ignored: An assessee files a return but fails to comply with all the terms of a notice under Section 270(8). The Assessing Officer may assess under Section 271(1)(c), subject to statutory safeguards.
Example 4 - Earlier inquiry notice: Where a Section 268(1) notice was issued before the best judgment assessment, Section 271(3) removes the need for the separate opportunity described in Section 271(2). The assessee should examine the actual notices and hearing record before challenging procedural compliance.
What should a taxpayer do after receiving a notice?
- Check the exact section, date, response deadline and information requested.
- File a complete and timely response, with supporting books, statements and reconciliations.
- Explain any genuine inability to comply and request a reasonable opportunity where appropriate.
- Retain proof of submission, acknowledgments and communications.
- Review the eventual order, the material relied on and available statutory remedies, including appeal where maintainable.
The ordinary statutory time limits for assessment and applicable remedies arise under other provisions of the Act; Section 271 itself does not prescribe a universal fixed number of days for responding to every show-cause notice.
Frequently asked questions
Can the Income Tax Department assess income without an ITR?
Yes, if the statutory conditions under Section 271(1) are met. The Assessing Officer must consider relevant material and comply with the applicable hearing procedure.
Is a show-cause notice always compulsory?
Section 271(2) generally requires a show-cause notice. Section 271(3) provides an exception where a Section 268(1) notice was issued before the assessment.
Can an Assessing Officer make an arbitrary estimate?
No. The provision requires the officer to take account of relevant material gathered and make an assessment to the best of his judgment.
Does Section 271 apply if a scrutiny notice is ignored?
Yes, non-compliance with all the terms of a notice issued under Section 270(8), after a return has been filed, is a ground expressly identified in Section 271(1)(c).
Is Section 271 of the 2025 Act the same as Section 271 of the 1961 Act?
No. Section 271 of the Income-tax Act, 2025 concerns best judgment assessment. The corresponding provision in the Income-tax Act, 1961 is Section 144; Section 271 of the 1961 Act concerns penalties.
Can a best judgment assessment be challenged?
An assessment order may be challenged through the remedies available under the applicable Act, subject to jurisdiction, limitation and other statutory conditions. The facts, notices and assessment order should be reviewed before selecting a remedy.
Statutory sources and further reading
Read the Income-tax Act, 2025 as amended by the Finance Act, 2026, the Income Tax Department website, and the India Code repository for authoritative statutory material. For related provisions, see Section 263, Section 268, and Section 270.
Updated: 11 November 2026. This article provides general legal information and does not replace review of the governing Act, notifications and facts of a particular case.