Section 144 of the Income Tax Act: Best Judgement Assessment

Section 144 of the Income Tax Act

In India, paying your income tax on time is not only the right thing to do, it’s also the law. Out of all the parts of the Income Tax Act, Section 144 is the most important one that every voter needs to know about. The Assessing Officer (AO) can use their best judgment to figure out a taxpayer’s income when they don’t follow certain rules. This is called “Best Judgment Assessment” and is allowed by Section 144. This blog will help you understand what Section 144 is, why it applies to you, and how to stay out of trouble with it, whether you pay yourself a salary or run your own business.

Part 144 of the Income Tax Act 

• The Assessing Officer can use their best judgment to make an income estimate under Section 144 if a taxpayer fails to: File an income tax return by the due date set out in Section 139(1); or
• Respond to a notice sent under Section 142(1) or fails to show papers, books of accounts, or other proof that is needed, or

In this case, the AO is not bound by what the taxpayer says or how much money they say they have. They can use their methods and data to predict the income and tax liability.

Section 144 Applicability 

In most cases, Section 144 can be used in the following situations:

• Non-Filing of Return: You could be charged under this part if you haven’t filed your return even after getting a notice.
• If you get a notice under Section 142(1) (asking for information or documents) or 143(2) (for scrutiny) and don’t reply or follow the rules, this section can be used against you.
• Incomplete or False Details: If you give false or incomplete details during an investigation, the AO may not look at them and use their own opinion instead.

How does a Best Judgment Assessment work?

When Section 144 is used, the AO figures out how much money you make by looking at: TDS records, bank transactions, Form 26AS, and other information from third parties.

Rates on the market, industry norms, and models of expected income (for professionals or businesses), tax returns from previous years, or information shared with other government agencies, such as GST, MCA (Ministry of Corporate Affairs), etc. This means that your final tax bill might be a lot more than what you would have paid if you had filed properly. Also, fines and interest from sections 234A, 234B, and 234C could be added.

For Example 

Anil made 10 lakhs as a freelance graphic artist in FY 2024–25. He forgot to file his ITR and didn’t pay attention to a notice under Section 142(1) that asked for information about his income and spending.

The AO sees ₹9.5 lakhs in credit entries in his bank account and thinks that his business will make ₹8 lakhs after all costs are taken into account. This is used to figure out the tax and the punishment for not paying it.

If Anil had done his tax return right, he might have been able to show Section 80C deductions or costs that would have helped him pay less tax. But because of Section 144, he missed that chance.

What the Taxpayer Can Do As per Section 144

Taxpayers have the right to be heard, even though the AO has a lot of power. A “show cause” notice is sent to the taxpayer before the final assessment under Section 144 is made. This gives them a chance to explain their story.

• It is highly suggested that you: Receive the notice on time,
• Give full and correct information,
• If you need to, get help from a tax expert or a CA.

You have 30 days to appeal to the Commissioner of Income Tax (Appeals) if you still don’t agree with the final order.

How to Keep from Being Charged Under Section 144

When it comes to income tax, it’s always better to avoid something than to fix it. To stay out of Section 144, do the following:

• File your ITR on time before the due date, even if you don’t make enough money to be taxed.
• Pay attention to all warnings; ignoring them is a red flag.
• Keep good records, especially if you are a worker or a business owner.
• Check your email and e-filing portal often, because all notices are now sent online.

Get Started with TaxDunia

Section 144 is not meant to punish honest taxpayers; it is there to make sure that the system is fair and that everyone follows the rules. To stay on the right side of the law as an Indian taxpayer, you should file your returns honestly, keep good records, and talk to tax officials when they ask you to. Remember that the income tax office has access to a huge amount of financial information these days.