Assessment

Assessment in the common parlance means the determination of the value of the assets which has been held by the person for deciding the quantum of tax he is going to be liable to pay. Assessment generally takes place annually, i.e. how the property related to business is assessed every year for deciding the quantum of tax, the assesse will be asked to pay. Some assessment takes place after every five years

Assessment means the process of appraising, evaluating, estimating and measuring or making a judgment, etc. When we talk about how the assessment has been defined under the Income Tax Act, it is defined as the process of estimating, evaluating or measuring the income for the determination of the tax to be paid by the assesse. The term assessment has a definite meaning under the Income Tax.

The meaning given under the Act is very comprehensive in nature and it often includes myriad range of activities as well as procedures. There is no specific meaning defined under the Income Tax Act, i.e., it's definition has not been defined under the Act, but by carefully examining the term gives us the impression that it means the process of investigating or the process of ascertainment of the correctness of the returns and the accounts which has been filed by the assessee. Evidently is meant by the process of determining the amount of taxable turnover or the quantum of taxable amount which the tax payer would be liable or asked to pay.

The process of this assessment is made after taking into consideration the accounts and the returns which have been provided by the assesse but is generally made upon an estimate by the authorities based upon the documents which have been furnished by the assesse.

It has a wider scope under the provisions of this Act irrespective the assessment was done correctly or wrongly. So when the assessment has been made by the assessing authorities based upon the documents provided by the assesse, then it would be considered as an assessment done by the assessing authority under the said act and nowhere it would be defined as assessment correctly or assessment properly done, thereby giving the impression of the wider definition of the assessment under the Act.

It is basically an estimation of the amount which has to be paid by the tax payer. It is considered as a compulsory/ mandatory contribution which has to be made by the taxpayer for supporting the government.

Self-assessment is the process in which the assesse on its own make the assessment on the basis of the returns or the accounts he has furnished and pay the taxes on the basis of that to the government. The quantum of tax paid by the assesse on the basis of the self-assessment shall be deemed to have been paid towards the regular assessment.

Regular assessment on the other hand means the ordinary process of assessment where the assessee will furnish the documents, return and the account and after its examination by the assessing authorities, the intimation will be send to the assessee determining the amount of tax which he is liable to pay or the amount which will be refunded to him.4

Under the Income Escaping Assessment, if the assessing officer has some genuine reasons which make him believe that an amount of income that could have been subjected to tax has been escaped the process of assessment for any the assessment year then the assessing authorities assesses the income which has been escaped. They can also assess the income which has been brought to their notice during the course of proceedings.

Lastly, under the precautionary assessment, when the assessing authorities has no clue or they are uncertain as to the amount to be taxed or the person to be charged, they have the authority to commence the proceedings against any persons so as to determine the question as to who has the ultimate responsibility or he is going to be liable for paying the tax and also the quantum of amount to be paid by him.

Best Judgment Assessment

Sometimes there are situations in which the assessee tries to evade taxes by furnishing or maintaining false accounts and due to that it becomes difficult for the taxing authorities or the assessing officer to assess the quantum of turnover that the assessee has concealed.

So as to avoid difficulties in such situations, the assessing officer tries to make an assessment to the best of his judgement as long as the assessment carried out by the assessing officer is not arbitrary and hence his decision will be considered as a final decision and leaving behind no scope for its alteration. Under this the assessing officer should make the assessment to his best judgement. There should not be any capricious or dishonest intention of the assessing officer behind the assessment.

Section 144 of the Income Tax Act, 1961, talks about the duty of the assessing officer to make the assessment to his best judgment and to determine the tax which the assessee would be asked to pay after taking into consideration or after examining all the all the documents or the accounts he have.

Following are the circumstances in which the best judgment assessment takes place. These circumstances were mentioned under the Income Tax Act of 1922 and which were also carry forwarded under the Income Tax Act of 1961.

So the circumstances are as follows:

1. Firstly, under section 139(1) of the Income Tax Act, 1961, the assessee is under an obligation to provide his return of income in cases where the taxable income of the assessee has exceeded the limit which has been mentioned under the relevant assessment year.
   
   That return has to be filed within the due date has been mentioned under the section itself. In case of the default on the part of the assessee for furnishing the return within the due date, he has an option to file the belated return of income enshrined under section 139(4) of the Income Tax Act, 1961 before the ending of the relevant assessment year.
   
   If the assessee thinks that a mistake has been committed by him while furnishing the return of income or any omission has been made on account of his mistake, he has a remedy to revise the original return but the same has to be done within one year from the end of the relevant assessment year. Now, if the assessee has defaulted on all the above given circumstances, i.e., he has failed to furnish his return, then the assessing officer makes the assessment to his best judgment.
    
2. Secondly, under section 142(1) of the Income Tax Act, 1961, the assessing officer has a duty to send a notice to the assessee because of his failure to not provide the return within the due date of the relevant assessment year whereby directing him to furnish the return of his income or his accounts. Under Section 142(2A) he can also direct the assessee to get his accounts audited by any practicing Chartered Accountant.
   
   And if there is any default on the part of the assessee in complying the above two notices which have been provided by the assessing officer, the assessing officer gets the right to make the assessment to his best judgment.
    
3. Thirdly, when the return has been furnished by the assessee under the above-mentioned two circumstances if the assessing officer finds that some expenditure has been claimed by the assessing assessee which he thinks is inadmissible, then a notice under section 143(2) will be issued by the assessing officer requiring the assessee to produce any evidences on which he can rely for advocating his claim and if the assessee fails in complying with the terms under section 143(2), the assessing officer gets the right to make an assessment to his best judgment under section 144 of the Income Tax Act, 1961.
    
4. Fourthly, if the assessing officer is not satisfied with the method of accounting which the assessee regularly employs under section 145 of the Income Tax Act, 1961 or the assessing officer is not satisfied with the correctness or accuracy of the completeness of accounts. Then the assessing officer gets the right to make an assessment to the best of his judgment under section 144 of the Income Tax Act 1961 and that should not be done with the dishonest intention.

Now in the case of CIT v. Segu Buchiah Setty, the Hon'ble Court held that the circumstances mentioned above are not cumulative but are alternatives, i.e., there is no need to prove that all the four circumstances exist and then only the assessing officer can make the assessment best to his judgment.

This can be better explained through an illustration. For example, if the assessee has made a default under section 142(1)(i) of the Income Tax Act, 1961 and he failed to comply with the notice sent by the assessing officer and he didn't file the return. He also failed to comply with the notice provided to him under section 142(1) of the same Act for the production of accounts. Now, if the taxing authorities made an assessment, the assessee must show that there are sufficient reasons for not complying with bot the provisions.

He has to satisfy all the conditions and not one.
Some general points related to the Best Judgement Assessment:

• The assessment can also be made in the situations where the return furnished by the assessee has not been signed or verified.
   
• The assessee will be issued a notice and thereby providing him the opportunity before making the best judgment assessment under section 144 of the Income Tax Act, 1961.

Basis For Best Judgment Assessment

The concept of the best judgment assessment as deliberated above depends upon the noncompliance of the provisions of the Income Tax Act, 1961. So if there is any default for furnishing the return of income, the assessing office is given the powers or is free to choose any basis which is important for the case.

There is an element of guess work in it which the assessing officer is the best person to deal in it. At this point, the correctness of accounts is not the only criteria for accepting the returned figures of best judgement assessment. There are other external factors such as the conduct of the dealer, the business volume and other past records which can be act as the basis of the best judgment assessment.

It is also important to discuss that when the assessee files the return belatedly, the assessing officer does not has a freedom to ignore the return filed by the assessee and applies the best judgment assessment under Section 144 of the Income Tax, Act, 1961. So when the assessing officer thinks that the records or documents provided to him is incomplete, he still have to follow the procedure and has to give the reasonable opportunity to the assessee of being heard.

Situations in which there is non- compliance of the filing of return, the notice to be provided to the assessee is an optional one. The assessing officer or the assessing authorities may have the option to go to the dealer directly and then to inspect the books of accounts in the presence of the dealer at his premises only. In those conditions, the issuance of notice is an optional choice in the hands of the assessing authorities.

Object Of The Best Judgment Assessment

The motive or the main purpose is to arrive at the proper or fair estimates of the dealers turnover but it should not be misunderstood as the process of enhancing the turnover of the dealer.

While doing the best judgment assessment, it should be kept in mind that the principles of Natural Justice are one of the most important bases while doing the best judgment assessment. The assessee before the process of best judgment is being carried out should be given the reasonable opportunity of being heard as elucidated under the principles of natural justice.

Cases in which the information has been received by the assessing officer or the taxing authorities from any outsider or any other institution which is outside the business, the same should be disclosed to the assessee before doing the best judgment assessment.

When the return filed by the assessee is dubious or there are doubts on its credibility after taking into consideration the material provided by the third party, the assessee has the right to call that third party and to cross examine so as to reveal the truth and to expose the falsehood.

Penalty can be imposed in the cases where it has been shown that the return has not been filed by the dealer and he has on the same time been involved in some transactions and the

income from that transaction is taxable. Penalty cannot be imposed on the assessee if there is no relevant material to substantiate that the assessee has been involved in wilful suppression of the taxable income.

Cases in which the concerned applicant died and the books of accounts has been washed away in the floods, since the curfew was imposed in the city so the appropriate person was not in a situation to provide the return or documents, then in those cases the reduction of the turnover by making the best judgment assessment was held to be valid provided that there was no malice on the part of the assessing officer.

Types Of Best Judgment Assessment

Compulsory best judgment assessment- this type of best judgement assessment is done in the situations where the assessing officer or the taxing authorities find out that there is a default on the part of the assessee on non-compliance with the provisions of the act or in cases where it is found that the assessee was a defaulter in supplying the information to the department. So in these types of situations it is mandatory to do the best judgment assessment and adhering to the principles of Natural Justice.

Discretionary Best Judgment Assessment- In the situations where the assessing officer or the taxing authorities are not satisfied with the correctness of the accounts or its authenticity which has been furnished by the assessee or in the cases where there is no uniform method of accounting has been followed by the assessee. So in the above mentioned situations, the assessing officer or the taxing authorities have the discretion to do the best judgment assessment or not.

Best Judgment Assessment Vis-À-Vis Assessment On Account

At this juncture, it is important to state that there exist a difference between the concept of best judgment assessment and the assessment made on accounts by the assessee. There may be cases in which the assessee may commit trivial mistakes which may be honest or innocent while making the books of accounts. Hence, these accounts must be considered as genuine and must be corrected.

The concept of best Judgment will only arise in the cases in which a default has been made on the part of assessee when he was asked to furnish the relevant information. It is important to mention and it must be kept in mind that the assessing officer or the authorities while making the best judgment assessment must work without any dishonest intention and or in a capricious manner.

He should make an honest estimate of the proper figure of the assessment for which me may or use apply any method which could be applicable. It can also include the concept of guess work provided that it should be with honest intention.

Therefore from the above discussion it can be inferred that the jurisdiction of the assessing authorities or officer is no way absolute or arbitrary. They should adhere to the principles of natural justice while making the best judgment assessment. The assessee must also be given the reasonable opportunity of being heard.

Procedure Of The Best Judgment Assessment

When the returns and the books of account are rejected, the Assessing officer or the taxing authorities indulges themselves into some guesswork and makes an estimation based upon some evidence. The estimation made here is not merely a suspicion but it should be based upon the materials which are available with the assessing officer. This will help him to arrive at a fair estimation.

There may be situations in which the assessment made is arbitrary, in such a situation; the assessment must be set aside. The estimation of the turnover must be bonafide and should be done without any bias and there should be some material evidences available so as to substantiate the claim of that estimation.
Hence, the assessing officer or the assessing authority is the best judge to make a judgment.

Best Judgment Assessment Under The GST

Under GST, the process of the Best Judgement is applied under two situations:

1. When the assessee or the taxable person has failed to file the return;
2. When the person was liable to registered for the GST but he failed to register.

Section 62 of the CGST act, 2017 relates to the assessment due to the non-filing of the return by the taxable person, the given provision is only applicable when the person is registered and the same person has not filed any return under section 39 of the same act. The assessing officer may proceed to determine the tax liability of the assessee to the best of his judgment after taking into consideration every type of material available with him.

If the registered assessee furnishes the valid return within 30 days from the date on which the assessment order was furnished to him, then the said assessment order must be withdrawn. But the assessee will be asked to pay the interest and also the late fees, they wont be considered as to be withdrawn.

Judicial Decisions

There are certain decisions of the Honble Courts which has laid down certain guidelines which need to be followed while making the best judgment assessment.
So following are the cases:
Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali has laid won that while making the best judgment assessment, the assessing officer should try to make an estimate or should reach the conclusion without any bias and that the assessment should be made on rational basis after examining various materials or the documents which have been furnished by the assessee. The assessing officer should not be vindictive or capricious or should not indulge into assessment with the dishonest intention and also the basis adopted for the process of the estimating of the turnover must have a reasonable nexus with the estimation done.

In the case of State of Kerala v. Velukutty, the Hon'ble Supreme Court has laid down that the powers of the assessing officer are not unfettered but are limited as it has been implied by the expression  best of his judgment. Generally in the judgment there is a judicial determination, i.e., there exist the application of mind and the matter is decided with wisdom.

The judgment does not depend on the arbitrariness of the judge, but it is based upon some invariable principles of natural justice. Since the best judgment assessment also includes the guess work so that guess work must have a reasonable nexus to the material which have been provided to the assessing officer.

In the case of CIT v. Laxminarayan Badridas, the Hon'ble Court said that the provisions related to the best judgment assessment are the classic one and says that the assessing officer must not act with a dishonest intention, or vindictively. He must make a fair estimate which he believes to be honest, he should take into consideration the local knowledge and all other matters which he thinks are necessary and will definitely assist him in arriving at a fair and proper estimate.

Nexus For Guess Work

While the assessing officer is indulged under the process of estimating, he may sometimes overestimate or underestimating the income. That alone is not sufficient to question the determination by the assessee. The term to the best judgment of the assessing officer envisages his judgement, i.e., the judgement must not be arbitrary, vindictive; if it is then it wont be considered as his judgment.

The assessing office must take into consideration the external factors and all other documents which have been provided to the assessing officer by the assessee and then he should make the assessment to his best judgment out of the documents furnished to him. He can take into consideration the turnovers of the previous years, reputation and the length of the business.

Time Limit For The Best Judgment Assessment

The Time Limit prescribed for the completion of Best Judgement Assessment under Section 144 of the Income Tax Act is 21 months from the end of the relevant Assessment Year.

Remedies Available To The Assessee

There are various remedies which are available to the Assessee under the Income Tax Act, 1961. After the completion of the process of the best judgment assessment carried out by the assessing officer under section 144 of the Income Tax Act, the assessee has a right to appeal to the Deputy Commissioner or the Commissioner for the grant of relief under the section 246A. However the above remedy is restricted to few or rare cases only. There is also another remedy of revision is available to the assessee under section 264. He can ask for the fresh assessment by the assessing officer.

The officer often makes an estimate or it takes part in some guess work after taking into consideration the various materials and documents which are furnished by the assessee to the assessing officer. The assessing officer also takes into consideration other factors and then makes an assessment which is best to his judgment. The guess work made by the assessing officer should be an honest one devoid of the dishonest and vindictive behaviour. If the assessee finds out that the judgment of the assessing officer was arbitrary then the assessment carried out by the assessing officer is liable to be set aside.

Interface Between The Principles Of Natural Justice And Proceedings Under The Income Tax Act

The provisions related to the best judgment assessment are mentioned under the section 144 of the Income Tax Act, 1961 and this provision specifically talks about the principles of natural justice. There is a clear cut distinction between the assessment made by the assessing officer based upon the assessess accounts and the best judgment assessment under this particular section. Under the best judgment assessment, the Assessing officer is under an obligation to give the reasonable opportunity of being heard as mentioned under the sub-section (1) of the section 144.

The notice has to be served to the assessee by the assessing officer asking him to come at a particular place and a particular time as specified under the notice so as to argue as to why the best judgment assessment should not be completed.

In the case of Dhanalakshmi Pictures v. CIT, the hon'ble Court held that the assessee should be given a reasonable opportunity of being heard and he has a right to object to the correctness or the authenticity of the materials or the documents on which the assessing officer will be making the best judgment.

The assessment under section 144 of the Income tax act is a quasi- judicial process and it includes the decision based upon the materials or the documents provided to the assessing officer. Every quasi-judicial process requires that a reasonable opportunity should be given to the person before making the decision. Best judgment will only be given when a reasonable opportunity of being heard has been given to the assessee based upon the principles of natural justice.

Thus from the above discussion we can infer that the natural justice has been expressly recognized under the various proceedings of the Income Tax Act. And this whole idea revolves around the reasonable opportunity of being heard has been given to the assessee before arriving to the particular decision.

There has been incorporation of the principles of natural justice in the Income Tax Act in the various form, but the provision related to the reasonable opportunity of being heard is the primary one and which has been expressly recognized under the Income Tax Act of 1961 so as to ensure justice and fair play.

If there is the violation of the principles of natural justice and to be very specific of the audi alteram partem, then the decision would be liable to set aside. Denial of the principles of natural justice is in itself a prejudice and such as prejudice is considered as an antithesis to the concept of rule of law which is considered as a basic feature of our constitution.

Conclusion
From the above deliberation of the section 144 of the Income Tax Act, 1961 shows that the best judgment assessment has given wide discretionary powers in the hand of the assessing officer to make an assessment to his best judgement in the cases where the assessee has willfully suppressed and concealed the income/ turnover.

The above powers are so wide that the assessing officer has the power to overestimate and also to underestimate the turnover based upon the documents which have been furnished to the assessing officer by the assessee himself. This might involve some guess work and that should be done with the honest intention and also adhering to the principles of natural justice by providing the opportunity of being heard to the assessee.