A Section 144 best judgment assessment is an ex parte income tax assessment passed when an assessee fails to file a return, respond to notices, produce books of account, or has books rejected. The AO estimates income using available data like AIS, GST returns, and industry ratios—typically resulting in inflated income and penalties.
Section 144 Best Judgment Assessment: Time Limit and Reply
A Section 144 best judgment assessment is the income tax department’s mechanism for completing an assessment when the assessee fails to cooperate — by not filing a return, not responding to notices, not producing books of account, or having books of account rejected. It is an ex parte assessment: the AO makes a determination of income based on available information and their best judgment, without the assessee’s active participation. The result is almost always a significantly higher income estimate than the assessee’s actual income, accompanied by substantial penalties. Understanding what triggers a Section 144 assessment, how the AO estimates income, and what relief is available can help you avoid this outcome entirely or set it aside on appeal if it has already been passed.
Section 144 Assessment: What It Means in Practice
- Ex parte: Passed without your cooperation; the AO uses third-party data, AIS, industry ratios, and comparable cases to estimate your income
- Typically inflated: Without your books and records to reference, AO estimates are almost always significantly higher than actual income
- Penalty-heavy: Section 271(1)(b) penalty for notice non-compliance + Section 270A penalty for under-reporting on the entire assessed income
- Not automatic: The AO must issue a show cause notice and give you an opportunity to be heard before passing the order
- Reversible: A Section 144 assessment can be appealed to CIT(A) within 30 days and can be set aside entirely if you produce evidence of actual income
What Are the 4 Grounds for a Section 144 Best Judgment Assessment?
| Ground | What Triggers It | How to Prevent It |
|---|---|---|
| 1. Non-filing of return | Assessee fails to file return under Section 139(1) or fails to file return in response to Section 142(1) notice | File return immediately; if time-barred, respond to Section 142(1) notice |
| 2. Non-compliance with Section 142(1) | Assessee does not produce accounts, documents, or information required by Section 142(1) notice | Respond to all Section 142(1) notices; request extension if needed, in writing |
| 3. Non-compliance with Section 143(2) | Assessee does not comply with directions under Section 143(2) scrutiny notice | Respond to all scrutiny notices; file extension requests before deadlines |
| 4. Books rejected under Section 145(3) | AO is not satisfied that income is correctly disclosed because books are incorrect, incomplete, or maintained on irregular accounting method | Maintain proper books; if books are rejected, respond to the rejection at the show cause stage |
How Does the AO Estimate Income in a Section 144 Assessment?
The Supreme Court and High Courts have consistently held that a Section 144 assessment cannot be arbitrary — the AO must make a genuine, honest, and reasonable estimate of income, not use the best judgment assessment as a punitive tool. In practice, the AO typically uses:
- AIS/Form 26AS data: The Annual Information Statement shows TDS credits, GST data, investment data, property registrations, and other financial transactions that can be cross-referenced against any declared income
- GST returns: Turnover disclosed in GSTR-1, GSTR-3B, and GSTR-9 provides a base for estimating business income; the AO may apply a net profit ratio to this turnover
- TDS returns filed by payers: Form 26AS shows income received on which TDS was deducted, providing a floor for actual receipts
- Industry gross profit and net profit ratios: Published data on typical GP/NP ratios for similar businesses in the same sector
- Comparable case data: Income assessed in cases of similar businesses in the same area in the same year
- Previous year’s assessed income: The most recently assessed income is often the starting benchmark
- Third-party information: Purchases declared by the assessee’s suppliers in their returns, sales declared by the assessee’s buyers, etc.
What Is the Procedure the AO Must Follow Before Passing a Section 144 Order?
Mandatory Pre-Assessment Notice Requirement
Section 144 requires the AO to give the assessee a reasonable opportunity of being heard before making the best judgment assessment. This is done by issuing a show cause notice specifying:
- The reason for proposed best judgment assessment (which specific ground under Section 144 applies)
- The amount of income the AO proposes to assess
- The method and basis of estimation
- A deadline for the assessee to respond
If you receive this show cause notice before a Section 144 order, respond immediately. This is your last opportunity to prevent the best judgment assessment from being passed. File your return (if not filed), produce books and records, and show that non-compliance was due to reasonable cause beyond your control.
Under the Faceless Assessment Scheme (FAS), the show cause notice and the opportunity to respond are conducted through the e-filing portal. A Draft Assessment Order under Section 144B is also mandatory before the final order is passed under FAS.
How to Appeal Against a Section 144 Best Judgment Assessment?
Filing a CIT(A) Appeal Against Section 144 Order
- Form 35: File Form 35 on the e-filing portal within 30 days of receiving the assessment order or demand notice
- Tax payment requirement: Under the proviso to Section 249(4), the CIT(A) may require you to deposit the full tax shown as due under the best judgment assessment before admitting the appeal (this is stricter than for normal scrutiny assessments, where only admitted tax needs to be paid)
- Fresh evidence: In the appeal, you can produce books of account, bank statements, returns filed for subsequent years, GST returns, and any other evidence that shows your actual income was lower than what the AO assessed
- Grounds to argue: (a) the assessment was arbitrary with no reasonable basis; (b) the AO used incorrect comparables or industry ratios; (c) the failure to respond was due to genuine causes beyond control (illness, natural calamity, etc.); (d) the AO did not give proper opportunity to be heard before passing the assessment
- Success rate: Well-documented CIT(A) appeals against clearly inflated best judgment assessments have a reasonably good success rate, particularly where actual books of account are produced at the appeal stage
What Are the Most Common Questions About Section 144 Best Judgment Assessment?
What are the 4 grounds for a Section 144 best judgment assessment?
Section 144 applies when: (1) you fail to file a return under Section 139(1) or in response to a Section 142(1) notice; (2) you fail to comply with a Section 142(1) notice to produce accounts or documents; (3) you fail to comply with Section 143(2) scrutiny directions; (4) the AO rejects your books of account under Section 145(3) as incorrect or incomplete. In all cases, the AO must issue a show cause notice and give you an opportunity to respond before passing the assessment.
How does the AO estimate income in a Section 144 assessment?
The AO must make a genuine, honest estimate using available information — not an arbitrary inflated figure. The AO typically uses AIS data, GST return turnover, TDS credits, industry profit ratios, comparable case data, and previous year assessed income. Courts have held that assessments based purely on guesswork without rational basis are liable to be set aside on appeal.
Can I appeal a Section 144 best judgment assessment?
Yes. File Form 35 with the CIT(A)/NFAC within 30 days of the assessment order. The CIT(A) may require you to pay the full tax assessed before admitting the appeal (stricter than for regular scrutiny assessments). In the appeal, produce books, bank statements, and other evidence of actual income. You can also challenge the assessment as arbitrary or argue that non-compliance was due to genuine cause. The CIT(A) has power to set aside a best judgment assessment entirely.
What is the difference between Section 144 and Section 147 reassessment?
Section 144 is an ex parte assessment — the AO completes a pending assessment in your absence when you fail to cooperate. Section 147 reassessment is used to reopen a completed assessment when the AO has reason to believe that income has escaped assessment. Section 144 addresses non-cooperation in an ongoing assessment; Section 147 addresses cases where an already-completed assessment was incorrect or incomplete.
What penalties apply with a Section 144 best judgment assessment?
A Section 144 assessment typically attracts: (1) Rs 10,000 penalty under Section 271(1)(b) for failure to comply with notice; (2) Section 270A penalty at 50% of tax on under-reported income (200% for misreporting). Since the entire assessed income is treated as having escaped declaration when no return was filed or books were rejected, the penalty exposure is substantial. Penalties can be contested separately on grounds of reasonable cause.
For help responding to a Section 144 show cause notice or filing a CIT(A) appeal against a best judgment assessment, contact the Tradeviser team. See also our guides on Section 143(3) scrutiny assessment, Section 142(1) inquiry notice, and the income tax notices hub.
CA Madhusmita Padal is a Practicing Chartered Accountant with firms based in Odisha and Chennai. She specializes in taxation, company law, and auditing. She is passionate about simplifying complex concepts and making knowledge accessible to all.