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Best Judgement Assessment


Best Judgement Assessment

A best judgement assessment is an income tax assessment which is performed by the assessing officer with limited knowledge about the financial circumstances of the assessee. Assessees may fail to give the assessing officer adequate co-operation regarding the assessment procedure. In such circumstances, the assessing officer proceeds with the assessment based on the information available. Best judgement assessment takes place when the Income Tax officer is forced to perform the assessment with the available knowledge and resources. The present article provides an overview of the concept of best judgement assessment.

Types of Best Judgement Assessment

Compulsory Best Judgement Assessment

Best judgement assessment is performed when the assessee is not co-operating with the assessing officer or withholds necessary information.

Discretionary Best Judgement Assessment

This is performed if the assessing officer feels any inconsistency in the method of accounting or feels the account was not conclusive or doubts its authenticity.

Opportunity to the Assessee

Like in most critical cases, the assessee must be given an opportunity to be heard before the initiation of procedures. Moreover, If the assessee requests further time for submission of relevant documents or due to any other complications, the request must be judicially considered and not abruptly rejected.

Bias, prejudice etc, must be discarded in the realms of taxation. The assessee must get a fair trial on his returns. The assessing officer must ensure that he complies with the dictum to be followed by a person of his position, and go by the rules prescribed. Honesty and compliance must be religiously followed by any tax authority.

Rejection of Books of Accounts

The assessing officer is entitled to reject the books of accounts in the following grounds:

  • The assessing officer feels the accounts are not conclusive or appropriate.
  • The method of accounting followed by the assessee is in conflict with the actual method of profit calculation.
  • Inconsistency in the method of accounting.
  • Where income has not been computed in accordance with the standards notified under Section 145(2).

Further to the above-prescribed rules, the following situations may warrant rejection of accounts:

  • Unexplained cash credits.
  • Discrepancy or mismatch in accounts.
  • Deduction of fictions performance invoices of higher value.
  • Non-maintenance of stock register.

Note:- When the net profit is determined on an estimate basis after rejecting the books of account, then no deduction including depreciation is allowed.

Where Books of Accounts cannot be Rejected

The assessing officer cannot reject the books of account on the following grounds:

  • Insignificant mistakes cannot lead to the rejection of accounts.
  • Non-maintenance of stock-register wouldn’t necessarily lead to rejection unless the assessing officer feels it necessary to scrutinize the case with caution.
  • Where the assessing officer hasn’t pointed out any defects in the books of account, and the explanation given by the assessee is found to be satisfactory by the tribunal, the accounts shall not be rejected.
  • Lack of substantial evidence to prove defects.

Where Best Judgement Assessment is not Applicable

Best judgement assessment shall be avoided in the following cases:

  • Insignificant mistakes.
  • Mere rejection of any pieces of evidence by the assessing officer.
  • Issue of invalid notices.
  • Failure to comply with a summons requiring production of books of account and other documents doesn’t warrant a best judgement assessment.
  • Where the assessee has filed a loss of return, not adhering to the notice wouldn’t lead to the assumption.
  • On non-rectification of errors by the assessee, appropriate action relevant to the mistake must be initiated. Non-rectification of errors doesn’t qualify for best judgement assessment.

Cardinal Rules

  • An Assessing Officer may proceed with the assessment on the basis that no returns were filed by the assessee in the status of an individual, in response to the notice issued by the assessing officer.
  • Incomplete, unsigned or unverified return may lead to best judgement assessment.
  • Post serving the notice to the assessee, if the assessee states that he is not in custody of the relevant documents, the officer may proceed with his assessments.
  • If the assessee fails to comply with the laws, the assessing officer can go on with the assessment. The compliance must be full-fledged and not partial.

To know about the types of Income Tax assessment which are applicable in India, click here.