Imagine you run a shop, and the tax department sends you notices asking for your income details — but you ignore them all. What happens next? The Assessing Officer (AO) doesn't just let it go. Instead, they make a best judgment assessment under Section 144, estimating your income based on whatever information they can gather — and trust me, the AO's estimate is rarely in your favour.
Section 144 is the government's "we'll figure it out ourselves" provision. It gets triggered in three situations: (a) you never filed your return under Section 139(1) and didn't file a belated or revised return either; (b) you ignored a notice under Section 142(1) asking you to file a return or produce documents, or ignored a direction under Section 142(2A) for a special audit; or (c) you filed a return but then ignored the scrutiny notice under Section 143(2). In any of these cases, the AO uses all available material — bank statements, information from third parties, previous year returns, industry comparisons — and makes a to the best of his judgment determination of your total income and tax liability.
Here's the critical procedural detail examiners love: before completing the assessment, the AO must give you a show-cause notice — a chance to explain why the best judgment assessment should not be made. This is called the opportunity of being heard (principles of natural justice). However, there's one exception: if a notice under Section 142(1) was already issued before this assessment, the AO is not required to give a fresh opportunity. This exception trips up many students. Also note — the AO's estimate, while based on judgment, must not be arbitrary; it should be based on relevant material. This is asked frequently as a 4-mark theory or scenario-based question in CA Inter exams.
📊 Worked example
Example 1: Non-filer scenario
Mr. Ramesh runs a textile trading business. For AY 2024-25, he does not file his return by the due date and also misses the belated return deadline under Section 139(4). The AO issues a notice under Section 142(1) asking him to file — Ramesh ignores it.
Working:
- Trigger: Section 144(1)(b) — failure to comply with Section 142(1) notice
- AO gathers: bank deposits of ₹28,00,000, purchases from suppliers as reported under GST of ₹19,50,000, and comparable GP ratio of similar traders at 15%
- AO estimates: Gross Profit = ₹19,50,000 × 15% = ₹2,92,500; adds unexplained bank deposits → Total estimated income = ₹6,50,000
- Tax on ₹6,50,000 (old regime, no deductions allowed at AO's discretion): ₹33,000 + surcharge/cess
- Since a Section 142(1) notice was already served, no fresh show-cause notice is mandatory
Answer: AO completes best judgment assessment; Ramesh faces tax demand plus interest under Sections 234A, 234B, 234C.
---
Example 2: Filed return, ignored scrutiny notice
Ms. Priya (proprietor, AY 2023-24) files a return declaring income of ₹4,20,000. The AO sends a scrutiny notice under Section 143(2) asking for books of accounts. Priya does not respond.
Working:
- Trigger: Section 144(1)(c) — return filed but Section 143(2) notice ignored
- AO must issue a show-cause notice first (no prior 142(1) notice was sent here)
- Priya doesn't respond to show-cause either
- AO uses bank data showing credits of ₹9,80,000 and estimates income at ₹9,80,000
- Additional tax demand = Tax on ₹9,80,000 − Tax already paid on ₹4,20,000
Answer: Best judgment assessment completed; Priya's assessed income is ₹9,80,000 with demand plus penalty risk under Section 270A.
⚠️ Common exam mistakes
- Students think Section 144 can be invoked anytime. Wrong — it applies only in the three specific triggers (non-filing, ignoring 142(1)/142(2A), or ignoring 143(2) notice). If the AO just disagrees with your return without any non-compliance, 144 does not apply — that's Section 143(3) scrutiny assessment.
- Forgetting the show-cause notice requirement. Many students write that the AO can directly make the best judgment assessment. Always mention that the AO must serve a notice giving the assessee a chance to show cause — it's a principle of natural justice embedded in the proviso.
- Confusing the exception to show-cause notice. The exception applies only when a Section 142(1) notice was already issued before the Section 144 assessment. Don't generalise this as 'no notice is ever needed.'
- Assuming the AO can pick any random figure. The AO's assessment must be based on relevant material gathered — bank statements, third-party info, past returns. It's judgment, not guesswork. Examiners expect you to mention 'relevant material' in answers.
- Ignoring interest implications. Best judgment assessment almost always carries interest under Section 234A (for late filing) and 234B/234C (for advance tax shortfall). Don't write your answer without mentioning the downstream consequences — it shows exam maturity.**
📖 Bare Act text — Section 144, Income Tax Act 1961
(click to expand)
(1) If any person— (a) fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or (b) fails to comply with all the terms of a notice issued under sub-section (1) of section 142 or fails to comply with a direction issued under sub-section (2A) of that section, or (c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, the Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment: Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment: Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section.
(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.
Test yourself
Practice questions on this section, AI-graded with citations.
⚡ Practice now →