This document discusses income escaping assessments and best judgment assessments under the Indian Income Tax Act. It provides an overview of the types of assessments, procedures for best judgment assessments, time limits, requirements for income escaping assessments, and key principles from judicial precedents. The key points are: 1) A best judgment assessment can be made if a taxpayer fails to file a return or comply with notices, and the assessment is made based on the assessing officer's best judgment using limited available materials. 2) An income escaping assessment can be made if the assessing officer has reason to believe income has escaped assessment, and notice must be issued and reasons recorded before such an assessment. 3) Time limits for completion of assessments are generally

1. Income Escaping and
Best Judgment
Assessment
CA. Divakar Vijayasarathy

2. Credits and Acknowledgments
Bharathi Priya R D
Jugal Gala

3. Legends used in the Presentation
AO Assessing Officer
AY Assessment Year
BJA Best Judgement Assessment
CA Chartered Accountant
CCIT Chief Commissioner of Income Tax
CIT Commissioner of Income Tax
FY Financial Year
ITD Income Tax Department
JCIT Joint Commissioner of Income Tax
PCCIT Principal Chief Commissioner of Income Tax
PCIT Principal Commissioner of Income Tax
PY Previous Year
TPO Transfer Pricing Officer

4. Presentation Schema
Assessment and
Types of
Assessment
Best Judgment
Assessment
(BJA)
Scope of Best
Judgment
Assessment
Procedure for
BJA
Time Limit for
BJA
Caveats
Income Escaping
Assessment
Deeming Fiction
for Income Being
Escaped
Issue of Notice
for Income
Escaping
Assessment
Time Limit for
issue of Notice
Time Limit for
Completion of
Assessment
Income Escaping
Assessment vs.
Scrutiny
Assessment
Principles from
Landmark
Judgement
Judicial
Precedents

5. Assessment
Every taxpayer has to furnish the details of his income to the Income-tax
Department (ITD)
These details are to be furnished by filing his return of income
Once the return of income is filed by the taxpayer, the next step is the
processing of the return of income by the ITD
ITD examines the return of income for its correctness
The process of examining the return of income by the ITD is called as
“Assessment”

6. Types of Assessment
Four Major Assessment
Summary assessment – Sec 143(1)
Scrutiny assessment – Sec 143(3)
Best Judgement assessment – Sec 144
Income Escaping assessment – Sec 147

7. Best Judgement Assessment (BJA)
This is an assessment carried out as per the best judgment of the AO on the basis
of limited material
This assessment is carried out in cases where the taxpayer fails to comply
with the requirements specified supra
• Return of income is not filed within due date or
• No cooperation by the taxpayer in furnishing information/explanation related
to his tax assessment or
• Books of accounts of taxpayer are not reliable or are incomplete
Best judgment
assessment is carried
out where

8. Scope of BJA – Sec 144
As per Sec 144, the AO is under an obligation to make an assessment to the best of his judgment in the
following cases
If the taxpayer fails to
• File the return required within the due date prescribed under Sec 139(1) and
• File a return under 139(4) or
• File a return under 139(5), or
If the taxpayer fails to comply with all the terms of a notice issued under Sec 142(1) – notice to file return
If the taxpayer fails to comply with the directions issued under Sec 142(2A) - Special Audit
If after filing the return of income the taxpayer fails to comply with all the terms of a notice issued under Sec
143(2) - notice of scrutiny assessment
If the AO is not satisfied about the correctness or the completeness of the accounts of the taxpayer or if no
method of accounting (Sec 145) has been regularly employed by the taxpayer
These circumstances are alternative and not cumulative for the purpose of BJA

9. Basis of Sections for BJA
• Filing of Return of Income within specified due dateSec 139 (1)
• Belated Return – to be filed before end of AY or completion of assessment whichever is earlierSec 139 (4)
• Revised Return – Above mentioned returns can be revised before end of AY or completion of assessment
whichever is earlier
Sec 139 (5)
• Notice can be issued to assessee to file return of income or produce documents or furnish specified
details, after acquiring approval of Joint Commissioner
Sec 142 (1)
• AO, after giving an opportunity of being heard, will direct the taxpayer, having regard to complexity, doubt,
volume, to get its accounts audited from a CA nominated by the PCCIT or CCIT or PCIT or CIT and to furnish
a report of such audit in the prescribed form
Sec 142(2A)
• Notice for carrying out scrutiny assessment – it must be served to the assessee within 6 months from the
end of the FY in which the return was made
Sec 143(2)

10. Procedure for BJA
• Conditions calling for best judgment are satisfied - AO will serve a notice on
the taxpayer to show cause why BJA should not be conducted
• AO is not satisfied by the arguments of the taxpayer and he has reason to
believe that the case demands a best judgment, then he will proceed to carry
out the assessment to the best of his knowledge
Service of show cause
notice
• Where a notice is issued under Sec 142(1)
Exception for issuing
show cause notice
After taking into account all relevant materials which the AO has gathered, and after giving the
taxpayer an opportunity of being heard, the AO shall make the assessment of the total income or
loss to the best of his knowledge/judgment and determine the sum payable by the taxpayer on
the basis of such assessment

11. Time Limit for Completion of BJA – Sec 153
Assessment Year Time limit for Scrutiny Assessment
For AY 2017-18 or before 21 months form the end of the AY in which the income
was first assessable
For AY 2018-19 18 months form the end of the AY in which the income
was first assessable
From AY 2019-20 onwards 12 months form the end of the AY in which the income
was first assessable
If reference is made to Transfer Pricing Officer (TPO) the period available for
assessment shall be extended by 12 months

12. Caveats
BJA should be on logical and on scientific basis and shall not be on a random or arbitrary basis
BJA shall not be based on suspicion, rumours, gossips, surmise or prejudice
BJA shall be based on objective consideration of all materials gathered by AO which includes past year’s return,
current year’s return, industry knowledge, enquiry with connected persons, books, documents, etc.
Though some guess work is inevitable, it should be fair and reasonable
BJA should not result in refund of taxes paid by the assessee. If refund, BJA shall be dropped

13. Income Escaping
Assement

14. Income Escaping Assessment – Sec 147
If the AO has reason to believe that
any income chargeable to tax has escaped assessment for any AY,
he may, subject to the provisions of Sec 148 to 153,
assess or reassess such income and
Also any other income chargeable to tax which has escaped assessment and which comes to his notice
subsequently in the course of the proceedings or
Recompute the loss or the depreciation allowance or any other allowance, for the AY concerned

15. Relevant Terms
• Action cannot be taken based on suspicion, rumours, gossips, surmise or
prejudice
• AO should have concrete material or information before hand
Reasons to Believe
• Assessment can also be done for the 1st time under Sec 147
• Assessment includes Reassessment – Sec 2(8) (only if pending for completion)
Assess or Reassess
• AO may assess or reassess any income, other than income involving matters of
any appeal, revision or reference, which is chargeable to tax and escaped
assessment
Any Income
• AO may assess or reassess in respect of any issue which has escaped assessment,
which comes to notice subsequently in the course of the proceedings even
though the reasons for such issue have not been included in the reasons
recorded while sending notice for income escaping assessment
Issue Subsequently in
the Course of
Proceedings

16. Deeming Fiction for Income Being Escaped
No return of income has been furnished - total income exceeds the basic exemption limit
Return of income has been furnished - no assessment has been made - AO notices
understatement of income or claim of excessive loss, deduction, allowance or relief
Failure to furnish a report under Sec 92E for international transaction (specified domestic
transaction not covered)

17. Contd.
Where a person is found to have any asset (including financial interest) located outside India
Return of income has been furnished – through Sec 133C(2), AO notices understatement, claim of excessive
loss, deduction, allowance or relief in the return
Return of income has not been furnished – AO, through Sec 133C(2) (power to call for information), notices
income exceeding the basic exemption limit
Assessment has been made, but—
Under assessment or Assessed at lower rate or Excessive relief
Excessive loss or
depreciation allowance
or any other allowance

18. Issue of Notice for Income Escaping Assessment –
Sec 148
AO should record reasons in writing before issue of notice under Sec 148
Return of income filed in response to Sec 148 notice will be construed as if it is filed under Sec 139
Time limit for furnishing a return of income will be mentioned in the notice itself
For initiation of proceeding under Sec 147, the AO shall serve on the assessee a notice under Sec 148 requiring
him/her to furnish a return of Income for the relevant AY

19. Time Limit for Issuing Sec 148 Notice - Sec 149
Criteria Time limit Prior Approval (Sec 151)
Income chargeable to tax is < ₹ 1,00,000 4 years from the end
of the Relevant AY
JCIT
Income chargeable to tax is >= ₹1,00,000 6 years from the end
of the Relevant AY
PCCIT / CCIT / PCIT / CIT
In case the
assessee being a
non-resident
Notice is issued
directly to Non-
resident
Income chargeable to
tax is < ₹ 1,00,000
4 years from the end
of the Relevant AY JCIT
Income chargeable to
tax is >= ₹1,00,000
6 years from the end
of the Relevant AY
PCCIT / CCIT / PCIT / CITNotice is issued against the person
treated as agent under Sec 163 of non-
resident
6 years from the end
of the Relevant AY
In case the assessee has foreign asset including financial
interest
16 years from the end
of the Relevant AY

20. Exception to Time Limit – Sec 147
Scrutiny assessment or Income escaping assessment has been completed
No default on the part of the assessee in filing returns, response to 142(1) notice or Sec 148 or disclosing true
and relevant details (production of books of account would not mean true and relevant disclosure)
AND
In above scenario, time limit for issuing notice will be 4 years from the end of the relevant AY
The aforesaid time limit shall not be applicable for income in relation to any foreign asset (including financial interest),
has escaped assessment
Time limit under Sec 148 as mentioned earlier will not apply if the following conditions are satisfied
The above time limit, if conditions are satisfied, shall override the time limit mentioned in Sec 149 in case of contradictions

21. Circumstances in which Notice can be Issued at
Any Time - Sec 150
Sec 148 notice can be issued at any time for the purpose of making an assessment or reassessment
or recomputation
To give effect to any finding or direction contained in an order passed by way of appeal, reference
or revision or by a Court in any proceeding under any other law
Exception: Assessment, reassessment or recomputation could not have been made at the time of
the order which was the subject-matter of such appeal, reference or revision, was made by reason
of any other provision limiting the time within which any action for assessment, reassessment or
recomputation may be taken

22. Miscellaneous Provisions – Sec 152
Under Sec 147, the tax shall be chargeable at the rate at which it would have been charged had the income
not escaped assessment
If reassessed income is < finalised income, then reassessment must be dropped
If reassessed income is > finalised income, then reassessment can be done
Reassessment can be done only when the assessment done before is finalised and no appeal is pending for
such assessment

23. Time Limit for Completion of Assessment –
Sec 153
Service of Notice Time limit for Completion of Assessment
Before 01.04.2019 9 months from the end of the FY in which the notice was received by
the assessee
Received on or after 01.04.2019 12 months from the end of the FY in which the notice was received
by the assessee
Assessment of partner where firm
has been assessed under Sec 147
on or before 12 months from the end of the month in which the
assessment order in the case of the firm is passed
If demand notice comes after completion of assessment order then it is not valid
Completion of assessment order and demand notice under Sec 156 should come together
If reference to TPO is made – extension of 12 months

24. Notice of Demand – Sec 156
• Demand notice must be sent if any tax, interest or penalty is levied on assessee
• If no demand notice, no need to pay such demand
Demand Notice –
Sec 156
• Demand payable must be paid within a period of 30 days
• If not paid within 30 days, assessee will be deemed to be in default
• Penalty will be levied and recovery proceedings will be initiated
Payment of
demand

25. Income Escaping Assessment Vs. Scrutiny
Assessment
Income Escaping Assessment is not a substitute for Scrutiny Assessment
Basis of Differentiation Scrutiny Assessment Income Escaping Assessment
Reasons to Believe No need for reasons to believe Concrete material or information is
mandatory to carry out assessment
Recording Reasons Recording reasons is not required Must record reasons before issuing
notice
Prior Approval Higher authority approval is not
required for issuing notice
Higher Authority approval is required
for issuing notice

26. Principles from Landmark Judgment
Proceedings under Sec 147 are for benefit of revenue and not of assessee and are aimed at taxing escaped
income' of an assessee, and same cannot be allowed to be converted as 'revisional' or 'review' proceedings
Claims of expenditure relating to the escaped income being assessed under Sec 147 shall be allowed
A matter not agitated in concluded original assessment proceedings also cannot be permitted to be
agitated in reassessment proceedings unless it is relatable to item sought to be taxed as 'escaped income'
By filing return of income within the time specified in Sec 148 notice, carry forward of losses cannot be
done if Sec 139(1) return has not been filed
Commissioner of Income-tax v. Sun Engineering Works (P.) Ltd. [1992] 64 Taxman 442 (SC)
Principles emerging from the decision of Supreme Court

27. Appeals and Rectification
Income Escaping
Assessment order
under Sec 147
Best Judgment
Assessment order
under Sec 144
Appealable
Orders
Appeal Authority
Commissioner of Income-tax (Appeals)
[CIT(A)]
Rectification under Sec 154
All orders made under the Act are rectifiable
Provided the mistake is apparent from record

28. Judicial Precedents
Where assessee firm failed to comply with notices issued under section 142(1), Assessing Officer was right in framing
assessment order under section 144 denying allowance of interest and salary paid to partners by taking support of
provisions of section 184(5) Eastern Engineering Venture vs. Income-tax Officer, Angul [2019] 107 taxmann.com 78
(Cuttack - Trib.)
Where notice issued to assessee for reassessment was based only on allegation that it had permanent establishment in
India, said notice could not be sustained once arm's length price procedure had been followed - Honda Motor Co. Ltd. v.
Assistant Director of Income-tax, Noida [2018] 92 taxmann.com 353 (SC)
Where there was no tangible material before the AO to hold that income has escaped assessment within the meaning of
Sec 147 and the reasons recorded for reopening the assessment constituted a mere change of opinion, the reassessment
was not valid Aventis Pharma Ltd. v. Assistant Commissioner of Income-tax [2010] 323 ITR 570 (Bombay)
Opinion of audit party does not amount to 'information' on basis of which an order of reassessment could be made under
section 147 Commissioner of Income-tax v. Mettur Chemical & Industrial Corpn. [2000] 242 ITR 119 (Madras)
Retrospective amendment in Section 115JA can't be deemed as reasons to believe that income has escaped assessment
Godrej Industries Ltd. vs. B.S. Singh, Deputy Commissioner of Income-tax, Range 10(2) [2015] 62 taxmann.com 354
(Bombay)

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