Published: March 20, 2026 | Updated: April 15, 2026 | By CA V. Viswanathan, FCA, ACS, CFE, IBBI RV

Best Judgment Assessment under the Income-tax Act, 2025

Quick Answer

Best judgment assessment under the Sec 144 equivalent of the Income-tax Act, 2025 is an ex parte assessment invoked when a taxpayer fails to file a return, fails to comply with notices, or fails to produce books. The authority estimates income based on material on record after issuing a show-cause notice and giving a reasonable opportunity of hearing. The order is speaking, appealable under Chapter XVIII, and must be passed within 12 months from the end of the tax year of initiation. Penalty under the Sec 270A equivalent and interest apply.

Last Updated: 15 April 2026  |  Applicable From: Tax Year 2026-27 (1 April 2026 onwards)  |  Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026

Best judgment assessment is the Department’s last-resort remedy when a taxpayer has either failed to file a return or has chosen not to cooperate with the assessment process. Under the Income-tax Act, 2025 — which commenced on 1 April 2026 after receiving Presidential assent on 21 August 2025 — this power is contained in the Sec 144 equivalent provision of Chapter XVI (Procedure for Assessment). The substantive principle is unchanged from the repealed 1961 Act: if the taxpayer does not participate, the tax authority will estimate income to the best of its judgment and pass an order. What has changed is the procedural architecture. The entire process is now faceless, time-bound, digitally preserved, and subject to the tax year concept that replaces the earlier AY/PY duality. This guide explains exactly when best judgment assessment is invoked, how the estimation is done, what appeal remedies are available, and how to avoid landing in this situation in the first place.

Definition — Best Judgment Assessment: An assessment order passed under the Sec 144 equivalent of the Income-tax Act, 2025 in which the tax authority, after giving the taxpayer a reasonable opportunity of being heard, estimates the total income and tax payable to the best of its judgment on the basis of the material on record, because the taxpayer has failed to file a return or failed to comply with procedural notices.

Featured Answer — What should I do if I receive a best judgment show-cause notice?

First, do not ignore it — the consequences of silence are severe. Second, file the pending return immediately if the trigger is non-filing, even as a belated return or ITR-U equivalent. Third, respond to the show-cause in writing through the e-filing portal, explaining the reason for the earlier default and requesting a regular assessment instead of a best judgment order. Fourth, upload all books and documents supporting the income offered. Fifth, request a video hearing to present the case orally. Sixth, engage a Chartered Accountant to draft the submissions — the record you build now is the record on which every appeal will be decided. If the order is passed anyway, file the appeal within 30 days and seek stay of demand on 20% pre-deposit.

Table of Contents

  1. Overview under the Income-tax Act, 2025
  2. When is best judgment assessment invoked
  3. Procedure and faceless architecture
  4. Opportunity to be heard
  5. Reasonable estimation — how the officer computes income
  6. Time limit for the order
  7. Consequences: tax, interest, penalty
  8. Appeal rights under Chapter XVIII
  9. Revision and reopening
  10. How to avoid best judgment assessment
  11. Expert Insight
  12. Key Takeaways
  13. Frequently Asked Questions

Overview under the Income-tax Act, 2025

Chapter XVI of the Income-tax Act, 2025 lays down a unified procedure for all assessments — regular, self-assessment, summary, scrutiny, reassessment and best judgment. The best judgment provision (the Sec 144 equivalent) is the enforcement mechanism that ensures that taxpayers who do not engage with the process cannot escape tax by non-participation. In the pre-2025 framework this was a standalone section; in the new Act it is woven into a single continuous procedural chapter alongside the scrutiny, verification and draft-order provisions. The practical effect for a taxpayer is that best judgment assessment is no longer a distant residual remedy — it flows naturally out of any prolonged non-compliance with faceless notices.

The 2025 Act introduces three architectural features that affect best judgment cases. First, the faceless architecture — the taxpayer deals only with the portal. Second, the tax year concept — the order refers to a tax year, not an assessment year. Third, statutory time limits — every step must be completed within a defined window, and any extension must be recorded. These features together make best judgment orders more transparent than before but also harder to delay tactically, because the system auto-generates follow-up notices at fixed intervals.

When is best judgment assessment invoked

Best judgment assessment is invoked in four principal situations:

  1. Failure to file a return. Where the taxpayer is required to file a return under the Sec 139 equivalent and does not do so within the time allowed (including belated return up to 31 December of the tax year following the relevant tax year), a notice is issued under the Sec 142(1) equivalent calling upon him to file. If he still does not file, best judgment assessment is initiated.
  2. Failure to comply with a Sec 142(1) equivalent information notice. Where the taxpayer fails to produce the accounts, documents or information called for, the officer can complete the assessment on a best judgment basis.
  3. Failure to comply with a Sec 143(2) equivalent scrutiny notice. Where the taxpayer fails to attend scrutiny proceedings or produce evidence, the scrutiny is converted into a best judgment assessment.
  4. Failure to maintain books of account. Where the taxpayer is required to maintain books and does not, or where the books produced are rejected as unreliable (the Sec 145 equivalent rejection), the officer may proceed on a best judgment basis.

A fifth situation arises in special audit cases (the Sec 142(2A) equivalent). If the taxpayer fails to comply with the directions of a special audit, best judgment assessment can follow.

Procedure and faceless architecture

The procedural flow of a best judgment assessment under the Income-tax Act, 2025 typically runs as follows:

The entire process is conducted through the e-filing portal. There is no physical meeting with an Assessing Officer. The submissions, evidence, hearing recordings and final order are preserved in the case file for any future appeal.

Opportunity to be heard

The hallmark of a valid best judgment assessment is that the taxpayer was given a reasonable opportunity to be heard before the order was passed. This is not a formality — it is a jurisdictional requirement. The Income-tax Act, 2025 codifies this as a non-derogable right under Chapter XVI. The show-cause notice must set out the grounds on which the officer proposes to pass a best judgment order, disclose the material relied upon, indicate the estimated income, and fix a date by which the taxpayer must respond. Failure to observe any of these steps renders the order liable to be quashed on appeal or through writ jurisdiction.

The taxpayer can request a video hearing through the portal. The request should state the specific questions of fact or law for which oral clarification is needed. The hearing is recorded and the recording becomes part of the assessment record. Oral submissions should always be followed up with a written summary filed on the portal the same day.

Reasonable estimation — how the officer computes income

“Best judgment” does not mean arbitrary judgment. The estimation must be reasonable and based on material on record. Courts have consistently held — and this principle is preserved under the 2025 Act — that the officer cannot pluck figures from thin air. Common sources of estimation include:

The estimate must be “honest and fair” — a phrase traceable to Supreme Court jurisprudence under the 1961 Act that continues to govern the 2025 Act. An estimate based on suspicion, guesswork or unreasonable multipliers can be reduced or set aside on appeal.

Time limit for the order

Best judgment assessments are bound by the same outer limit as regular scrutiny assessments — 12 months from the end of the tax year in which the proceedings were initiated or in which the return was filed, whichever is later. For a non-filer for tax year 2026-27, where the Sec 142(1) equivalent notice is issued in May 2028 demanding the return, the outer limit for the best judgment order is 31 March 2030. Beyond this, the proceeding becomes barred by limitation. An order passed after limitation is void and can be challenged on appeal without going into the merits.

Consequences: tax, interest, penalty

A best judgment assessment has four layers of consequence:

  1. Tax on estimated income. Computed at the slab rates applicable for the tax year, including surcharge and cess. Under the new regime slabs for tax year 2026-27, income up to ₹4 lakh is exempt, with marginal rates rising to 30% above ₹24 lakh.
  2. Interest. Interest under the Sec 234A equivalent for late filing (1% per month), Sec 234B equivalent for short advance tax (1% per month), and Sec 234C equivalent for deferment of instalments. Interest under the Sec 220 equivalent at 1% per month accrues on unpaid demand after 30 days from the demand notice.
  3. Penalty. Under the Sec 270A equivalent, 50% of tax on under-reported income or 200% on misreported income. Additional penalties for specific defaults under the Chapter XXI equivalent. Late filing fee under the Sec 234F equivalent of ₹5,000 (₹1,000 for income up to ₹5 lakh).
  4. Recovery. Treatment as assessee in default, attachment of bank accounts and property, and in extreme cases arrest under the recovery provisions.
Layer Provision (2025 Act equivalent) Quantum
Tax Slab rates + surcharge + cess As per estimated income
Interest for late return Sec 234A equivalent 1% per month
Interest for short advance tax Sec 234B equivalent 1% per month
Interest for instalment deferment Sec 234C equivalent 1% per month
Interest on demand Sec 220 equivalent 1% per month
Under-reporting penalty Sec 270A equivalent 50% of tax
Misreporting penalty Sec 270A equivalent 200% of tax
Late filing fee Sec 234F equivalent ₹1,000 / ₹5,000

Appeal rights under Chapter XVIII

A best judgment order is fully appealable. The appellate structure under Chapter XVIII provides for:

Common grounds of appeal against best judgment orders include: lack of reasonable opportunity, absence of show-cause notice, arbitrary estimation, incorrect reliance on third-party material without confrontation, wrong computation of interest, misapplication of penalty, and limitation. Additional evidence can be produced before the CIT(A) under Rule 46A (or its renumbered equivalent) if the taxpayer was prevented by sufficient cause from producing it earlier.

Stay of demand is critical because best judgment demands are usually high. The standard pre-deposit is 20% of the disputed demand. In hardship cases, a lower percentage or a bank guarantee can be accepted.

Revision and reopening

A best judgment order can be revised under the Sec 263 equivalent by the Principal Commissioner if considered erroneous and prejudicial to revenue. It can also be reopened under the Sec 148 equivalent for reassessment if new information emerges. Conversely, the taxpayer can seek revision in their favour under the Sec 264 equivalent within one year of the order.

How to avoid best judgment assessment

Avoidance is cheaper than remedy. Practical measures include:

Related reading:

Expert Insight

CA V. Viswanathan: The most striking change I have observed in the first few months of the Income-tax Act, 2025 is how quickly a best judgment exposure can arise. Under the faceless regime, the portal auto-generates reminders at fixed intervals, and a taxpayer who misses two or three notices can find themselves in a show-cause situation within months of the return filing deadline. I have represented taxpayers who were utterly confident they had “nothing to hide” but received a best judgment show-cause simply because their accountant changed jobs and the portal notifications were not being monitored. The fix is process, not drama. Every taxpayer with business income should have a designated person responsible for monitoring the e-filing portal weekly. Every professional should have a scrutiny checklist that kicks in the moment a Sec 143(2) equivalent notice lands. The second observation: best judgment orders under the new Act carry draft-order safeguards that many taxpayers ignore. The draft-order window is a precious second chance to introduce documents and arguments before the final order crystallises. Use it. Third, on appeal strategy — pay the 20% pre-deposit, get the stay, and then build the case methodically. Do not let the demand run unabated while you fight — the interest under the Sec 220 equivalent accrues relentlessly and can outgrow the base tax. Finally, evaluate the immunity route under the Sec 270AA equivalent for small additions. Sometimes the fastest exit is the right exit.

Key Takeaways

Frequently Asked Questions

What is best judgment assessment under the Income-tax Act, 2025?

Best judgment assessment under the Sec 144 equivalent of the Income-tax Act, 2025 is an ex parte assessment made by the tax authority when the taxpayer fails to file a return, fails to comply with a notice, fails to produce books of account, or fails to attend proceedings. The authority estimates the total income to the best of its judgment on the basis of the material on record, after giving the taxpayer an opportunity to be heard. The order is reasoned and appealable.

When is best judgment assessment invoked?

Best judgment assessment is invoked in four principal situations: (a) failure to file a return of income within the time allowed; (b) failure to comply with a notice calling for information under the Sec 142(1) equivalent; (c) failure to produce books of account or respond to a scrutiny notice under the Sec 143(2) equivalent; and (d) failure to comply with directions issued during special audit. In each case the taxpayer must be given a show-cause notice before the order is passed.

Is a show-cause notice mandatory before best judgment assessment?

Yes. Under the Income-tax Act, 2025, the authority must issue a show-cause notice proposing to complete the assessment on a best judgment basis and give the taxpayer a reasonable opportunity to be heard before passing the order. An order passed without this opportunity is void for violation of natural justice and liable to be set aside on appeal.

What is the time limit for completing a best judgment assessment?

A best judgment assessment must be completed within 12 months from the end of the tax year in which the proceedings were initiated or the return was filed, whichever is later. This mirrors the regular scrutiny time limit under Chapter XVI. For non-filers where no return is filed, the period runs from the end of the tax year in which the show-cause notice was issued.

How does the officer estimate income in a best judgment assessment?

The estimation must be reasonable and based on material on record — Form 26AS, AIS, TIS, bank statements, property records, historical returns, industry comparables, turnover data from GST returns, and any information received from third parties. The officer cannot pluck figures from thin air. The estimate must be supported by reasons in the order. An arbitrary estimate can be quashed on appeal.

Can I challenge a best judgment assessment?

Yes. A best judgment assessment is appealable to the Commissioner of Income-tax (Appeals) under Chapter XVIII within 30 days of the order. You can challenge it on grounds of limitation, lack of opportunity, non-application of mind, unreasonable estimation, or absence of supporting material. A further appeal lies to the ITAT. The appellate authority can set aside the order for fresh assessment or modify the estimate.

Are there penalty consequences in addition to the tax?

Yes. A best judgment assessment almost always triggers penalty under the Sec 270A equivalent — 50% of tax on under-reported income and 200% on misreported income. Additionally, a penalty of up to ₹10,000 per non-compliance can be levied for each failure to respond to notices. Late filing fees under the Sec 234F equivalent also apply where the return was not filed.

Does interest apply on best judgment assessment demand?

Yes. Interest under the Sec 234A equivalent (for late filing), Sec 234B equivalent (for short advance tax), and Sec 234C equivalent (for deferment of advance tax instalments) will apply. Interest under the Sec 220 equivalent at 1% per month applies on unpaid demand from the expiry of 30 days after the demand notice. The total interest can often exceed the base tax.

Can books of account be produced later?

Yes, but at the appellate stage not at the assessment stage. Once a best judgment order is passed, the taxpayer can produce books and documents before the CIT(A) under Rule 46A of the rules framed under the 2025 Act (or its renumbered equivalent). The appellate authority has discretion to admit additional evidence if the taxpayer was prevented by sufficient cause from producing it earlier.

Is the faceless mechanism applicable to best judgment assessment?

Yes. Under the Income-tax Act, 2025, best judgment assessments are processed through the same faceless architecture under Chapter XVI as regular scrutiny. The show-cause notice, submissions, video hearing and the final order all pass through the e-filing portal. The taxpayer does not meet an officer physically. This transparency is an important safeguard because the entire record is preserved digitally.

What is the difference between best judgment and scrutiny assessment?

Scrutiny assessment is a detailed examination of the filed return where the taxpayer participates and produces evidence. Best judgment assessment is ex parte — passed because the taxpayer failed to file or failed to cooperate. The officer estimates income on best judgment basis. Both types of assessments are governed by Chapter XVI but the procedural stages differ. Best judgment orders carry higher penalty exposure and are harder to defend on appeal.

Can stay of demand be obtained on best judgment assessment?

Yes. Stay can be sought from the first appellate authority during the pendency of appeal. The standard practice is to pay 20% of the disputed demand as a pre-deposit and obtain stay for the balance. In hardship cases, the stay can be granted on a lower percentage or on furnishing a bank guarantee. The Assessing Officer also has limited power to grant stay or instalment payment.

How can a taxpayer avoid best judgment assessment?

File every return within the due date, respond to every notice within the time specified, maintain proper books of account where required, keep bank statements and supporting vouchers ready, respond to defective return notices under the Sec 139(9) equivalent within 15 days, and engage a CA at the first sign of a scrutiny notice. Proactive compliance is always cheaper than reactive litigation.

Is the best judgment assessment reopenable later?

Yes. A best judgment assessment is an assessment for the purposes of the Income-tax Act, 2025 and can be reopened for reassessment under the Sec 148 equivalent if new information comes to light. It can also be revised under the Sec 263 equivalent by the Principal Commissioner if considered erroneous and prejudicial to revenue. The taxpayer too can seek revision under the Sec 264 equivalent.

Does a best judgment order affect future year compliance?

Yes, indirectly. A best judgment order on record increases the taxpayer’s CASS risk rating, making future returns more likely to be selected for scrutiny. It can also affect loan approvals, tender eligibility, visa applications, and reputational standing. The practical message: treat every notice seriously, because each one leaves a footprint on the permanent assessment record.

Author: CA V. Viswanathan, FCA, ACS, CFE, IBBI Registered Valuer (IBBI/RV/03/2019/12333) — Virtual Auditor, Chennai. Phone: +91 99622 60333 | Email: support@virtualauditor.in

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