Procedural Safeguards and Administrative Discretion in Best Judgment Assessments : Clause 271 of the Income Tax Bill, 2025 Vs. Section 144 of the Income-tax Act, 1961

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.... as filing returns or responding to statutory notices. The legislative evolution from Section 144 to Clause 271 reflects both the continuity and modernization of the assessment process in the context of changing tax administration practices. The significance of these provisions lies in their role as enforcement tools within the broader framework of self-assessment and voluntary compliance. They serve as a deterrent against non-compliance and ensure that the revenue's interests are protected when the taxpayer defaults in statutory obligations. The following analysis provides an in-depth examination of Clause 271, its objectives, operational mechanics, practical implications, and a detailed comparative study with Section 144 of the 1961 A....

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.... u/ss 263(4), 263(5), or 263(6). * Non-compliance with statutory notices or directions: Where a person fails to comply with all terms of a notice u/s 268(1) or a direction u/s 268(5). * Non-compliance after filing return: Where, having filed a return, the assessee fails to comply with all terms of a notice issued u/s 270(8). Each of these triggers is designed to cover a distinct category of default: - The first addresses the foundational requirement of return filing. - The second and third ensure compliance with further inquiries, production of documents, or directions issued during assessment. 2. Procedure for Best Judgment Assessment Clause 271(1) mandates that, upon the occurrence of any triggering event, the AO must: - Take....

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.... such discretion must be exercised judiciously, not arbitrarily, and must be based on reasonable estimation using available facts and evidence. 6. Determination of Sum Payable The AO is required to determine the sum payable by the assessee based on the best judgment assessment. Notably, Clause 271 does not expressly refer to refunds, focusing instead on the determination of tax liability. Interpretative Issues and Potential Ambiguities - The precise scope of "all relevant materials" is not defined, leaving room for interpretative disputes regarding the sufficiency and nature of evidence considered. - The exception to the show cause notice requirement may raise concerns regarding adequate opportunity of hearing, especially if the earl....

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.... invoked, the procedural safeguards, and the exceptions thereto. The language and sequence of steps reflect a clear legislative intent to preserve continuity in the assessment framework. 2. Triggering Events: A Comparative Table Clause 271 of the Income Tax Bill, 2025 Section 144 of the Income Tax Act, 1961 (a) Failure to make return u/s 263(1), and no revised/updated return under 263(4)/(5)/(6) (b) Failure to comply with notice u/s 268(1) or direction under 268(5) (c) Failure to comply with notice under 270(8) after making a return (a) Failure to make return u/s 139(1), and no revised/updated return under 139(4)/(5)/(8A) (b) Failure to comply with notice u/s 142(1) or direction under 142(2A) (c) Failure to comply with noti....

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....Language Clause 271 uses updated section references and modernized language, reflecting the re-codification and rationalization of the Income Tax Bill, 2025. The core concepts and procedural framework, however, remain substantially the same. 7. Alignment with Technological and Administrative Developments While both provisions are technology-neutral in their drafting, Clause 271's placement within the new Bill suggests an intention to facilitate e-assessment and faceless assessment mechanisms, which have become central to India's tax administration in recent years. Ambiguities and Areas for Judicial Clarification Despite the structural clarity, certain aspects may require judicial or administrative clarification: - The exten....