Section 271 Best judgment assessment

Income-tax Act, 2025

At a Glance

Clause 271 of the Income Tax Bill, 2025 - (Old Version) addresses best-judgment assessments by the Assessing Officer where taxpayers fail to make/furnish required returns or comply with certain notices/directions. It matters because it prescribes the procedure and limits for completing assessments without full cooperation of the assessee, affecting taxpayers, Assessing Officers and revenue administration. Effective date or enactment date: Not stated in the document.

Background & Scope

Statutory hooks: Clause 271 refers to sections 263, 268 and 270 of the Bill (sub-sections as indicated). The provision is situated under "Procedure for assessment" and governs the power of the Assessing Officer to make a "best judgment assessment" where the assessee fails to make or comply with statutory filing obligations or notices. Definitions or explanations: Not stated in the document beyond the operative text. The clause indicates the triggering events (failures under specified sections), the procedural requirement to consider relevant materials, an opportunity of being heard, and an exception to the requirement to give a show-cause opportunity in a specific circumstance.

Statutory Provision Mode

Text & Scope

Clause 271 operates when any person:

• fails to make the return required under sub-section 263(1) and has not made a return or a revised/up-dated return under 263(4)/(5)/(6);
• fails to comply with all terms of a notice issued under 268(1) or a direction under 268(5); or
• having made a return, fails to comply with all terms of a notice issued under sub-section 270(8).

Where triggered, the Assessing Officer, after taking into account all relevant materials gathered, shall-after giving the assessee an opportunity of being heard-make an assessment of total income or loss to the best of his judgment and determine the sum payable on that basis. The AO must, before making such an assessment, serve a show-cause notice specifying date and time, subject to the proviso that if a notice under 268(1) has been issued prior to making the assessment, the show-cause opportunity under clause (2) need not be provided.

Interpretation

The text indicates a legislative intent to empower the Assessing Officer to complete assessments where the assessee fails to meet statutorily mandated procedural obligations. The requirement that the AO "take into account all relevant materials which he has gathered" and "give the assessee an opportunity of being heard" signals an intent to ensure that best-judgment assessments remain grounded in available evidence and conform to principles of natural justice, subject to the limited exception in clause (3). The provision balances revenue protection with procedural safeguards. No express standard for the degree of inquiry or onus of proof is prescribed in the clause.

Exceptions/Provisos

The sole express proviso in the clause: where a notice u/s 268(1) has been issued before the assessment under this section is made, it is "not necessary" to give the show-cause opportunity referred to in clause (2). The conditions that would make the show-cause unnecessary beyond a prior 268(1) notice are not stated. Any other carve-outs or thresholds: Not stated in the document.

Illustrations

• Example 1: A taxpayer never files the return required under 263(1) and does not subsequently file a revised/updated return under 263(4)/(5)/(6). The Assessing Officer compiles available financial records, issues a show-cause notice under clause (2), hears the taxpayer (if provided), and completes a best-judgment assessment. (This sequence follows the clause's text.)
• Example 2: A taxpayer files a return but fails to comply with a notice under 270(8) requiring submission of supporting documents. The AO gathers relevant materials, issues the show-cause notice, and may complete a best-judgment assessment if the taxpayer does not comply. (Consistent with clause (1)(c).)

Interplay

The clause expressly references sections 263, 268 and 270; the precise interaction depends on those provisions' content. The clause requires considering "all relevant materials which he has gathered"-suggesting interplay with powers to summon/require information under related assessment procedure provisions. Specific rules, notifications or circulars governing the conduct of assessments, standards for best-judgment assessments, or timelines for compliance are Not stated in the document.

Differences between Clause 271 (Old Bill) and Section 271 (Act)

Document 1 (Section 271 of the Income-tax Act, 2025) and Document 2 (Clause 271 of the Income Tax Bill, 2025 - (Old Version)) are substantially similar in structure and operative effect. The material differences and their practical impact are as follows:

• Wording of sub-clause (a): The Bill (old version) states: "fails to make the return required under sub-section 263(1) and has not made a return or a revised return u/s 263(4) or (5) or an updated return u/s 263(6);" The enacted Section 271 states: "fails to furnish the return required u/s 263(1) or (4) or (5) or (6);"
  • Practical impact: The Bill's language explicitly frames the condition as a failure to make a return under sub-section (1) combined with an absence of any subsequent return/revised/updated returns under the specified subsections. The Act's language is conciser and aggregates the referenced subsections with "or," potentially broadening the textual reading to cover failure to "furnish" any of the returns mentioned in 263(1), (4), (5) or (6). In practice this may create interpretive differences about whether the provision applies only when an original return under 263(1) was not made and no subsequent returns exist (Bill) versus applying whenever a required return under any of the listed sub-sections is not furnished (Act). The Act's drafting may be read as more straightforward for Assessing Officers, whereas the Bill's drafting sets out the sequence explicitly. The practical risk is limited: both texts target non-furnishing/non-making of required returns, but litigative arguments may arise over whether a later revised/updated return negates liability under sub-clause (a) under the Act's phrasing.
• Reference format in sub-clause (c): The Bill refers to "sub-section 270(8)"; the Act refers to "section 270(8)".
  • Practical impact: This is a drafting/formatting difference only. It does not change substantive effect because both refer to the same operative provision (270(8)). No practical consequence beyond potential minor editorial clarity.
• Explanatory sentence in the Bill document: The Bill text record includes an explanatory remark: "Clause 271 of the Bill seeks to provide for completion of assessment to the best of judgment of the assessing officer." The Act text does not include this explanatory line.
  • Practical impact: Inclusion of the explanatory sentence in the Bill version is a standard legislative drafting note summarising purpose. Its absence from the enacted statute is normal; it does not affect operative law. It may, however, be used as a legislative history aid if ambiguity arises, whereas the Act text must be interpreted on its face.
• Terminology: "furnish" vs "make": The Act uses "furnish the return"; the Bill uses "make the return" (in sub-clause (a)).
  • Practical impact: "Furnish" typically emphasises submission to the tax authority; "make" emphasises the act of preparing/filing. The Act's use of "furnish" could be read to require proof of delivery to the authority; the Bill's "make" could be read to require that a return be prepared (and possibly filed) - however the Bill qualifies the failure as including absence of filing/revised/updated returns. Overall, both target non-submission of returns; the drafting variance is unlikely to produce materially different outcomes but may feature in technical disputes.

Practical Implications

• Compliance and risk areas: Failure to file required returns or to comply fully with notices/ directions under the referenced sections exposes taxpayers to best-judgment assessments. Taxpayers should ensure timely filing and full compliance with document requests to avoid assessments made without full disclosure. The clause creates risk particularly where records are incomplete or where the taxpayer does not engage with show-cause proceedings.
• Record-keeping/evidence points: The provision's emphasis on the AO taking into account "all relevant materials which he has gathered" means that taxpayers should preserve documentary evidence and be prepared to produce records in response to notices; evidence of having made revised/updated returns (where applicable) will be central to contesting the applicability of clause (1)(a). Retention of proof of submission/furnishing is important given the potential interpretive issue of "make" versus "furnish."

Key Takeaways

• Clause 271 empowers Assessing Officers to complete best-judgment assessments where statutory filing or compliance obligations are not met.
• The AO must consider all relevant materials gathered and generally provide an opportunity of being heard before finalising a best-judgment assessment.
• An exception removes the need for the show-cause opportunity if a notice u/s 268(1) has been issued prior to the assessment.
• Drafting differences between the Bill and the enacted section are largely terminological; the principal substantive change is the Bill's more explicit sequencing in sub-clause (a).
• Taxpayers should maintain records of filings (original, revised, updated) and compliance with notices to avoid or challenge best-judgment assessments.
• Details on procedures, standards for the AO's judgment, timelines and interplay with other administrative instruments are Not stated in the document.
• Where ambiguity arises, legislative history (including the Bill's explanatory note) may be informative, but the enacted text governs operative rights and duties.

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Full Text:

Section 271 Best judgment assessment

Best-judgment assessment: AO may determine income where required returns or responses to notices are not furnished. Section 271 empowers the Assessing Officer to make a best-judgment assessment where required returns are not furnished or where the assessee fails to comply with notices under sections 268 or 270(8); the AO must consider all relevant materials gathered and, as a general rule, provide an opportunity of being heard before determining income or loss, with a limited exception relieving the AO from issuing a separate show-cause notice if a earlier section 268(1) notice has been issued.