Section 144 Of Income Tax Act
Section 144 Of Income Tax Act
When 30-year-old Rajat filed his tax returns last year, he felt he had done his duty. However, a few days later, he received a notice from the tax department about invoking Section 144 against him.
Confused, perplexed, and tensed, he consulted his chartered accountant friend, who told him that he had received the notice because the assessing officer (AO) found some discrepancies in his returns. Rajat, with the help of his friend, cooperated with the tax authorities, and the matter was sorted.
Several, like Rajat, may be subject to section 144 notice. Note that the tax filing season is in full swing. July 31, 2024, is the last day for filing your taxes for the financial year 23-24. By filing taxes on time, you contribute to nation-building. However, tax assessment is an important aspect of the filing process carried out by an AO.
If you fail to file your taxes on time or happen to underreport your income, section 144 of the Income Tax Act kicks in. This blog helps you understand the various aspects of section 144.
What is Section 144 of the Income Tax Act?
Section 144 of the Income Tax Act deals with best judgement assessment in income tax. This section empowers the AO to analyse the taxpayer as per the AO’s best judgement assessment based on the information gathered. This happens when you fail to comply with the tax regulations.
Circumstances Under Which Section 144 is Invoked
Best judgement assessment under section 144 of the Income Tax Act is not invoked in all cases. There are certain circumstances under which the AO invokes it. These include:
Failure to File Tax Returns on Time
There is a particular deadline for when you need to file your tax returns. As said above, July 31 2024, is the last day to file tax returns. There is a tendency among most of us to wait for the last day to file returns.
However, this can be counterproductive. As many people tend to file taxes on the last day, the official server of the income tax portal may face technical glitches. If it happens, it can hinder tax return filing, and you may not be able to file your taxes on time.
Therefore, it is in your best interest not to wait for the last day to file your returns but to do so a few days before the deadline.
It is vital to note that the AO can opt for best judgement assessment even if you fail to file belated returns, revised returns, or updated returns under sections 139(1), 139(4) and 139(8A), respectively.
Not Disclosing the Correct Income
Your tax liability depends on your taxable income. You are taxed depending on whether you choose the new or the old tax regime and under the tax slab you fall under. If you do not disclose your actual income or happen to provide inaccurate information related to your income, the AO can resort to section 144 to make the best judgement assessment.
Not Complying with Notices
If you do not comply with the notice issued by the tax department under various sections, such as sections 142(1) and 143(2), the AO has the right to invoke section 144. If the AO feels that he needs more clarification regarding a particular thing after filing your tax return, he can issue you a notice under section 142(1).
The tax department issues a notice under section 143(2) if it finds discrepancies in your tax returns. This discrepancy can arise if you under-report your income or over-report your losses. This notice's primary objective is to ensure you have not underpaid your due taxes.
Not Cooperating with the Tax Authorities
Cooperating with tax authorities during the assessment is in your best interest. Non-cooperation will only make matters worse and complicate things. However, it is crucial to understand that cooperation is vital in these situations.
If you fail to cooperate with the tax authorities during the assessment, the AO can use his right to invoke section 144 for best judgement assessment. Proper cooperation can help sort out things quickly.
What is the Procedure for Invoking Section 144 of the Income Tax Act?
Given below is the process of invoking section 144 of the Income Tax Act:
Intimation to the Taxpayer
Before the AO invokes section 144 notice, the taxpayer gets an intimation. This intimation outlines the reasons for invoking this section. If you receive this notice, go through it carefully, as it will help you understand why you have been served this notice. You can prepare your answer based on why you have got the notice.
**Present Your Case < /h3>
The tax department allows you to present your case to them. Whether you have missed out on anything inadvertently or have done it wilfully, it is better to admit it. However, if you do not genuinely agree with the AO’s observations and have strong evidence, make sure not to shy away from presenting it with confidence.
If you fail to give a satisfactory explanation to the AO, he can use the best judgement assessment, after which the AO will issue the order for the same.
Repercussions of Invoking Section 144
There are significant repercussions if you get a Section 144 notice. Some of the potential consequences are as follows:
Higher tax liability
This can be the first significant consequence. Your tax liability can increase significantly. The AO may not consider the deductions or exemptions you have claimed in your tax returns. Consequently, you might end up paying a higher tax. This can not only burn a hole in your pocket but can also lead to stress.
Interest and penalty
You might end up paying interest and a penalty for not complying with the relevant provisions. That is not all. The AO may also initiate prosecution proceedings against you. All of these can be a cause of significant stress.
Time Limit of Section 144 of the Income Tax Act
Under section 144, the AO has a time limit before starting the assessment. Section 153 outlines this time limit (see table).
| Assessment Year | Assessment time limit |
|---|---|
| 2017 or before | Within 21 months from the assessment year’s ending. |
| 2018-19 | 18 months from the ending of the fiscal year when income is first assessable. |
| 2019-20 | Within 12 months of first income assessment by the end of the assessment year. |
| 2020-21 | Within 18 months at the end of the financial year when the income was assessed for the first time. |
| 2021-22 | Within 9 months from the assessment year’s end when income was assessed for the first time. |
| 2022-23 onwards | 12 months from the end of the financial year when income was first assessed. |
Things You Can Do to Avoid Best Judgment Assessment
You can do certain things so that the AO does not invoke section 144 notice against you. These include:
File Your Taxes on Time
This is the simplest way to avoid section 144. Always file your taxes on time. Whether you are filing regular, updated or revised taxes, adhere to the deadline at all costs. If you find it difficult to file it yourself, seek professional help from a tax consultant or a chartered accountant.
Today, there are e-return intermediaries certified by the tax department who can help you file your taxes hassle-free. These intermediaries have tax experts who can guide you through the filing process.
Provide Accurate Information
Thanks to technology, concealing income and underreporting it is not possible today. Linking PAN and Aadhaar across your accounts and transactions means that the tax department has all the information related to your income.
The authorities can quickly find if you try to hide anything. Therefore, it is crucial to provide correct information related to your income from all sources. Doing so not only ensures compliance but also goes a long way in mitigating risks associated with invoking section 144.
Make Sure to Comply with Tax Notices
Treat tax notices received seriously. While they can cause stress, non-compliance further complicates the issue. If you have received any notice from the tax department, do not panic. Review the notice carefully and discover why you have been issued the same. Prepare your reply and forward it to the tax department within the due date.
If you need help understanding the notice and clarification about the reply to be sent, seek help from a professional. A proper reply can prevent the AO from best judgement assessment.
Cooperate with Tax Authorities
Extend your full cooperation with tax authorities during the assessment. Do not hide anything, and admit if you have made a mistake. The more willingly you cooperate with tax authorities, the lesser the chances of the AO invoking section 144 of the Income Tax Act.
On the other hand, if you do not comply, the AO may be forced to use best judgement assessment, which may not always be in your favour.
In Conclusion
Over the years, the government has taken several steps to simplify the tax filing process. Now, you get pre-filled forms that capture all your essential details. Linking of PAN and Aadhaar means that all the information gets captured instantly.
If you file your taxes through e-return intermediaries, all details get pre-filled upon verification of your PAN. Go through these details carefully and double-check them to ensure no discrepancies.
Check the information with Form 26 AS and the annual information statement (AIS) to ensure no mismatches. If you find that the information in your AIS is not correct, get it rectified before filing your returns. It is also a good idea to get your tax returns double-checked by a tax consultant to make sure everything is correct. Make the necessary changes if you find any error at the earliest.
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