Section 271 of the Income-tax Act, 2025 — Best Judgment Assessment by the Assessing Officer

In plain language

What Section 271 actually deals with

Section 271 of the Income-tax Act, 2025 is the provision on "Best judgment assessment". It is the direct successor to the well-known Section 144 of the old Income-tax Act, 1961 — only the number has changed, not the core principle. It empowers the Assessing Officer (AO) to compute your total income or loss "to the best of his judgment" when you have not cooperated with the basic obligations of the tax law — typically because you did not file a return or ignored the officer's notices.

Do not confuse this with penalty Section 271 of the 1961 Act. Under the 2025 Act, penalties for under-reporting/misreporting sit elsewhere (Section 439, the successor to Section 270A). Section 271 of the 2025 Act is purely about how an assessment is completed when the taxpayer defaults.

When the Assessing Officer can invoke best judgment

Under Section 271(1), the AO may make a best judgment assessment if a person:

• Fails to furnish the return required under Section 263(1), (4), (5) or (6) — i.e. no return, no belated return, no updated/revised return even after being required to file.
• Fails to comply with a notice issued under Section 268(1) (the inquiry-before-assessment notice, successor to old Section 142(1)) or fails to follow a direction under Section 268(5) (e.g. a direction to get accounts audited or inventory valued).
• Having filed a return, fails to comply with the terms of a scrutiny notice under Section 270(8) (successor to old Section 143(2)) — for example, not attending or not producing documents during scrutiny.

In any of these cases the AO, "after taking into account all relevant materials which he has gathered", determines the total income or loss and the tax payable.

The mandatory safeguard — opportunity of being heard

Best judgment is not a licence to be arbitrary. Section 271(2) requires the AO to first serve a show-cause notice giving a date and time and asking why the assessment should not be completed to the best of his judgment. This protects the principle of natural justice.

• Exception — Section 271(3): the show-cause opportunity is not required where a notice under Section 268(1) had already been issued before making the assessment. The logic is that the taxpayer was already put on notice and given a chance to respond.

How the officer estimates your income

The estimate must be reasonable and evidence-based, not a wild guess. Courts (whose interpretation continues to apply to the renumbered provision) require an honest estimate. The AO commonly relies on:

• Bank statements, AIS/TIS data, GST turnover and TDS records;
• Past assessment history and declared incomes of earlier years;
• Profit margins of comparable businesses in the same trade;
• Any books or documents actually produced, even if incomplete.

Who it applies to

It applies to every category of assessee — individuals, HUFs, firms, LLPs, companies and others — who default on return filing or on assessment notices. It is most often seen with non-filers, businesses with poor records, and taxpayers who ignore scrutiny notices.

Practical implications and consequences

• Usually a higher tax bill: estimates tend to be conservative (against the taxpayer), so the assessed income is often more than a properly filed return would show.
• Interest for late/non-filing and short payment of advance tax (successors to Sections 234A/234B/234C) applies on the assessed amount.
• Penalty exposure for under-reporting of income (Section 439, successor to 270A) and possible prosecution for non-filing.
• Faceless regime: such assessments are largely done under the faceless assessment framework, so there is no personal meeting with a named officer.
• Right of appeal is preserved: you can still appeal to the Commissioner (Appeals) and onward to the Tribunal — the assessment is not final.

Bottom line: Section 271 is a defaulter's provision. Timely filing and responding to notices is almost always cheaper and less stressful than facing a best judgment assessment.