My client ignored the s.142(1) notices and now has a best-judgment assessment estimating gross profit at fifteen per cent with separate additions on top - how much of that can I actually attack?
The client is a proprietor dealing in steel tubes, assessed at a ward in Ludhiana, books audited under s.44AB. The return for AY 2024-25 was filed on 30 October 2024 declaring income of Rs 18,60,000 on a turnover of Rs 6,42,00,000, a gross profit of 6.1 per cent and a net profit of 2.9 per cent. A notice under s.143(2) issued on 12 August 2025. Notices under s.142(1) followed on 6 November 2025 and 19 December 2025, calling for the books, the stock register, party-wise purchases and bank statements. The accountant who held the portal login left in September 2025 and nothing was filed against either. A show-cause notice issued on the portal on 24 February 2026 proposing to complete the assessment to the best of the officer's judgment, with a reply due on 28 February 2026. The order under s.144 read with s.144B is dated 20 March 2026. It rejects the books under s.145(3) for non-production and for the absence of a stock register, adopts a gross profit rate of 15 per cent on the declared turnover and adds Rs 57,13,800, adds Rs 31,40,000 under s.68 for credits in the same bank account and disallows Rs 4,20,000 under s.40A(3). The demand is Rs 39,60,000 with interest, and two penalties of Rs 10,000 each under s.272A(1)(d) have been initiated. The appeal was filed on 17 April 2026 and is pending. The client holds the audited accounts, the ledgers, the GST returns and the month-wise stock statements filed with his bank.
Download the complete e-proceedings tab for the year the same week - every notice, its date of issue, its due date, every response or adjournment recorded against it, and the show-cause notice with its four-day window - and print it with timestamps. Whether this is a procedural file or a merits file is decided entirely by what that log shows, and so is the answer on the two penalties. Arguing the gross profit rate before knowing whether a reply or an adjournment request sits on the record concedes the one thing that may end the matter without a factual contest.
Section 142(1) is the inquiry power, and non-compliance carries two separate consequences - a best judgment assessment under s.144 and a penalty of Rs 10,000 per default under s.272A(1)(d), with s.273B available where reasonable cause is shown. The library holds four Tribunal orders on that penalty and they mark out the range. Where the assessee answered a notice by asking for time and the officer never rejected the request by a speaking order, one Bench held the notice was attended to and there was no failure to comply at all. Where compliance came late but before the assessment was framed and the officer used the reply, another Bench held the case was not one of non-compliance. Where nothing at all was filed against either notice, a third Bench upheld Rs 10,000 for each. A fourth allowed s.273B relief for some defaults and not others in the same order.
Section 144 is not a licence to proceed on silence. The proviso requires an opportunity of being heard given by serving a notice calling on the assessee to show cause, on a date and time specified, why the assessment should not be completed to the best of the officer's judgment, and a High Court has set aside an assessment where the record showed no notice other than the s.143(2) notice. The library's own statement of the section says the same: the officer may estimate only after taking into account all relevant material he has gathered and after giving that show-cause opportunity. A show-cause did issue here, so the attack is on its adequacy, not its absence - four days against a proposed addition of nearly a crore, on a notice that also asked for records the officer already knew were with a departed accountant.
Where a request for personal hearing was made and ignored, the orders have not survived. One High Court read the permissive word in the hearing clause as obligatory, because a power carrying civil consequences attracts natural justice and the section embeds rather than excludes it; another held that the permissive word cannot absolve the Revenue of the obligation to consider the request; a third held that once a request is made granting the hearing is mandatory and not discretionary, and that fixing the rescheduled hearing on a Sunday was not a real opportunity; a fourth quashed an order where a video hearing was refused because limitation was close, rejecting that as a defence. Refusing time to respond to the proposed modifications has gone the same way.
The estimate is only as good as the rejection that precedes it. The officer must first record why the accounts are incorrect, incomplete or not drawn on a proper method, and a High Court has held it settled that the books have to be necessarily rejected before a best judgment assessment can be made, and that picking and choosing entries to reject is not open. The Supreme Court has struck down additions where the officer gave no reason for rejecting the accounts and then added half the gross interest as concealed income. Two High Court decisions mark the boundary the other way: the absence of a stock register may not by itself show the accounts are false, but coupled with unverifiable purchases and sales, missing vouchers and an implausibly low profit it is enough; and a fall in gross profit alone is not enough, though it was enough there when set against a comparison of two years' milling and sales.
This is where a best judgment assessment becomes arbitrary. The Supreme Court has held that the words import limits - the estimate must be a judicial exercise, and although guesswork is involved it must not be a wild one and must have a reasonable nexus to the available material; that some guesswork is inevitable once the books are rightly rejected but the estimate must be honest; that an enhancement made without giving any reason cannot stand; and, in the case closest to this file, that an officer who estimated gross profit by comparing the assessee with other mills without disclosing the comparative data or allowing rebuttal had made an assessment that could not stand, because an estimate cannot rest on pure guess and the material relied on must be disclosed. An older decision says the same about material collected by private enquiry: the officer may gather it, but he must inform the assessee of it before he uses it.
The officer cannot discard the ledger and then make additions out of it. The library records a High Court holding that where the books are rejected and profit estimated at a rate on turnover, no deduction for purchases is being claimed or allowed at all, so there is nothing left for a s.40A(3) disallowance to bite on. On the other side of the same estimate, a High Court has held that depreciation and interest keep their legal character even where profit is determined on a percentage basis, and there is no reason to withhold them merely because the profit was estimated. Also check the base: the Supreme Court has held that where material supplied by the contractee at fixed rates for incorporation in the work is added to receipts before applying a rate, there is not even a theoretical possibility of profit in that part of the turnover.
A best judgment assessment is an appealable order - s.246A(1)(a) names an order under s.144 in terms, and the Supreme Court has read the companion limb of the same clause, an order where the assessee denies his liability to be assessed, widely enough to cover a determination of liability elsewhere in the Act. But the merits are not reached by asserting them. A Tribunal Bench faced with exactly this file - notices missed, best judgment made, an eight per cent rate complained of - decided nothing about the estimate and remitted every issue for fresh adjudication precisely because the assessee had placed no details before either the officer or the first appellate authority. Assume the same outcome unless the evidence goes in at the appellate stage.
The appeal does not stop recovery and the s.272A(1)(d) proceedings run on their own clock. On the writ question the position is settled against going straight to the High Court: the Supreme Court has held that the Act supplies a complete machinery for assessment and the assessee cannot abandon it and invoke the constitutional remedy, with exceptions that are narrow and must be pleaded and made out. A High Court has gone further on the specific combination in this file, holding that having already filed the statutory appeal the assessee cannot simultaneously attack the assessment in a writ under the guise of challenging a refusal of stay - that is resort to two forums at once.
Where the show-cause gave four days and a hearing was asked for on the portal, a good share of these come back on remand - which means the estimate is decided again with the books in front of someone, not that it is deleted. Where no hearing was requested and nothing was filed below, the commonest outcome is the one the library's closest Tribunal order records: remission for de novo adjudication with nothing decided about the rate, after two more years. A reduction in the rate, negotiated against the assessee's own earlier years, is the realistic best case on merits. The separate additions under the cash credit and cash payment provisions are more often than not deleted or merged into the estimate where the books are produced, and survive where they are not. The two penalties usually survive in part.
