First of all, for the purposes of Income Tax,the annual income of the PY is taken.Afixed monthly income is not a necessity.Evencasual and non recurring recipts may have characteristics of income and consequently become chargeable to tax.
The Best Judgment Assessment is a procedure under the IT Act .Under Section 141 of the Income Tax Act, 2003 the Assessing Officer is under an obligation to make an assessment of the total income or less to the best of his judgment in the following cases.
1. If the person fails to make a return or required under s. 139(1) and he has not made a return or a revised return under ss. (4) or (5) of that section.
2. if any person fails to comply with all the terms and conditions stipulated under a notice u/s. 142 or fails to comply with the directions requiring him to get his accounts audited in terms of section 142(2A).
3. If the Assessing officer is not satisfied about the correctness and the completion of the accounts of the Assessee if no method of accounting has been regularly employed by the Assessee.
Under this provision where the Assessee fails to file a return or submit the documents or fails to comply with any of the above-mentioned conditions the assessing officer is empowered u/s 144 to assess the total income according to the best of his judgment with a reasonable opportunity provided to the tax payer of being heard. This is however to the exclusion of the provision as provided U/s 142(1) of the IT Act where the Assessee has been given prior notice to the assessment11. The assessing officer u/s 144 is under a duty to make assessment of the total income or the loss to the best of his judgment and the tax payable after taking all externalities and conditions into account.(These include the Books of accounts, Bank Statements and Pass Books, Confirmation Certificates and Loans, Party
Details of Purchases and Sales, Names of Sundry debtors and Creditors of the Assessee)
A common understanding of the procedure shows that the best judgment assessment procedure has given wide discretionary powers to the assessing authority to assess in the instances where there has been willful suppression and concealment of income and turnover by the Assessee. The power so provided is wide to the extent that the AO has the authority to assume from the documents so present as to provide an assessment with an increased or a decreased turnover based on the documents so provided(He can even look into the standards of living of the assessee,his day to day transactions etc for the purpose)
. Even though the assumption may be guesswork it has a valid justification that all the turnover so recorded in order to correctly assume the turnover and thereby the returns in case of an attempt to intentionally conceal the tax payable by not displaying in the books of accounts and the other official documents.