Chapter XVI - Procedure for Assessment
Section 271
Section 271: best judgment assessment
Section 271 is the tax department's fallback when a taxpayer doesn't cooperate with the assessment process - if a person fails to file a return, doesn't respond to notices, or doesn't comply with an audit direction, the Assessing Officer can assess their income "to the best of his judgment," based on whatever material is available.
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Need advice on Section 271?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) If any person—
(a) fails to furnish the return required under section 263(1) or (4) or (5) or (6); or
(b) fails to comply with all the terms of a notice issued under section 268(1) or fails to comply with a direction issued under section 268(5); or
(c) having made a return, fails to comply with all the terms of a notice issued under section 270(8), the Assessing Officer, after taking into account all relevant materials which he has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment.
(2) The Assessing Officer before making an assessment under sub-section (1) shall, subject to the provisions of sub-section (3), serve a notice on the assessee to show cause, on a date and time to be specified in the notice, as to why assessment should not be completed to the best of his judgment.
(3) It shall not be necessary to give the opportunity referred to in sub-section (2) in a case where a notice under section 268(1) has been issued prior to the making of an assessment under this section.
Introduction
Best-judgment assessment is a response to specified filing or notice non-compliance. The Assessing Officer must use relevant material gathered and determine the taxable income or loss and amount payable after the required hearing process.
Subsection (2) usually requires a show-cause notice, while subsection (3) addresses the case where an earlier section 268(1) notice has already been issued.
Key takeaways
Specified defaults trigger it
Failure to file a required return or comply with a listed assessment notice or direction can lead to a best judgment assessment.
Relevant material and hearing
The Assessing Officer must use gathered material and give an opportunity of being heard before determining income or loss and tax payable.
Show-cause safeguard
A separate show-cause notice is generally required, subject to the exception where a section 268(1) notice was already served.
When a best judgment assessment applies
The Assessing Officer may make a best judgment assessment if a person:
- Fails to furnish the return required under Section 263(1), (4), (5) or (6); or
- Fails to comply with all the terms of a notice issued under Section 268(1), or fails to comply with a direction issued under Section 268(5) (the special audit direction); or
- Having filed a return, fails to comply with all the terms of a notice issued under Section 270(8)
How the assessment is made
After taking into account all relevant material gathered, and after giving the assessee an opportunity of being heard, the Assessing Officer makes the assessment of total income or loss to the best of their judgment, and determines the sum payable by the assessee on that basis.
Show-cause notice before the assessment
Before making a best judgment assessment, the Assessing Officer must (subject to sub-section (3)) serve a show-cause notice on the assessee, specifying a date and time, asking why the assessment should not be completed on a best judgment basis.
When the show-cause notice isn't required
This opportunity need not be given separately where a notice under Section 268(1) was already issued to the assessee before the best judgment assessment is made.
Step-by-step flow for a best judgment assessment under Section 271
- 1
Has any of the defaults in Section 271(1) occurred?
(a) Failure to furnish a return under section 263(1), (4), (5) or (6); (b) failure to comply with all the terms of a notice under section 268(1) or a direction under section 268(5); or (c) having made a return, failure to comply with all the terms of a notice under section 270(8).
- None: Section 271 does not apply.
- At least one: Go to the next step.
- 2
Was a notice under section 268(1) issued before the assessment?
- Yes: A separate show-cause notice under Section 271(2) is not necessary (Section 271(3)). Go to the next step.
- No: The AO must serve a show-cause notice, with a date and time, asking why the assessment should not be completed to the best of his judgment (Section 271(2)). Go to the next step.
- 3
Hearing and material
In every case the AO must give the assessee an opportunity of being heard and take into account all relevant material he has gathered (Section 271(1)).
- 4
Best judgment assessment
The AO assesses total income or loss to the best of his judgment and determines the sum payable on that basis (Section 271(1)).
Practical checklist
Do
- Respond to filing, information and assessment notices within the specified periods.
- If a best-judgment assessment is proposed, place relevant accounts and explanations on record for the hearing.
Avoid
- Treat a best-judgment assessment as an automatic fixed penalty; the officer must assess on relevant material.
Illustrative example
Worked example: an unanswered scrutiny notice
Hypothetical facts (illustration only, not a real taxpayer): Mr. Joshi filed a return declaring income of ₹9,00,000. He received a notice under section 270(8) to produce evidence in support of the return and did not respond. No notice under section 268(1) was issued in his case. The AO's material shows bank deposits of ₹4,00,000 that the return does not explain. All amounts are assumed for illustration.
Trigger
Having made a return, he failed to comply with a section 270(8) notice, so Section 271(1)(c) applies.
Show-cause notice
Because no section 268(1) notice was issued, Section 271(3) does not help the AO; he must serve a show-cause notice under Section 271(2) with a date and time.
Hearing
Mr. Joshi can still be heard and explain the deposits before the assessment is made.
Best judgment
If no satisfactory explanation is given, the AO may assess income to the best of his judgment, for example at ₹9,00,000 + ₹4,00,000 = ₹13,00,000 on this illustrative material, and determine the sum payable.
Outcome
- The best judgment assessment must rest on material gathered by the AO and follow a hearing.
- If a section 268(1) notice had been issued earlier, the separate show-cause notice would not have been required.
Frequently asked questions
What triggers a best judgment assessment?
Failing to file the required return under Section 263, failing to comply with a notice under Section 268(1) or a special-audit direction under Section 268(5), or - after filing a return - failing to comply with a notice under Section 270(8).
Do I get a chance to explain myself before a best judgment assessment?
Generally yes, through a show-cause notice asking why the assessment shouldn't be completed on a best judgment basis - unless a notice under Section 268(1) was already issued to you before the assessment is made, in which case this separate opportunity isn't required.
Do I get a hearing on special-audit or inquiry material if a best judgment assessment is made?
Section 268(12) gives a hearing on material from an inquiry, special audit or inventory valuation before it is used, but excludes assessments made under section 271. Section 271(1) itself still requires an opportunity of being heard before the best judgment assessment.
Need help applying this provision to your situation?
Get help responding to a best judgment assessment noticeLast updated 9 October 2026