Section 271 of the Income-tax Act, 2025 allows the Assessing Officer to make a best judgment assessment where a person fails to file the return or comply with a notice under section 268 or 270(8), after giving an opportunity of being heard.
What section 271 does
Section 271 is best judgment assessment — the successor to section 144 of the Income-tax Act, 1961. It applies where the taxpayer has not cooperated, and it allows the Assessing Officer to assess on the material he has gathered.
Three defaults trigger it: failure to furnish the return required under section 263(1), (4), (5) or (6); failure to comply with all the terms of a notice under section 268(1) or a direction under section 268(5); or, having filed a return, failure to comply with all the terms of a notice under section 270(8) — the scrutiny notice.
The safeguard is real but limited. The officer must give the assessee an opportunity of being heard and, under sub-section (2), serve a show cause notice — but sub-section (3) removes the show cause requirement where a notice under section 268(1) has already been issued.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 144(1)(a) | Failure to furnish the return | 271(1)(a) |
| 144(1)(b) | Failure to comply with a section 142(1) notice or direction | 271(1)(b) |
| 144(1)(c) | Failure to comply with a section 143(2) notice | 271(1)(c) |
| 144(1), proviso | Show cause notice before best judgment | 271(2) |
| 144(1), second proviso | No show cause where a section 142(1) notice was issued | 271(3) |
| 142 | Inquiry before assessment | 268 |
| 143 | Assessment | 270 |
Section 271 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — the three defaults and the power
If a person (a) fails to furnish the return required under section 263(1), (4), (5) or (6); (b) fails 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, fails to comply with all the terms of a notice under section 270(8), the Assessing Officer — after taking into account all relevant materials he has gathered and after giving the assessee an opportunity of being heard — shall make the assessment of total income or loss to the best of his judgment and determine the sum payable.
The two protections built into sub-section (1)
The officer must take into account all relevant materials gathered — a best judgment assessment is not an arbitrary one, and must have a rational basis in material on record. And the assessee must be given an opportunity of being heard. These are the grounds on which such assessments are most often challenged.
Sub-section (2) — the show cause notice
Before making an assessment under sub-section (1), the Assessing Officer shall serve a notice on the assessee to show cause, on a date and time specified in the notice, as to why the assessment should not be completed to the best of his judgment — subject to sub-section (3).
Sub-section (3) — when no show cause is needed
It is not necessary to give the opportunity referred to in sub-section (2) where a notice under section 268(1) has been issued prior to making the assessment. The reasoning is that the section 268(1) notice has already put the assessee on notice and given an opportunity to produce information.
What follows a best judgment assessment
A demand is raised through a notice under section 289. The assessment is appealable to the Commissioner (Appeals) under section 357. Non-filing also exposes the taxpayer to penalty under section 439(2)(b) — income assessed exceeding the maximum amount not chargeable to tax where no return was furnished — and to prosecution under section 479.
Worked example
A taxpayer does not respond to notices for tax year 2026-27.
| Event | Provision | Consequence |
|---|---|---|
| No return filed by the due date | Section 263(1) | Default under section 271(1)(a) |
| Notice under section 268(1) issued calling for information; no response | Section 268(1) | Default under section 271(1)(b) |
| Show cause before best judgment | Section 271(3) | Not required, because a section 268(1) notice was already issued |
| Assessment completed on gathered material | Section 271(1) | Best judgment assessment |
| Demand raised | Section 289 | Notice of demand |
| Penalty exposure | Section 439(2)(b) | Under-reporting where no return was furnished |
| Prosecution exposure | Section 479 | Failure to furnish returns of income |
Row three is the practical point. A taxpayer who ignores a section 268(1) notice loses the separate show cause step that sub-section (2) would otherwise have provided. The opportunity of being heard under sub-section (1) remains, but the additional protection in sub-section (2) does not.
Compliance checklist and due dates
- Respond to every notice under section 268(1) and section 270(8), even if only to seek time — non-compliance triggers section 271.
- If a best judgment assessment is proposed, insist on the opportunity of being heard under sub-section (1), which is not removed by sub-section (3).
- Ask for the material gathered and relied on; the assessment must rest on relevant material.
- File the return even if late — non-filing is the first default in sub-section (1)(a) and carries penalty and prosecution exposure.
- Appeal under section 357 within thirty days of the notice of demand, and pay tax on returned income first as section 358(6) requires.
- Consider the interaction with section 439 penalty and section 479 prosecution before deciding how to respond.
Common mistakes
- Assuming a show cause notice is always required. Sub-section (3) removes it where a section 268(1) notice was already issued.
- Treating a best judgment assessment as unchallengeable; it must be based on relevant material and preceded by a hearing.
- Ignoring a scrutiny notice under section 270(8) after having filed a return — clause (1)(c) covers exactly that.
- Overlooking that non-filing also opens penalty under section 439 and prosecution under section 479.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.