Return of Income and Assessment: Sections 263 to 278

Income tax works on self declaration followed by verification. The taxpayer files a return and pays the tax due; the department processes it, may select it for scrutiny, and makes an assessment. Where the taxpayer fails to cooperate, the Assessing Officer may assess to the best of his judgment. Sections 263 to 278 of the Income-tax Act, 2025 replace sections 139 to 145 of the 1961 Act. This note covers the return and the forms of assessment.

1. Filing the Return

Figure 1: Kinds of return

• Section 263 (old s.139). Every person whose total income exceeds the maximum amount not chargeable to tax, and every company and firm, must file a return of income by the due date; others must file in specified situations.
• Belated and revised returns. A return may be filed after the due date within the permitted period, with a fee, and an earlier return may be revised to correct omissions or wrong statements; from 1 April 2026, a revised return may be filed up to twelve months from the end of the tax year, with a fee after nine months.
• Updated return, ss.263(6), 267. A taxpayer may update a return within the permitted period after the year, declaring additional income and paying additional tax, but not to reduce income or claim a refund; from 1 April 2026 it may also be used to reduce a loss claimed, and may be filed within the time allowed in a reassessment notice on payment of a further 10 per cent of tax and interest.
• PAN and verification. Permanent account number (s.262) and verification of returns by the specified person (s.265)

2. From Return to Assessment

Figure 2: The assessment process

• Self assessment, s.266. Tax payable on the return, after advance tax and deduction at source, is paid with interest before filing.
• Processing. The return is processed electronically, adjusting arithmetical errors and incorrect claims apparent from it, and an intimation is sent.
• Inquiry, s.268. The Assessing Officer may call for accounts, documents and information before assessment.
• Scrutiny, s.270 (old s.143). Where a return is selected, notice is served, evidence is considered, and an order is passed assessing total income and tax.
• Faceless, s.273. Assessments are conducted electronically through a central unit, without personal interface between the officer and the assessee.

3. Best Judgment and Other Provisions

• Best judgment, s.271 (old s.144). Where the assessee fails to file a return, comply with notices or produce accounts, the officer assesses to the best of his judgment after giving an opportunity of being heard; the estimate must be honest and based on material, not arbitrary.
• Method of accounting, s.276. Business income is computed according to the cash or mercantile system regularly employed; the officer may make a best judgment assessment if accounts are incorrect or incomplete.
• Dispute Resolution Panel, s.275. Draft orders in specified cases, such as those of foreign companies and transfer pricing, may be objected to before the Panel.
• Rectification, s.287 (old s.154). A mistake apparent from the record may be rectified within the prescribed time.
• Demand, s.289. A notice of demand specifies the sum payable under an order.

4. Frequently Asked Questions

Can an updated return be filed to claim a refund?

No. An updated return can be filed only to declare additional income and pay additional tax; it cannot reduce the income or tax returned or increase a refund.

When can the Assessing Officer make a best judgment assessment?

When the assessee fails to file a return, does not comply with notices for inquiry or scrutiny, or does not produce proper accounts. An opportunity of hearing must be given, and the estimate must be based on relevant material.

5. Related Topics

• Topic 19: Deductions, Rebate and the Tax Regimes. What the return computes.
• Topic 21: Reassessment. Income escaping assessment.
• Topic 24: Appeals and Revision. Challenging the assessment.