You received an income tax notice and chose not to respond. Maybe you thought it would go away or maybe you assumed the tax department was simply fishing without any real data on you. Either way, the deadline has now passed, and the assessment process moves forward whether you respond or not.
Here is what happens, the Income Tax Department (ITD) does not need your response to proceed. Under Section 144 of the Income Tax Act 1961, an Assessing Officer (AO) can complete your tax assessment using only the exchange data, Annual Information Statement (AIS) entries, and TDS records already linked to your PAN. For crypto traders, that data almost always reflects gross turnover, not actual gains. As a result, the assessment figure the AO arrives at can be higher than what you genuinely owe.
Therefore, this article explains what a Section 144 best judgement assessment means for a crypto taxpayer and how the AO uses your exchange data. You’ll also find out what the tax demand may include and what you can do next.
Key Takeaways
- Section 144 authorises the AO to estimate your total income using third-party data if you ignore a Section 142(1) or Section 143(2) notice; no input from you is required.
- For crypto taxpayers, the estimate is built on gross Statement of Financial Transaction (SFT) exchange data, not net gain, producing a formal tax payment order from the ITD that is many times the trader’s actual liability.
- A Section 156 demand notice follows the Section 144 order, with interest under Sections 234A, 234B, and 234C accruing from the original filing due date.
- A penalty of up to 200% of the tax shortfall applies under Section 270A if the AO determines the non-response involved misrepresentation.
- You can appeal the Section 144 order to the Commissioner of Income Tax (Appeals) under Section 246A, the window is 30 days from the Section 156 demand notice.
What is Section 144 of the Income Tax Act?
Section 144 of the Income Tax Act marks the point at which the tax department stops waiting for your reply. Once the AO has gathered all relevant material, exchange filings, AIS entries, TDS records, the assessment proceeds on that data alone. Understanding what the section authorises, and where its limits lie, is the first step toward knowing what you are actually dealing with.
The Statutory Trigger
Section 144 of the Income Tax Act, 1961 sets out three specific conditions under which a best judgement assessment is initiated. Any one of the three is sufficient for the AO to proceed:
- The taxpayer failed to make the return required under Section 139(1), and did not subsequently file a belated return under Section 139(4) or a revised return under Section 139(5).
- The taxpayer failed to comply with all the terms of a notice issued under Section 142(1), or failed to comply with a special audit direction issued under Section 142(2A).
- The taxpayer filed a return but then failed to comply with a scrutiny notice under Section 143(2).
What Does "Best Judgement" Mean?
The phrase “Best Judgement” may sound discretionary. But, the AO does not make decisions based on guesses. Instead, they consider all the information already available with the ITD. This includes exchange SFT filings, AIS entries, TDS records under Section 194S, and other data linked to your PAN through third parties.
As a result, the department may already have sufficient data about your crypto activity, even if you do not volunteer information . Therefore, the assessment depends on the records available with the ITD, and those records are often far more detailed than most traders expect.
The Opportunity to Be Heard
Before the Section 144 order is finalised, the AO gives the taxpayer a final opportunity to be heard. Most crypto taxpayers who reach this stage have already missed two prior notices. The hearing window is short, and the burden falls on the taxpayer to make contact and produce documents, not on the AO to chase further.
If you do not respond, the AO will proceed with the data available with them. As such, the assessment will be completed, the order will be passed, and the consequences will be automatic.
What Does the AO Actually Do With Your Crypto Data Under Section 144?
When the AO proceeds under Section 144, three things happen sequentially: your crypto data is sourced, an income figure is constructed from it, and edge cases like P2P and foreign exchange activity are handled separately.
How the AO Sources Your Crypto Data Without Asking You
The AO does not start a best judgement assessment with an empty file. Instead, much of the information is already available with the ITD.
Every Indian exchange registered with the Financial Intelligence Unit files SFT data under Rule 114E, and this data automatically feeds into the Annual Information Statement. As a result, the department can see the gross value of your crypto purchases and sales linked to your PAN.
Additionally, the ITD also receives Section 194S records showing every 1% TDS deduction made by exchanges or P2P buyers. Therefore, by the time a Section 144 assessment begins, the AO often has a more transparent picture of your exchange activity than many taxpayers realise. However, this information tells only part of the story.
How does the AO Converts Your Crypto Data Into an Income Estimate?
Although SFT data captures the gross value of your disposals, it does not contain the acquisition cost of the assets sold. That information exists only in your exchange records and wallet histories. Consequently, when you do not respond to notices, the AO has no access to your cost basis.
As a result, the estimate is built using gross turnover figures alone. The income is then taxed under Section 115BBH at 30%, even though your actual profit may have been much lower.
Example
Consider a trader who recorded INR 80 lakh of crypto sales during FY 2025-26. Suppose the original acquisition cost was INR 78 lakh, leaving a real gain of only INR 2 lakh. In that case, the correct tax liability would be INR 60,000 (30% of INR 2 lakhs) plus 4% cess INR 2,400. Consequently, the total tax stands at INR 62,400.
However, if the taxpayer does not provide the acquisition records, the AO only sees the INR 80 lakh sale value, based on SFT gross turnover. Consequently, tax at 30% plus 4% cess is computed on the entire amount, resulting in a demand of INR 24,96,000. The difference arises not because the AO acted incorrectly, but because the only person (the trader) who possessed the cost data failed to provide it.
How the AO Treats Foreign Exchange and P2P Activity?
Foreign exchange transactions on platforms such as Binance, Bybit, and Kraken currently sit outside the Indian SFT framework. However, this does not mean they are invisible. The Crypto-Asset Reporting Framework (CARF) reporting is expected to bring cross-border crypto data into the Indian tax system from 2027 onwards. In the meanwhile, blockchain analytics already provide partial visibility.
Moreover, P2P transactions carry an additional risk. If you cannot establish the identity of the counterparty through PAN or other records, the department may treat the entire amount as an unexplained cash credit under Section 68.
Consequently, the transaction may be taxed at 60%, plus a 25% surcharge and 4% cess, instead of the 30% rate applicable to virtual digital assets (VDAs).
What Happens After the Section 144 Order is Issued?
Once the Section 144 assessment order is passed, a sequence of further consequences follows automatically.
Section 156: The Demand Notice
Once the AO passes a Section 144 order, a demand notice under Section 156 follows. The taxpayer normally gets 30 days to pay the demand. However, the same 30-day period also serves as the deadline for filing an appeal under Section 246A. As a result, decisions regarding payment, appeal, and stay applications often need to be taken simultaneously.
Section 270A: The Penalty on Top of the Tax
If the AO treats the non-response as under-reporting, a penalty equal to 50% of the tax on the under-reported income may apply. Furthermore, if the AO concludes that income was deliberately concealed, the case moves into misreporting, where the penalty rises to 200% under Section 270A.
Interest Under Sections 234A, 234B, and 234C
In addition to tax and penalty, interest also starts to accumulate automatically. Section 234A applies to delays in filing the return at 1% per month or part thereof on the unpaid tax. Section 234B applies to shortfalls in advance tax again at 1% per month on the shortfall amount. Section 234C applies for deferral of advance tax instalments during the year, at 1% per month on each deferred instalment.
Importantly, these interest provisions run from the original due dates, not from the date of the Section 144 order. Consequently, by the time the assessment is completed, 12 to 24 months of interest may have accumulated, often increasing the total demand by another 24% to 30%.
Section 276C: When It Becomes a Criminal Matter
If the tax demand exceeds INR 25 lakhs and the AO concludes that there was wilful tax evasion, prosecution under Section 276C may also follow. In such cases, imprisonment of minimum 6 months which can extend up to 7 years, along with financial penalties, becomes possible.
Therefore, for crypto traders with high exchange turnover, even relatively small actual gains can create significant risk once a gross-turnover-based assessment is combined with penalties and interest.
Can You Challenge a Section 144 Order?
A Section 144 assessment order is not the final word. Three remedies explained below remain available, each with its own time limit and strategic purpose. The more you delay, the more difficult everything becomes.
Appeal to the Commissioner of Income Tax (Appeals) Under Section 246A
If you disagree with a Section 144 assessment, your primary remedy is to file an appeal before the Commissioner of Income Tax (Appeals) under Section 246A. However, the appeal must be filed within 30 days from the date of the Section 156 demand notice. To support your case, you should provide exchange transaction histories, wallet logs, and other records that establish the actual acquisition cost and the correct taxable gain.
Once the appeal is filed, the CIT(A) has the power to reduce, modify, or even set aside the Section 144 assessment. Therefore, a well-supported appeal can substantially reduce an inflated demand. On the other hand, incomplete or weak documentation may result in the original assessment being upheld.
Applying for a Stay of Demand
Meanwhile, filing an appeal does not automatically stop the ITD from recovering the tax demand. Therefore, you may need to file a stay application with the AO or the CIT(A), requesting that recovery proceedings be paused until the appeal is decided.
The CBDT’s Office Memorandum dated 31st July 2017 (F.No. 404/72/93-ITCC) suggests that the AO may grant a stay on payment of 20% of the disputed demand.
However, the Delhi High Court has consistently held, most recently in Clearmedi Healthcare Pvt Ltd v. DCIT (December 2025), that this 20% figure is an administrative guideline, not a mandatory condition. The AO must exercise independent discretion under Section 220(6), considering the prima facie strength of the appeal, financial hardship, and likelihood of success.
Rectification Under Section 154
Alternatively, if the Section 144 order contains a clear factual or arithmetic mistake, you can seek rectification under Section 154 directly from the AO. This option is generally faster than a full appeal and does not require legal representation.
However, Section 154 applies only to obvious errors in the order itself. For example, it can be used to correct a double-counted transaction, an incorrect tax rate, or a transaction wrongly linked to your PAN. It cannot be used to challenge the AO;s estimate of income or to resolve disputes over valuation.
What Should You Do If You Have Not Responded to a Crypto Tax Notice?
The right course of action depends on the stage your notice has reached. Follow the steps below to identify where your case stands and what you should do next.
Step 1: Check Your Notice Status on the Portal
Log into the income tax e-filing portal and navigate to “Pending Actions” and then “e-Proceedings.” Every notice issued under Sections 142(1), 143(2), and 144, and every AO communication, is recorded here with its date of issue and current status. Confirm whether the Section 144 order has been passed or whether a notice is still open for response.
Step 2: Respond Immediately If No Order Has Yet Been Passed
If the Section 144 order has not been issued, the outstanding notice can still be responded to. Even a late response submitted before the AO finalises the assessment can prevent the “Best Judgement” order from being passed. Submit whatever exchange and wallet records are currently available, with a note explaining any gaps.
A partial response is better than no response. The AO retains discretion at this stage, a substantive, good-faith reply demonstrating that the taxpayer is engaging materially reduces the likelihood of the Section 144 assessment being finalised.
Step 3: File the Section 246A Appeal Within 30 Days If the Order is Already Passed
If the Section 144 order has been passed, locate the Section 156 demand notice in the portal and confirm its issue date. The 30-day appeal window under Section 246A runs from that date. An appeal filed after the window requires a condonation of delay application to the CIT(A), who has discretion to admit it, but is not required to do so. Speed is everything at this stage.
Step 4: Compile Your Crypto Records Before Consulting a CA
A CA can only challenge a Section 144 order with the evidence you, the taxpayer, provide. The stronger and more complete the acquisition cost documentation, the greater the reduction achievable at appeal. Pull every exchange history, every wallet log, and every bank statement evidencing INR crypto purchases before the first consultation. Time spent gathering records before the meeting is worth far more than time spent in the meeting explaining what records might exist.
What Documentation Do You Need to Reduce the Assessment?
The strength of any appeal or rectification request rests entirely on the records the taxpayer can produce. Before engaging a CA, gather the following:
- Complete transaction history from every Indian and foreign exchange used during the assessment year, CSV exports or API-generated reports with acquisition dates and INR values
- Wallet-level logs showing token receipt dates and INR fair market value at receipt for earned crypto
- Bank statements evidencing the INR cost of crypto purchased via fiat
- Form 26AS and AIS download from the income tax e-filing portal showing all TDS credits
- For P2P trades, counterparty PAN details and any Form 26QE or (Form 141) filings already submitted.
- For foreign exchange transactions, exchange-issued transaction statements and any CARF or blockchain explorer records.
Pulling this data manually across multiple exchanges and wallets is where most taxpayers lose time they do not have. KoinX imports transaction history from 800+ exchanges automatically, tracks INR fair market values at every acquisition and disposal point, and generates a complete, CA-ready report, so the documentation your appeal depends on is ready before the 30-day window closes.
How KoinX Can Help If You Have Received a Section 144 Notice?
When a Section 144 assessment is based on gross exchange turnover, reducing the resulting demand depends on proving your actual acquisition costs. However, that evidence must be complete, date-stamped, and organised in a format that can support a Section 246A appeal. For many taxpayers, the biggest challenge is not missing records but collecting transaction histories from multiple exchanges and wallets before important deadlines arrive.
This is where KoinX can help. Trusted by over 1.5 million users across 100+ countries, KoinX integrates with 800+ exchanges and wallets to automatically consolidate your transaction history. It generates detailed, transaction-level reports that your CA can use directly, helping you prepare documentation for a Section 246A appeal faster and with far less manual effort.
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Complete Transaction History for Every Exchange
KoinX imports data from 800+ exchanges and wallets, generating a complete, date-stamped transaction history with INR fair market value at every acquisition and disposal point. This is the primary document the CIT(A) requires to reduce a gross-turnover-based Section 144 assessment to the taxpayer’s actual net gain.
Section 194S TDS Tracking
KoinX tracks every Section 194S TDS deduction made by connected Indian exchanges against your transactions for FY 2024-25. Each tracked credit reduces the assessed tax base on which Section 234B and Section 234A interest is calculated. Traders active across CoinDCX, WazirX, and CoinSwitch frequently carry credits that directly lower their total interest liability.
Schedule VDA Report Generation
Where the taxpayer needs to file an original or belated return alongside the appeal, to demonstrate what the correct liability should have been, KoinX generates an ITR-ready Schedule VDA report covering every disposal event. Acquisition costs are correctly applied, gains are computed under Section 115BBH, and the output is formatted for direct use in ITR-2 or ITR-3.
CA Connect
KoinX connects taxpayers with verified crypto tax specialists who handle Section 144 appeals, draft representations for the CIT(A), and advise on stay applications. For a taxpayer facing a demand based on gross turnover rather than actual gain, specialist representation at the appeal stage is frequently the difference between a demand substantially reduced and one that proceeds to recovery. The CA Connect feature links directly to professionals with documented experience in crypto-specific notice cases.
If you have received a Section 144 order or a Section 156 demand notice, start with KoinX to generate the transaction documentation your CA needs, and do it before the appeal window closes.
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Conclusion
A Section 144 assessment is serious, but it is not the end of the road. The ITD builds its estimate from gross exchange data, not your actual gain, which is why the demand figure often looks nothing like your real liability. The good news is that the assessment can be challenged, reduced, and in many cases significantly brought down, provided you act within the 30-day appeal window and have the right documentation to back your position.
That documentation, your complete transaction history, acquisition costs, and AIS reconciliation, is what makes or breaks the appeal. If pulling it together across multiple exchanges feels overwhelming right now, KoinX can do it for you. It imports your data from 800+ exchanges, applies the correct INR values at every point, and gives your CA exactly what they need to fight the assessment, before the window closes.
Frequently Asked Questions
I Received a Section 142(1) Notice Months Ago and Did Nothing. Has a Section 144 Order Already Been Passed Against Me?
Not necessarily. The AO must follow a procedural sequence before passing the order, including giving the taxpayer a final opportunity to be heard. Log into the income tax e-filing portal and check the e-Proceedings tab. If no order has been passed, a late response submitted now, even well after the notice deadline, can still prevent the Section 144 assessment from being finalised. Act immediately and do not wait for a second notice.
The ITD Has Assessed My Income at INR 50 Lakh but My Actual Crypto Gain Was INR 3 Lakh. How Do I Prove the Correct Figure?
The difference almost certainly comes from gross SFT exchange turnover being used as the income base. You need to produce a complete transaction history from every exchange you used during the assessment year, showing acquisition dates, costs in INR, and disposal proceeds. This documentation forms the basis of your Section 246A appeal to the CIT(A). KoinX can generate this report across 800+ exchanges automatically, in a format a CA can use directly.
Can I Still File My ITR After a Section 144 Order Has Been Passed?
Filing an original ITR after a Section 144 order is generally not possible, the assessment has already been completed. However, if the case is at the Section 142(1) or Section 143(2) stage and no order has yet been passed, filing a belated return under Section 139(4) or a revised return under Section 139(5) can still prevent the best judgement assessment.
What is the Difference Between the Tax Under Section 144 and the Penalty Under Section 270A?
The Section 144 assessment determines the tax liability, the amount of tax the AO believes is owed based on the estimated income. The Section 270A penalty is a separate charge levied on top of that tax for under-reporting or misrepresentation of income. The penalty can be 50% of the tax on under-reported income, rising to 200% if the AO determines misrepresentation was involved. They are distinct obligations, paying the tax does not discharge the penalty, and vice versa.
I Traded Only on Binance and WazirX. Does the ITD Actually Have My Binance Data?
Binance does not file SFT data with the ITD directly. However, your activity is not invisible. Any P2P trades on Binance will have generated 1% TDS deductions under Section 194S, those are already linked to your PAN and visible in your AIS. Blockchain analytics supplement this further. From 2027, CARF will bring formal cross-border exchange data to Indian tax authorities. For WazirX, the position is simple, it files SFT data under Rule 114E, and your gross transaction volume is already in your AIS.
The 30-Day Appeal Window Has Passed. Is There Anything I Can Still Do?
Yes. File a condonation of delay application request alongside Form 35 on the income tax e-filing portal under Section 249(3). The CIT(A) has discretion to admit a late appeal if the reason for delay is genuine, illness, unavailability of records, or similar cause. Ignorance of the notice is generally not accepted. The longer the gap, the harder admission becomes. File immediately, state your reason clearly, and attach supporting evidence wherever possible.
