“Section 145(2)”
The decision most relied on for Section 145(2) is Lalchand Bhagat Ambica Ram v. CIT (37 ITR 288), cited in 570 judgments on BharatTax.
Leading authorities on Section 145(2)
Where an assessee maintains regular books of account, and these books are not rejected or found defective by the Assessing Officer, any cash deposits or available cash shown in the cash book, if sufficient to cover the transaction, cannot be treated as unexplained income or an addition under sections 68 or 69A.
If there is an unexplained cash credit, the Assessing Officer can treat it as the assessee's income, even when the income is finalized on an estimation basis, without proving its specific source. The onus then shifts to the assessee to prove that the income represented by the cash credit has already been taxed.
Income is taxable only when it represents real income, not notional income. It accrues only when there is a vested right to receive it, typically upon the occurrence of a transfer or event, rather than merely on a time basis.
The word 'production' has a wider connotation than 'manufacture'; every manufacture is production, but not every production amounts to manufacture. 'Production' includes bringing into existence new goods, by-products, or inter-products through a process, which may or may not be manufacture.
When unaccounted receipts or suppressed sales are detected and books of account are rejected under Section 145(3), additions to income must be restricted to the profit element embedded in such transactions, not the entire transaction value. This profit element is to be estimated by considering the assessee's regular profit ratio as per books of account.
The levy of penalty under Section 271(1)(c) requires material evidence that the assessed amount does not represent the assessee's income and proof of conscious concealment or furnishing inaccurate particulars. A penalty cannot be sustained merely because income is assessed on an estimation basis without positive evidence of concealment.
Compensatory interest or damages paid for a breach of contract, arising in the normal course of business, are allowable as a deduction under section 37(1) as wholly and exclusively incurred for business purposes. This principle extends to indirect taxes paid in the course of business, which are admissible as business expenditure.
If an assessee possesses sufficient interest-free funds, it is presumed that investments yielding exempt income were made from these funds, therefore disallowance of interest expenditure under Section 14A is not justified.
