Section 145(3) of the Income Tax Act

Income-tax Act, 2025: s.276

Section 145(3) falls under section 145 of the Income-tax Act, 1961, which corresponds to section 276 (Method of accounting) of the Income-tax Act, 2025.

Read section 276 of the 2025 Act

Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.

The decision most relied on for Section 145(3) is CIT v. Jet Airways (I) Ltd. (331 ITR 236), cited in 694 of the 3,640 judgments on BharatTax that turn on this section.

Leading authorities on Section 145(3)

CIT v. Jet Airways (I) Ltd.
331 ITR 236 · 2011 · High Court
694
citing judgments

The Assessing Officer loses jurisdiction and the entire reassessment becomes invalid if no addition is made in respect of the income that formed the basis of the reopening. Explanation 3 to Section 147 does not permit assessing other escaped income unless an addition is made for the original income forming the reason to believe.

Vijay Proteins Ltd. v. Asst. CIT
58 ITD 428 · 1996 · ITAT
430
citing judgments

Where purchases are found to be non-genuine or fictitious, a reasonable disallowance of 25% of such purchases or the peak credit, whichever is higher, can be made. This is applied to address unexplained expenditure under Section 69C when actual goods are likely procured from the grey market.

Kachwala Gems v. JCIT
288 ITR 10 · 2007 · Supreme Court
332
citing judgments

In a best judgment assessment, some guesswork is inherent, but the estimate must be fair and not arbitrary. Books of account can be rejected under Section 145(3) if the assessee fails to substantiate entries or prove the genuineness of transactions, leading to estimation of income.

CIT v. Simit P. Seth
38 Taxmann.com 385 · 2013 · High Court
278
citing judgments
CIT v. Devi Prasad Vishwanath Prasad
72 ITR 194 · 1969 · Supreme Court
272
citing judgments

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.

Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali
90 ITR 271 · 1973 · Supreme Court
232
citing judgments

The Supreme Court established principles for best judgment assessments, stating that some guesswork is inevitable but the assessment must be bona fide, rational, and free from bias or capriciousness. An appellate authority cannot substitute its judgment for that of the Assessing Officer unless the AO's assessment is shown to be biased, irrational, vindictive, or capricious, especially when the assessee fails to provide proper accounts or counter-evidence.

CIT v. Balchand Ajit Kumar
263 ITR 610 · 2003 · High Court
212
citing judgments

When making an addition for unaccounted receipts, on-money, or non-genuine purchases/sales, the addition should be restricted to the estimated profit element embedded in such transactions, rather than the entire gross amount, particularly when evidence of corresponding expenditure is incomplete. This estimation often involves applying a net profit rate.

CIT v. Bilahari Investment (P) Ltd.
299 ITR 1 · 2008 · Supreme Court
206
citing judgments

The project completion method and the percentage of completion method are both recognized methods for recognizing income from real estate contracts.

CIT v. British Paints India Ltd.
188 ITR 44 · 1991 · Supreme Court
204
citing judgments

The Assessing Officer has a duty to examine whether an assessee's books of account truly disclose the correct income and is not bound to accept the accounting system regularly employed by the assessee or methods followed in earlier years. Each assessment year is a distinct and self-contained unit for tax purposes.

Harigopal Singh v. CIT
258 ITR 85 · 2002 · High Court
203
citing judgments

Penalty under section 271(1)(c) cannot be levied when an addition to income is made on an estimated basis without concrete evidence of concealment or furnishing inaccurate particulars of income. The provisions of section 271(1)(c) are not attracted to cases where income is assessed on an estimate basis.

Judgments on Section 145(3)

DCIT, Cir-26, Kolkata vs. M/S Tewari Warehousing Company, Kolkata

In the result, Revenue’s appeal stands allowed partly for statistical

ITA 1316/KOL/2016[2010-2011]Status: DisposedITAT Kolkata16 Mar 2018AY 2010-2011

Bench: Shri Waseem Ahmed & Shri S.S.Viswanethra Raviassessment Year:2010-11 Dcit, Circle-26 M/S Tewari Warehousing Co. बनाम / Aayakar Bhawan Hide Shed Dump, Old V/S. Dakshin, 2, Gariahat Goragacha Road, Kolkata-88 Road, (South), [Pan No.Aacft 5579 K] Kolkata-68 .. अपीलाथ" /Appellant ""यथ" /Respondent Shri Arindam Bhattacherjee, Addl. Cit-Dr अपीलाथ" क" ओर से/By Appellant Shri Vikash Surana, Advocate ""यथ" क" ओर से/By Respondent 31-01-2018 सुनवाई क" तार"ख/Date Of Hearing 16-03-2018 घोषणा क" तार"ख/Date Of Pronouncement आदेश /O R D E R Per Waseem Ahmed:- This Appeal By The Revenue Is Against The Order Of Commissioner Of Income Tax (Appeals)-7, Kolkata Dated 14.03.2016. Assessment Was Framed By Jcit, Range- 53, Kolkata U/S 143(3)/144 Of The Income Tax Act, 1961 (Hereinafter Referred To As ‘The Act’) Vide His Order Dated 28.03.2013 For Assessment Year 2010-11. The Grounds Raised By The Revenue Per Its Appeal Are As Under:- “1. That The Ld. Cit(A) Erred In Directing To Assess The Entire Gross Receipts S Business Income & Allow Deductions As Per Section 28 To 43 Of The It Act When Rental Income Of Rs.2,31,00,000/- Was Already Included In The Gross Receipts. 2. That The Ld. Cit(A) Erred In Deleting The Estimation Of Business Profits Of Rs.2,37,72,132/- Made By The Ao Though Rejection Of Assessee’S Books Of Account U/S 145(3) Considering The Facts Of The Case. 3. That The Ld. Cit(A)’S Order Is Contrary To The Law & Fact Of The Case. 4. The Appellant Craves Leaves To, Add To, Alter Or Modify Any One Or All Of The Grounds Of Appeal Mentioned Above.”

Section 143(3)Section 145(3)Section 194Section 27Section 28

Urmila M Gala, Mumbai vs. DCIT Cen Cir 12, Mumbai

In the result, appeal of the assessee is allowed

ITA 905/MUM/2016[2004-05]Status: DisposedITAT Mumbai01 Mar 2018AY 2004-05

Bench: S/Sh.Rajendra & Amarjit Singhआयकर अपील सं./I.T.A./905/Mum/2016,िनधा"रण िनधा"रण वष" वष" /Assessment Year: 2004-05 िनधा"रण िनधा"रण वष" वष" आयकर अपील सं./I.T.A./906/Mum/2016,िनधा"रण िनधा"रण िनधा"रण वष" िनधा"रण वष" वष" /Assessment Year: 2005-06 वष" आयकर अपील सं./I.T.A./4681/Mum/2016,िनधा"रण िनधा"रण िनधा"रण वष" िनधा"रण वष" वष" /Assessment Year:2006-07 वष" Smt. Urmila M. Gala Dcit, Central Circle-12 93, Dadiseth Agiary Lane Mumbai. Vs. Kalbadevi, Mumbai-400 002. Pan:Aafpg 3176 J (अपीलाथ" /Appellant) (""यथ" / Respondent) राज"व क" ओर से / Revenue By: Shri Abhijit Patankar-Dr अपीलाथ" क" ओर से /Assessee By: Shri Hari S. Raheja सुनवाई क" तारीख / Date Of Hearing: 14/12/2017 घोषणा क" तारीख / Date Of Pronouncement: 01.03.2018 लेखा लेखा सद"य लेखा लेखा सद"य सद"य, राजे"" सद"य राजे"" राजे"" केकेकेके अनुसार राजे"" अनुसार अनुसार/ Per Rajendra, Am- अनुसार Challenging The Orders Of The Cit(A)- 48,Mumbai,The Assessee Has Filed The Appeals For The Above Mentioned Assessment Years (Ay.S).The Assessee,An Individual, Derives Income From Salary, Business/Profession & Other Sources.The Details Of The Date Of Filing Of Return Of Income,Returned Income, Income Assessed, Etc. Are Tabulated Below:- Ay. Roi Filed On Returned Income Assessment Dt. Assessed Income Cit(A)Order Dt 2004-05 30.03.2011 Rs.8,29,210/- 20.03.2013 (Rs.1.16 Crores) 23/12/2015 2005-06 30.03.2011 Rs.9,52,770/- 20.03.2013 (Rs.38.36 Lakhs) 24/12/2015 2006-07 30.03.2011 Rs.7,85,840/- 20.3.2013 (Rs.10.77 Lakhs) 25/04/2016

For Appellant: Shri Hari S. RahejaFor Respondent: Shri Abhijit Patankar-DR
Section 132Section 132(1)Section 144Section 145Section 68