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)

Prasanta Karmakar, Kolkata vs. JCIT, Range - 26, Kolkata

In the result, the appeal filed by the assessee, is allowed

ITA 258/KOL/2016[2011-2012]Status: DisposedITAT Kolkata10 Jan 2018AY 2011-2012

Bench: Shri N.V. Vasudevan, Jm &Dr. A.L.Saini, Am आयकरअपीलसं./Ita No.258/Kol/2016 (िनधा"रणवष" / Assessment Year: 2011-12) Prasanta Karmakar Vs. Jcit, Range-26, Kolkata R-26, Kol, Aykar Bhawan, 41, Bose Para Road, Barisha, Dakshin, Dhakuria, Kolkata – Kolkata – 700 008. 700 068. "थायीलेखासं./जीआइआरसं./Pan/Gir No. : Agapk 0496 Q (Assessee) .. (Respondent) Assessee By : Shri Monoj Dutta, Fca, S.K. Roy, Adv. Respondent By: Shri Soumyajit Dasgupta, Addl. Cit सुनवाईकीतारीख/ Date Of Hearing : 22/11/2017 घोषणाकीतारीख/Date Of Pronouncement : 10/01/2018 आदेश / O R D E R Per Dr. Arjun Lal Saini, Am: The Captioned Appeal Filed By The Assessee, Pertaining To Assessment Year 2011-12, Is Directed Against The Order Passed By The Ld. Commissioner Of Income Tax (Appeals)–7, Kolkata, In Appeal No.359/Cit(A)-7/Range- 26/14-15, Dated 28.01.2016, Which In Turn Arises Out Of An Order Passed By The Assessing Officer U/S.144/143(3) Of The Income Tax Act 1961 (Hereinafter Referred To As The ‘Act’), Dated 17.03.2014. 2. The Assessee Has Raised The Following Grounds Of Appeal: “1.That The Ld. Cit(A) Totally Erred In Law & On Facts In Confirming The Disallowance Of Rs.10,98,184/- U/S.40(A)(Ia)/194H Which Was Not The Issue In The Original Asst. Order Wherein The A.O. Made The Total Disallowance As Bogus Commission Payment & Rejected Books U/S.145(3) & Such Addition Has To Be Deleted Being Totally Injudicious & Out Of Context Especially When The Cit(A) Himself Has Admitted That Commission Payment Is Genuine & Is Required To Be Allowed. 2.That The Disallowance Of Rs.10,98,184/- Is Totally Bad & Uncalled For In View Of The Findings In The Asst. Order Dt. 20.01.2016 Of The Assessee U/S. 143(3) For The Asst. Year 2013-2014 & Hence Cannot Be Sustained. 3. That The Ld. Cit(A) Failed To Appreciate That The Retailer'S Commission Is Determined & Communicated By The Principal Ttsl Through E-Mail Every Month

For Appellant: Shri Monoj Dutta, FCA, S.K. Roy, AdvFor Respondent: Shri Soumyajit Dasgupta, Addl. CIT
Section 133(6)Section 143(1)Section 143(2)Section 143(3)Section 144Section 145(3)Section 40

ITO, WD-12(1), Kolkata vs. M/S Sudha Jewellers Pvt. Ltd., Kolkata

In the result, Revenue’s appeal stands dismissed

ITA 437/KOL/2016[2010-2011]Status: DisposedITAT Kolkata15 Dec 2017AY 2010-2011

Bench: Shri Aby.T Varkey & Shri Waseem Ahmedassessment Year :2010-11 Ito Ward-12(1), V/S. M/S Sudha Jewellers Pvt. Aayakar Bhawan, P-7, Ltd., 2/1A Garia Hat Chowringhee Square, Road, Kolkata-19 Kolkta-69 [Pan No.Aadcs 6713 N] .. अपीलाथ" /Appellant ""यथ"/Respondent Shri Kalyan Nath, Dr अपीलाथ" क" ओर से/By Appellant Shri Soumitra Choudhury, Advocate ""यथ" क" ओर से/By Respondent 18-10-2017 सुनवाई क" तार"ख/Date Of Hearing 15-12-2017 घोषणा क" तार"ख/Date Of Pronouncement आदेश /O R D E R Per Waseem Ahmed:- This Appeal By The Revenue Is Directed Against The Order Of Commissioner Of Income Tax (Appeals)-4, Kolkata Dated 22.12.2015. Assessment Was Framed By Ito Ward-12(1), Kolkata U/S 143(3)/147 Of The Income Tax Act, 1961 (Hereinafter Referred To As ‘The Act’) Vide His Order Dated 04.03.2015 For Assessment Year 2010-11. The Revenue Has Raised Following Grounds:- “1. That On The Facts & Circumstances Of The Case, The Ld. Cit(A) Has Erred By The Treating The Impounded Incriminating Document Found In Course Of Survey In Case Of The Assessee, As Dumb Document For Its Evidentiary Whereas, The Onus Is On The Assessee To Prove The Nature Of Entries Made In That Particular Document With Supporting Evidences Which The Assessee Failed. 2. That On The Facts & Circumstances Of The Case, The Ld. Cit(A) Has Erred By Overlooking The Fact That The Incriminating Paper, Found In Course Of Survey, Was Meant For Calculation Of Advance Tax, But The Ad Observed That The Assessee Had Not Made This Paper For Correct Payment Of Taxes. 3. That On The Facts & Circumstances Of The Case, The Ld. Cit(A) Has Erred By Not Appreciating The Fact That The Ad Allowed The Claim Of The Assessee For

Section 133ASection 143(3)Section 154