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)

Priya Nigam, Lucknow vs. NFAC Delhi/ITO-3(1), Lucknow

In the result, the appeal of the assessee is allowed for statistical purposes

ITA 1010/LKW/2025[2021-22]Status: DisposedITAT Lucknow24 Sept 2026AY 2021-22

Bench: Sh. Sudhanshu Srivastava & Sh. Nikhil Choudharya.Y. 2021-22 Priya Nigam, Vs. Ito-3(1), Lucknow 490/1 Ka, Nazier Ganj, Daliganj, Near Bsnl Tower, Lucknow Pan: Atipn0438L (Appellant) (Respondent) Assessee By: Sh. Prashant Verma, Adv Revenue By: Smt. Pratibha Singh, Addl Cit Dr Date Of Hearing: 24.08.2026 Date Of Pronouncement: 24.09.2026 O R D E R Per Nikhil Choudhary, A.M.: This Is An Appeal Filed By The Assessee Against The Order Of The Ld. Cit(A), Nfac Dated 8.08.2025, Wherein The Ld. Cit(A) Has Dismissed The Appeal Of The Assessee Against The Order Passed By The Ld. Assessing Officer Under Section 143(3) For The Assessment Year 2021-22 Dated 27.12.2022. The Grounds Of Appeal Are As Under:- “01. Because, The Id. Cit (A) Has Failed To Know The Facts & Circumstances Of The Case & Has Arbitrarily Give The Decision Thereof Is Bad In Law & Liable To Quashed. 02.Because, The Id. Cit (A) Has Erred While Not Giving An Opportunity Of Being Heard & Dismissing The Appeal Merely On The Grounds Of Delay, Hence It Is Bad In Law & Against The Principles Of Natural Justice "Audi Alteram Partem" Of Constitution Of India. 03.Because, The Id. Ao Has Failed To Consider Reply & Submission Alongwith Supporting Documents Filed By The Appellant During Assessment Proceeding Is Not Justified By Law & Assessment Order Passed By The Id. Ao Is Liable To Be Quashed.

For Appellant: Sh. Prashant Verma, AdvFor Respondent: Smt. Pratibha Singh, Addl CIT DR
Section 133(6)Section 143(3)

Vora Brothers, Mumbai vs. Asst Commisioner of Income Tax - Circle 26(1), Mumbai

In the result, the appeal of the assessee is partly allowed for statistical purposes

ITA 2804/MUM/2026[2011-12]Status: DisposedITAT Mumbai24 Sept 2026AY 2011-12

Bench: Shri Vikram Singh Yadav & Shri Pawan Singhvora Brothers Asst. Commisioner Of Income Fc, 2080 Bharat Diamond Tax - Circle 26(1) Bourse, Bkc Bandra East, Vs. Kautilya Bhavan Bkc Bandra Mumbai,Maharashtra, 400051. East, Mumbai, Maharashtra, 400051 Pan: Aacfv2806K (Appellant) (Respondent) For Assessee : Shri Vipul J. Shah, Adv. For Revenue : Ms. Tsering Majumder, Sr. Dr Date Of Hearing : 30.06.2026 Date Of Pronouncement : 24.09.2026 O R D E R Per Vikram Singh Yadav, A.M.: This Is An Appeal Filed By The Assessee Against The Order Of The Learned Commissioner Of Income Tax (Appeals) 51, Mumbai [‘Ld.Cit(A)’], Dated 16.01.2026, Pertaining To Assessment Year (Ay) 2011-12. 2. Briefly, The Facts Of The Case Are That The Assessee Is A Partnership Firm Engaged In The Business Of Trading In Diamonds. For The Year Under Consideration, The Assessee Had Shown Purchase Of 466.74 Carats Of Diamonds Amounting To Rs.66,74,382/- From M/S Nazarimpex Pvt. Ltd. The Assessing Officer, On The Basis Of Information Received From The Investigation Wing In Respect Of Rajendra Jain/Sanjay Choudhary Group, Treated The Said Purchase As A Non-Genuine/Accommodation-Bill

For Appellant: Shri Vipul J. Shah, AdvFor Respondent: Ms. Tsering Majumder, Sr. DR
Section 145(3)Section 251(2)