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)

Gaurav Rohiwal, New Delhi vs. Assessing Officer, New Delhi

In the result, the appeal of the appellant is partly allowed

ITA 2757/DEL/2026[2023-24]Status: DisposedITAT Delhi14 Sept 2026AY 2023-24

Bench: Shri Mahavir Singh & Shri Manish Agarwalgaurav Rohiwal, Assessing Officer, E-3, Satyawati Colony, Central Circle-3, Ashok Vihar, North West Delhi, Vs. Delhi-110005. Delhi-110 052. Pan-Almpr0331G (Appellant) (Respondent) Assessee By Ms. Parul Agarwal, Ca Department By Shri Tarun Sharda, Sr. Dr Date Of Hearing 07/07/2026 Date Of Pronouncement 07/07/2026 O R D E R Per Manish Agarwal, Am: This Appeal Is Filed By The Assessee Against The Order Of Ld. Commissioner Of Income Tax (Appeals)-23, Delhi [Cit(A) In Short] In Appeal No. Cit(A), Delhi- 23/10048/2022-23 Dated 16.01.2026 Passed U/S 250 Of The Income Tax Act, 1961 (The Act, In Short) Arising Out Of The Assessment Order Dated 23.03.2025 Passed U/S 143(3) Of The Act For Assessment Year 2023-24. 2. Brief Facts Of The Case Are That The Assessee Has Filed His Return Of Income On 23.10.2023 Declaring Total Income Of Rs.13,88,190/-. The Case Was Selected For Scrutiny. The Ao Observed That A Search & Seizure Action Was Carried In The Case Of M/S Rajdhani Flour Miils Ltd. (Rfml) & Ors. On 21.01.2023 & It Was Found That Assessee Is One Of The Parties Transacted With The Rajdhani Group Where The Gaurav Rohiwal Vs. Assessing Officer Purchases Were Inflated To Reduce The Profits. The Ao Referred The Statements Of Various Persons Including The Directors Of The Companies Of Rajdhani Group & By Invoking The Provisions Of Section 145(3) Of The Act Rejected The Trading Results Declared & Has Estimated The Profit By Applying The Rate Of 2% Including Gp Rate Declared By The Assessee @ 0.48% & Made The Addition Of Rs.96,04,670/-.

Section 131Section 143(3)Section 145(3)Section 250