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)

The ITO, Ward-1(3)(1), Ahmedabad vs. Chiragbhai Hasmukhbhai Soni, Ahmedabad

In the result, the appeal filed by the Revenue is dismissed

ITSSA 137/AHD/2021[2017-18]Status: DisposedITAT Ahmedabad29 Oct 2024AY 2017-18

Bench: Ms. Suchitra Kamble & Shri Makarand V. Mahadeokarआयकर(Ss) अपील सं /It(Ss)A No.137/Ahd/2021 िनधा"रण वष" /Assessment Year : 2017-18 The Ito Chirag Hasmukhlal Soni बनाम/ Ward-1(3)(1) Prop. Of Swayam Trading V/S. Ahmedabad – 380 051 2297, 1St Floor, Karelia Building Nr. Girish Cold Drinks Manekchowk, Ahmedabad "थायी लेखा सं./Pan: Beeps 4524 L अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) Assessee By : Shri Hardik Vora, Ar Revenue By : Shri B.P. Srivastava, Sr.Dr सुनवाई की तारीख/Date Of Hearing : 24/10/2024 घोषणा की तारीख /Date Of Pronouncement: 29/10/2024 आदेश/O R D E R Per Makarand V. Mahadeokar, Am: This Appeal By The Revenue Arises From The Order Of The Commissioner Of Income Tax (Appeals)-12, Ahmedabad [Hereinafter Referred To As “Cit(A)”], Dated 24.06.2021, For The Assessment Year (Ay) 2017-18, Wherein The Cit(A) Partly Allowed The Appeal Filed By The Assessee. The Original Assessment Order Was Passed By The Assessing Officer [Hereinafter Referred To As “Ao”] Under Section 153C Read With Section 144 Of The Income Tax Act, 1961. It(Ss)A No. 137/Ahd/2021 Ito Vs. Chiragbhai Hasmukhbhai Soni Asst. Year : 2017-18

For Appellant: Shri Hardik Vora, ARFor Respondent: Shri B.P. Srivastava, Sr.DR
Section 115BSection 144Section 145(3)Section 153CSection 68

Kshetrapal Gold Pvt.Ltd., Ahmedabad vs. The Income Tax Officer, Ward-2(1)(2), Ahmedabad

The appeal of the assessee is allowed

ITA 105/AHD/2024[2017-18]Status: DisposedITAT Ahmedabad22 Oct 2024AY 2017-18

Bench: Mrs. Annapurna Gupta & Shri T.R. Senthil Kumarिनधा"रण वष"/Assessment Year: 2017-18 Kshetrapal Gold Private Limited, Vs. Income Tax Officer, Sf-1, Kush Avenue, Mandvi Ni Ward 2(1)(2), Pole, Manek Chowk, Ahmedabad, Ahmedabad Gujarat-380001 Pan : Aafck 6724 M अपीलाथ"/ (Appellant) अपीलाथ" "" यथ" "" यथ"/ (Respondent) अपीलाथ" अपीलाथ" "" "" यथ" यथ" Assessee By : Shri Mahesh Chhajed, Ar Revenue By : Shri Prateek Sharma, Sr Dr सुनवाई क" तारीख/Date Of Hearing : 10.10.2024 घोषणा क" तारीख /Date Of Pronouncement: 22.10.2024 आदेश/O R D E R आदेश आदेश आदेश Per Annapurna Gupta: Present Appeal Has Been Filed By The Assessee Against Order Of The Learned Commissioner Of Income-Tax (Appeals), National Faceless Appeal Centre (Nfac), Delhi [Hereinafter Referred To As "Cit(A)" For Short] Dated 20.11.2023 Passed Under Section 250 Of The Income-Tax Act, 1961 [Hereinafter Referred To As "The Act" For Short], For The Assessment Year (Ay) 2017-18. 2. The Grounds Raised By The Assessee Are As Under:- “1. The Order Passed By The Ld. Cit (A) Is Against Law, Equity & Justice. 2. The Ld. Cit(A) Has Erred In Law & On Facts In Upholding Rejection Of Books Of Accounts In Contravention To The Provisions Of Act. 3. The Ld. Cit (A) Has Erred In Law & On Facts In Upholding Addition Made By The Ld. A.O. U/S 68 Of The Act Even After Rejection Books Of Accounts.

For Appellant: Shri Mahesh Chhajed, ARFor Respondent: Shri Prateek Sharma, Sr DR
Section 115BSection 145Section 145(3)Section 250Section 68