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)

Sandip Saraf, Kolkata vs. ITO, Ward 50(3), Kolkata

In the result, appeal of the assessee is allowed

ITA 210/KOL/2024[2017-18]Status: DisposedITAT Kolkata08 May 2024AY 2017-18

Bench: Dr. Manish Borad, Hon’Ble & Shri Pradip Kumar Choubey, Hon’Blei.T.A. No. 210/Kol/2024 Assessment Year: 2017-18 Sandip Saraf Income Tax Officer, Ward – 50(3), C/O. Subash Agarwal & Associates, Vs Kolkata Advocates Siddha Gibson 1, Gibson Lane Suite 213, 2Nd Floor Kolkata - 700069 [Pan : Annps0216L] अपीलाथ"/ (Appellant) "" यथ"/ (Respondent) Assessee By : Shri Siddharth Agarwal, Advocate Revenue By : Shri Swapan Kumar Bera, Jcit, Sr. D/R सुनवाई क" तारीख/Date Of Hearing : 18/04/2024 घोषणा क" तारीख /Date Of Pronouncement: 08/05/2024 आदेश/O R D E R Per Dr. Manish Borad: The Present Appeal Is Directed At The Instance Of The Assessee Against The Order Of The National Faceless Appeal Centre (Hereinafter The “Ld. Cit(A)”) Dt. 21/03/2023, Passed U/S 250 Of The Income Tax Act, 1961 (“The Act”) For The Assessment Year 2017-18. 2. The Assessee Has Raised The Following Grounds Of Appeal:- “1. For That On The Facts & In The Circumstances Of The Case, Ld. Cit(A) Ought To Have Held That The A.O. Was Not Justified In Rejecting The Assessee'S Books Of Accounts U/S 145(3) Of The Act. 2. For That The Ld. Cit(A) Was Not Justified In Confirming The Addition Of Rs.30,40,010/- Made By The A.O. By Wrongly Treating The Cash Sales As Unexplained Money U/S 69A Of The Act.

For Appellant: Shri Siddharth Agarwal, AdvocateFor Respondent: Shri Swapan Kumar Bera, JCIT, Sr. D/R
Section 143(2)Section 145(3)Section 250Section 69Section 69A

Ranjan Kumar Agarwala, Baripada vs. ITO, Ward-1, Baripada

In the result, appeal of the assessee is partly allowed

ITA 81/CTK/2024[2013-14]Status: DisposedITAT Cuttack29 Apr 2024AY 2013-14

Bench: Shri George Mathanआयकर अऩीऱ सं/Ita No.81/Ctk/2024 (ननधाारण वषा / Assessment Year :2013-2014) Ranjan Kumar Agarwala, Vs Ito, Ward-1, Baripada Ward-12, Prafulla Nagar, Station Bazar, Baripada Pan No. :Adipa 5143 R (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. ननधााररती की ओर से /Assessee By : Shri Mohit Sheth, Advocate राजस्व की ओर से /Revenue By : Shri S.C.Mohanty, Sr. Dr सुनवाई की तारीख / Date Of Hearing : 29/04/2024 घोषणा की तारीख/Date Of Pronouncement : 29/04/2024 आदेश / O R D E R This Is An Appeal Filed By The Assessee Against The Order Of The Ld Cit(A), National Faceless Appeal Centre (Nfac), Delhi, Dated 20.02.2024 In Din & Order No.Itba/Apl/S/250/2023-24/1061213898(1) The Assessment Year 2013-2014. 2. It Was Submitted By The Ld. Ar That The Assessee Is An Individual, Who Is Doing The Business Of Selling Of Tractor & Autorikshaw In Baripada. It Was Submitted That The Turnover Of The Assessee During The Relevant Assessment Year Was Rs.9.97 Crores. The Assessee Has Offered Net Profit Of Rs.11,63,316/-, Which Was At The Rate Of 1.17%. It Was The Submission That The Ao Rejected Assessee’S Books Of Accounts & Went On Further To Estimate Income From The Gross Sales At The Rate Of 1.45%, @10% Of Incentive & Discounts, @8% Of Labour Charges & @10% Of Nic Incentives. It Was Further Submitted That After Rejecting Books Of Accounts Of The Assessee, The Ao Further Went On To Make Disallowance Out Of The Closing Balance Of The Sundry Trade Creditors & Difference Between Bank

For Appellant: Shri Mohit Sheth, AdvocateFor Respondent: Shri S.C.Mohanty, Sr. DR
Section 145(3)