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)

Mahendrakumar Gulraj Jain, Mumbai vs. ITO-19(2)(3), Mumbai

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

ITA 1120/MUM/2023[2010-11]Status: DisposedITAT Mumbai26 Jul 2023AY 2010-11

Bench: Shri Aby T. Varkey, Jm आयकर अपील सं/ I.T.A. No.1120/Mum/2023 (निर्धारण वर्ा / Assessment Year: 2010-11) Mahendrakumar Gulraj Jain बिधम/ Ito-19(2)(3) Room No. 203, 2Nd Floor, C/O D. C. Bothra & Co. Vs. Llp (Formerly Known As Matru Mandir, Tardeo D.C. Bothra & Co.) 297, Road, Mumbai-400007. Tardeo Road, Wille Mansion, 1St Floor, Opp. Bank Of India, Nana Chowk, Mumbai-400007. स्थधयी लेखध सं./जीआइआर सं./Pan/Gir No. : Aadpj2988D (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) Assessee By: Shri Rajkumar Singh Revenue By: Shri Dharmvir D Yadav (Sr. Dr) सुनवाई की तारीख / Date Of Hearing: 27/06/2023 घोषणा की तारीख /Date Of Pronouncement: 26/07/2023 आदेश / O R D E R Per Aby T. Varkey, Jm: This Is An Appeal Preferred By The Assessee Against The Order Of The Ld. Cit(A)/Nfac, Delhi Dated 24.03.2023 For Ay. 2010-11. 2. The Main Grievance Of The Assessee Is Against The Action Of The Ld. Cit(A) Confirming The Action Of The Ao In Disallowing 12.50% Of Purchases Amounting Of Rs.2,16,63,455/- Made From Two (2) Dealers (M/S. Anand Deep Metal & M/S. Viraj Steel & Alloys). 3. Brief Facts As Noted By The Ao Is That The Assessee Had Filed Its Original Return Of Income On 15.09.2010 For Ay. 2010-11 Declaring Total Income Of Rs.7,39,169/-. & The Case Was Reopened U/S 147 Of The Income Tax Act, 1961 (Hereinafter “The Act”) By Issuing Notice U/S 148 Of The Act Dated 23.03.2016. The Ao Noted That He Received An Information From The Dgit(Inv.), Mumbai From Which He Understood

For Appellant: Shri Rajkumar SinghFor Respondent: Shri Dharmvir D Yadav (Sr. DR)
Section 145Section 147Section 148Section 44A

Mr. Mahesh C Shah, Mumbai vs. CIT(A)-6, Mumbai

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

ITA 838/MUM/2023[2009-10]Status: DisposedITAT Mumbai14 Jul 2023AY 2009-10

Bench: Shri Aby T. Varkey, Jm आयकर अपील सं/ I.T.A. No.838/Mum/2023 (निर्धारण वर्ा / Assessment Year: 2009-10) M/S. Mahesh C Shah बिधम/ Cit(A)-6 3Rd Floor, Room No. 10, A B-208, Ramdev Park Chsl, Vs. Chandavarkar Road, Next To Wing, Mittal Court, Sp Mukherjee Garden, Nariman Point, Mumbai- Borivali (West)-400002. 400021. स्थधयी लेखध सं./जीआइआर सं./Pan/Gir No. : Aadps1521R (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) Assessee By: None Revenue By: Shri Dharmvir D Yadav (Sr. Dr) सुनवाई की तारीख / Date Of Hearing: 28/06/2023 घोषणा की तारीख /Date Of Pronouncement: 14/07/2023 आदेश / O R D E R Per Aby T. Varkey, Jm: This Is An Appeal Preferred By The Assessee Against The Order Of The Ld. Cit(A)-06, Mumbai Dated 15.03.2019 For Ay. 2009-10. 2. None Appeared On Behalf Of The Assessee. 3. Brief Facts Are That The Assessee Is A Proprietor Of A Firm Named M/S. Haresh Trading Co, Which Is Dealing With Trading Of Electrical Components. The Assessee Had Filed The Return Of Income On 30.09.2009 For Ay. 2009-10 Declaring Total Income Of Rs.3,09,973/-. Later, The Assessment Was Reopened U/S 147 Of The Income Tax Act, 1961 (Hereinafter “The Act’) By Issuance Of Notice U/S 148 Of The Act After Recording The Reasons. The Ao Noted That He Received Information From The Dgit(Inv.), Mumbai That During The Relevant Year, The Assessee Had Dealt With Thirteen (13) Parties Who Were Hawala Operators Which Information The Investigation Wing (Dgit) Received

For Appellant: NoneFor Respondent: Shri Dharmvir D Yadav (Sr. DR)
Section 144Section 147Section 148