Section 145 of the Income Tax Act
Income-tax Act, 2025: s.276
Section 145 of the Income-tax Act, 1961 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 is Kedarnath Jute Mfg. Co. Ltd. v. CIT (82 ITR 363), cited in 654 of the 1,584 judgments on BharatTax that turn on this section.
Leading authorities on Section 145
Tax liability for an item of income or expenditure is determined solely by the provisions of the Income-tax Act. Entries in an assessee's books of account are not conclusive and do not govern the taxability or deductibility of an item, as the legal rights and obligations under the Act prevail.
Liabilities accrued on a notional basis are allowable as deductions under the mercantile system of accounting even if their exact quantification or discharge is deferred to a future date or if the demand itself is disputed.
The project completion method and the percentage of completion method are both recognized methods for recognizing income from real estate contracts.
The word 'production' has a wider connotation than 'manufacture'; every manufacture is production, but not every production amounts to manufacture. 'Production' includes bringing into existence new goods, by-products, or inter-products through a process, which may or may not be manufacture.
If an assessee possesses sufficient interest-free funds, it is presumed that investments yielding exempt income were made from these funds, therefore disallowance of interest expenditure under Section 14A is not justified.
The existence of an international transaction must be established before its arm's length price can be determined. An alleged 'excessive' AMP expenditure cannot unilaterally expand the scope of an international transaction if its existence is contested.
Interest income is taxable under the mercantile system of accounting even if it is not actually recovered, provided there is a right to receive it. The decision also touches upon the treatment of bad debts and provisions for doubtful debts under Section 36(1)(viia).
The amendment to Section 43A of the Income Tax Act, 1961, is prospective and applies only from April 1, 2003. This means it governs changes in the actual cost of assets due to exchange rate fluctuations from that date onwards.
The 'broken period interest' paid on securities is considered part of the capital outlay for acquiring those securities and cannot be allowed as a revenue expenditure or business deduction. It must be capitalized.
The income of a charitable trust, particularly income from property held under trust, for the purpose of claiming exemption under Section 11, must be computed in a normal commercial manner, without strict reference to the computation provisions for different heads of income like Section 14 or Section 24(a). This approach ensures that the income available for application or accumulation is assessed on commercial principles.
