Method of accounting
Section 145 of the Income-tax Act, 1961 deals with method of accounting. Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub- section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The Act came into force on 01 Apr 1962. Repealed by the Income-tax Act, 2025 with effect from 1 April 2026, but conduct before that date is still charged, tried and appealed under it.
(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub- section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144.
Method of accounting in certain cases.
Section 145, The Income-tax Act, 1961 (Act 43 of 1961).
Now in the Income-tax Act
INCOME-TAX-ACT-2025 276 Method of accounting Official correspondence
Measured by comparing the text of the two provisions, not taken from an official correspondence table — there is no machine-readable one. See both texts side by side before relying on it.
Both regimes are live. The repealed enactment still governs what happened while it was in force. We never redirect one to the other.
Cross-references
Extracted from the operative text of the enactments themselves. Every destination below exists in our corpus.
This section refers to
Referred to by 11
- Finance Act s. 38 Amendment of section 145
- Finance Act s. 31 Substitution of new section for 145
- Finance Act s. 43 Insertion of new section 145A
- Finance Act s. 52 Amendment of section 145
- s. 32A Investment allowance
- s. 36 Other deductions
- s. 43AA Taxation of foreign exchange fluctuation
- s. 43CB Computation of income from construction and service contracts
- s. 145A Method of accounting in certain cases
- s. 145B Taxability of certain income
- s. 158BC Procedure for block assessment
Related judgements & precedents
These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.
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Dayawanti through Smt. Sunita Gupta (legal Heir) vs Commissioner of Income Tax
Court's Decision & Legal Precedent
In case of search under Section 132 or requisition under Section 132A of the Income Tax Act, 1961: (i) All pending assessments/reassessments shall abate and merge into assessment under Section 153A, permitting Assessing Officer to assess 'total income' for the entire six assessment years; (ii) In respect of abated/pending assessments, the AO can assess total income incorporating both disclosed income and undisclosed income found during search or available from other sources; (iii) However, in respect of completed/unabated assessments where no assessment was pending at the date of search initiation, the AO can only assess or reassess by reopening such assessment when incriminating material is found relating to that specific assessment year; (iv) Where no incriminating material whatsoever is found during the search for a particular assessment year, the AO cannot assess or reassess a completed assessment for that year under Section 153A, and the completed assessment remains final and protected; (v) In such cases, the Revenue's only remedy is to resort to reassessment under Sections 147/148, subject to fulfillment of the conditions stated therein, and these powers are expressly saved; (vi) The assessment under Section 153A is fundamentally linked to the search or requisition under Sections 132/132A, and its object is to bring to tax undisclosed income detected through such search - foundation for Section 153A assessment is the existence of incriminating material.
On this section: Jurisdiction to call for books of accounts and examine materials in computation of income
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The Deputy Commissioner of Income Tax v. Shri Sunil Kumar Agrawal
Court's Decision & Legal Precedent
DATE-VERIFIED Judgment 27.06.2025 (order-10.pdf): Revenue’s tax appeal dismissed. Infirmities/discrepancies in the year’s accounts are sine qua non for s.145(3); prior-year Settlement Commission acceptance of 10% NP / suo motu book rejection for other years is not res judicata and cannot justify rejecting current-year books or best-judgment 10% NP without pointing out defects in AY 2013-14 accounts (M.M. Ipoh; Dhakeswari).
On this section: Teaches s.145(3): books cannot be rejected / best judgment applied without specific current-year defects; prior-year settlement NP is not binding.
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Pr. Commissioner of Income Tax (Central) -1 v. M/s Forum Sales Pvt. Ltd.
Court's Decision & Legal Precedent
DATE-VERIFIED Judgment 01.03.2024 (order-3.pdf): Revenue appeals dismissed. Disallowance/estimation of inflated purchases or expenses without rejecting books under s.145(3) is unsustainable — rejection of books must precede best-judgment/estimation (Swananda Properties; Anil Kumar; Marg Ltd.; Gian Chand). AO had addresses/bills but did not verify parties; pick-and-choose rejection of entries while accepting books is arbitrary.
On this section: Teaches s.145(3) sequence: reject books for incompleteness/incorrectness before estimating income or disallowing large purchase chunks.
The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.
Questions about Section 145
What have the courts held on Section 145 of the Income-tax Act?
Dayawanti through Smt. Sunita Gupta (legal Heir) vs Commissioner of Income Tax (24 Apr 2023) is the leading judgment on this section among those set out below: Jurisdiction to call for books of accounts and examine materials in computation of income. Another 2 judgments on this section are set out below, 1 of them from the Supreme Court. They run from 2023 to 2025.
How do I find court cases under Section 145 of the Income-tax Act?
In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Income Tax Act 145, section 145 Income Tax Act, section 145 of the Income-tax Act. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 3 reported judgments on this section are set out on this page, beginning with Dayawanti through Smt. Sunita Gupta (legal Heir) vs Commissioner of Income Tax (24 Apr 2023).
What should I read with Section 145 of the Income-tax Act, and has it changed?
Its own text turns on section 144 (Best judgment assessment), so none of them can safely be read on its own. 11 other provisions in this corpus refer back to it. For anything done on or after 1 April 2026 the provision to read is Income-tax Act, 2025, section 276 (Method of accounting), which replaced it; conduct before that date is still charged, tried and appealed under this section.
When did Section 145 of the Income-tax Act come into force?
Section 145 of the Income-tax Act, cited as Income Tax Act 145, came into force on 01 Apr 1962, having been enacted on 13 Sep 1961. It is no longer in force.
Other sections of this Act
- 10. Incomes not included in total income30885 words
- 2. Definitions11419 words
- 80HHF. Deduction in respect of profits and gains from export or transfer of film software, etc7148 words
- 80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings5474 words
- 155. Other amendments5451 words
- 139. Return of income5400 words
Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Recovered from the consolidated text published by the Income Tax Department, as amended by the Finance Act, 2026. India Code holds no record of this Act in any form. This page is not a substitute for legal advice.