Section 145 - Method of accounting - Income-tax Act, 1961

1 [Method of accounting. 145. (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 2 [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) 3 [has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under subsection (2)], the Assessing Officer may make an assessment in the manner provided in section 144.] ------------------------- Notes :- 1. Substituted by the Finance Act, 1995, w.e.f. 1-4-1997. Prior to its substitution, section 145, as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988/1-4-1989 and the Finance Act, 1990, w.r.e.f. 1-4-1989, read as under: ' 145. Method of accounting. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall be computed in accordance with the method of accounting regularly employed by the assessee : Provided that in any case where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that, in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine : Provided further that where no method of accounting is regularly employed by the assessee, any income by way of interest on securities shall be chargeable to tax as the income of the previous year in which such interest is due to the assessee : Provided also that nothing contained in this sub-section shall preclude an assessee from being charged to income-tax in respect of any interest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year. (2) Where the Assessing Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.' 2. Substituted vide THE FINANCE (No. 2) ACT, 2014 w.e.f. 1st day of April, 2015, before it was read as, accounting standards 3. Substituted vide THE FINANCE (No. 2) ACT, 2014 w.e.f. 1st day of April, 2015 , before it was read as, or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee