Know what is Income from undisclosed Sources

In this article, you’ll be able to gain complete information concerning varied provisions regarding tax treatment of undisclosed Sources.

Section 68

The provisions regarding tax treatment of money credit area unit given in section 68.

What is money CREDIT?

Any add found attributable within the books of the remunerator, that he offers no rationalization concerning the character and supply thence or the tax authorities don’t seem to be happy by the reason offered by the remunerator, is termed as money credit.

Basic provisions

As per section sixty eight, any add found attributable within the books of a remunerator, that he offers no rationalization concerning the character and supply thence or the reason offered by him isn’t, within the opinion of the Assessing Officer, satisfactory, is also charged to financial gain-tax because the income of the remunerator of that year. additional just in case of a remunerator being a closely command company (i.e., not being an organization during which the general public area unit well interested), if the add thus attributable consists of share application cash, share capital, share premium or any such quantity by no matter name referred to as, any rationalization offered by such company shall be deemed to be not satisfactory, unless: (a) the person, being a resident in whose name such credit is recorded within the books of such company, additionally offers {an rationalization|an evidence|a proof} concerning the character and supply of such add thus credited; and (b) such explanation within the opinion of the Assessing Officer has been found to be satisfactory. additional the higher than mentioned provisions of share application cash, share capital, etc., shall not apply if the person, in whose name such add is recorded, may be a risk capital fund or a risk capital company as spoken in section 10(23FB).

Explanation:

Amount ought to be attributable within the Books of Accounts, if not attributable, then Section sixty eight isn’t applicable. additional for relevancy of section sixty eight, maintanence of books of accounts is obligatory. The word ‘explanation’ indicates that the chance of being detected should be to the assessee to prove the character and supply of investments. the employment of word ‘may’ and absence of the word ‘shall’ within the section indicates that the Assessing Officer has discretion to treat the actual credit because the financial gain of the assessee relying of the facts and circumstances of every case at a specific scenario of your time. If the add attributable isn’t explained or not explained satisfactorily, AO might treat the add attributable as financial gain however notwithstanding the add attributable is satisfactorily explained, then additionally on Violation of provisions of Section 269SS or Section 269T is also applicable & penalty u/s 271D is also initiated that is adequate to the number of default. the number are ratable within the year during which the number was attributable within the books of accounts.

Relevant Citations:-

• quantity attributable in business books will commonly be likely as business receipt – once Associate in Nursing quantity is attributable in business books, it’s not Associate in Nursing unreasonable abstract thought to draw that it’s a receipt from business, if the reason given by the assessee on however the amounts came to be received is rejected by all the income-tax authorities as indefensible – Lakhmichand Baijnath v. CIT [1959] thirty five ITR 416 (SC).

• Department needn’t find supply of receipt – wherever the assessee has did not prove satisfactorily the supply and nature of a ledger entry in his books, and it’s command that the relevant quantity is that the financial gain of the assessee, it’s not necessary for the department to find its actual supply – CIT v. M.Ganapathi Mudaliar [1964] fifty three ITR 623 (SC)/A. Govindarajulu Mudaliar v. CIT [1958] thirty four ITR 807 (SC).

• load is on assessee to discharge that money individual may be a man of means that – The load is on the assessee to discharge the load that the money individual may be a man of means that to permit the money credit. There ought to be identification of the individual and he ought to be an individual of means that. once the money individual is Associate in Nursing income-tax assessee, it can not be same that he’s not a person of means that – Kamal Motors v. CIT [2003] 131 tax collector one hundred fifty five (Raj).

• Deposits from tenants – In relevance deposit from tenants, it’s decent if the assessee proves the identity of the tenant and therefore the genuineness of dealing underneath that the deposit is created. it’ll not be necessary for the assessee to prove the capability of the tenant to form the deposit/advance – CIT v. Nevendram Ahuja [2005] 197 CTR (MP) 462.

• Gifts – within the case of money gifts recorded within the books of the beneficiary, mere identification of the donor and showing the movement of the number through banking channels isn’t decent to prove the genuineness of the gift. The load lies on the beneficiary not solely to determine the identity of the donor however additionally the donor’s capability to form such a present. wherever there was nothing on record to point out on (i) what was the money capability of the donors, (ii) what was the trustworthiness of the donors, (iii) what was the type of relationship the donors had with the donee-assessee, (iv) what area unit the supply of funds talented to the assessee, and (v) whether or not the donors had the capability of giving great deal of gift to the assessee, the court wouldn’t be even in deleting the additions created by the Assessing Officer, particularly once the assessee didn’t seem in the flesh before the Assessing Officer despite being asked to try and do thus – CIT v. Anil Kumar [2008] 167 tax collector 143 (Delhi).

Gifts created by a mother to a son don’t need any occasion and mother will build a present to her son at any time – CIT v. Suresh Kumar Kakar [2010] 324 ITR 231 (Delhi).

Section 69

The provisions regarding tax treatment of unexplained investments area unit given in section sixty nine.

What is Unexplained investments ?

Where in a very year the remunerator has created investments that don’t seem to be recorded within the books of account, if any, maintained by him for any supply of financial gain, and he offers no rationalization concerning the character and supply of the investments or the reason offered by him isn’t satisfactory, such investment is named as covert investments

Basis Provision

Where in a very year the remunerator has created investments that don’t seem to be recorded within the books of account, if any, maintained by him for any supply of financial gain, and he offers no rationalization concerning the character and supply of the investments or the reason offered by him isn’t, within the opinion of the Assessing Officer, satisfactory, than the worth of the investments is also deemed to be the financial gain of the remunerator of such year.

Explanation:

Amount mustn’t be attributable within the Books of Accounts, if attributable, then Section sixty nine isn’t applicable. additional for relevancy of section sixty nine, maintenance of books of accounts isn’t obligatory. The word ‘explanation’ indicates that the chance of being detected should be to the assessee to prove the character and supply of investments. the employment of word ‘may’ and absence of the word ‘shall’ within the section indicates that the Assessing Officer has discretion to treat the actual investment because the financial gain of the investor-assessee relying of the facts and circumstances of every case at a specific scenario of your time. when creating the addition , the AO might initiate the penalty underneath section 271(1)(c) either for concealment of particulars of financial gain or for furnishing inaccurate particulars of financial gain betting on the character of addition created by him. The part incorporated in Section sixty nine “Such yr “ is extremely important. The question is the way to confirm “Such money Year”. the number of unexplained investment are deemed to be the financial gain of the investor-assessee of the yr during which same investment is created by him.

Relevant Citations:-

• In Mad HC in 241 ITR 363,158 tax collector 363, 236 ITR 340, J&K HC in 201 CTR 178, it had been command that once there was inflated stock to avail higher credit facility from bank (only quantity inflated however amount remained same), the books of the Assessee were punctually audited and no commercialism outside the books were detected, the addition of distinction available worth couldn’t be created as covert financial gain.

• In urban center ITAT Kanta Dua, a husband created investment in Units of open-end fund from Joint checking account within the name of himself and spouse (second holder), the AO supported AIR data, created assessment within the hands of spouse as unexplained investment, that was command as invalid by higher Tax authorities.

• In Mad HC in N Swamy 241 ITR 363 relied by metropolis ITAT in Omega Estates and Chd ITAT in Dr. R.L.Narang, it had been command that The burden of showing that the assessee had covert financial gain is on the revenue. That burden can not be same to be discharged by just touching on the statement given by the assessee to a 3rd party in reference to a dealing that wasn’t directly associated with the assessment and creating that the only foundation for a finding that the assessee had deliberately suppressed his financial gain.

• In Mum ITAT in Rupee Finance 119 TTJ 643, it had been command that just as a result of assessee purchased bound shares at worth abundant but market value, distinction in purchase value and market value can not be added u/s sixty nine.

• In ITO vs. Mrs. Deepali Sehgal (ITAT Delhi), ITA No. 5660/Del/2012, the AO noted that assessee had withdrawn large money from checking account and therefore the same quantity had been deposited to an equivalent account when lapse of considerable time. The AO rejected the reason and command that the assessee had money deposit of Rs.24,38,000/- as unexplained cash and therefore the assessee found to be the owner of the cash as he had not offered any acceptable and cogent rationalization. AO, in his remand report couldn’t bring out any undeniable fact that the money withdrawn from Saving checking account and partnership bill of exchange account was used for different purpose anyplace else then, just as a result of there was a time gap between withdrawal of money and its additional deposit to the checking account, the number can not be treated as financial gain from covert sources u/s sixty nine of the Act within the hands of the assessee. Hence, the addition created by AO with none legal and even reason was justly deleted by the CIT (A).

Section 69A

Unexplained cash, etc.

Where in any year the remunerator is found to be the owner of any cash, bullion, jewelry or different valuable article and such cash, bullion, jewelry or valuable article isn’t recorded within the books of account, if any, maintained by him for any supply of financial gain, and therefore the remunerator offers no rationalization concerning the character and supply of acquisition of the cash, bullion, jewelry or different valuable article, or the reason offered by him isn’t, within the opinion of the Assessing Officer, satisfactory, than the cash and therefore the worth of the bullion, jewellery or different valuable article is also deemed to be the financial gain of the remunerator for such year.

Explanation:

Amount mustn’t be attributable within the Books of Accounts, if attributable, then Section 69A isn’t applicable. additional for relevancy of section 69A, maintenance of books of accounts isn’t obligatory. The word ‘explanation’ indicates that the chance of being detected should be to the assessee to prove the character and supply of investments. the employment of word ‘may’ and absence of the word ‘shall’ within the section indicates that the Assessing Officer has discretion to treat the actual plus because the financial gain of the assessee relying of the facts and circumstances of every case at a specific scenario of your time.

Relevant Citations:-

• In P&HHC in 294 ITR seventy eight, the assessee was found to be in possession of loose slips and not any valuable article or things. Neither the possession nor the possession of any jewellery mentioned within the slips was proven. Therefore, the court had justly command that the provisions of section 69A of the Act weren’t applicable. The court additionally command that if the assessee did not justify the contents of the slips, it had been for the Revenue to prove on the premise of fabric on record that they diagrammatical transactions of sales or stock in trade before creating any addition on this score. The assessee had punctually explained that these were rough calculations and therefore the assessee’s rationalization had not been rebutted by any material proof.

• Commissioner of Income-tax vs. Meghjibhai Popatbhai Virani – wherever assessee in support of specific amount received from his members of the family on account of sale of property, made family settlement agreement and sale agreement, there being no defect in same agreements, quantity thus received by assessee couldn’t be added to his ratable financial gain as unexplained cash.

• possession is one among the issues – the fabric distinction between Section sixty eight and 69A is that Section sixty eight doesn’t need that the number is to be closely-held by the Assessee. It solely deals with any quantity shown within the books of accounts of the assessee whereas Section 69A deals with cash, etc., closely-held by the assessee and located in his possession. – Durga Kamal Rice Mills v. CIT [2003] a hundred thirty tax collector 553 (Cal.).

• Possession {of money|of money} is proof of possession – wherever cash was found in possession of assessee-politician throughout search and his claim that it belonged to a organisation was denied by President and money handler of same party, addition of such money to assessee’s financial gain was justly sustained by court – Sukh Ram v. Asstt. CIT [2006] 285 ITR 256 (Delhi).

• Date of possession of cash, etc. can confirm year of Assessment – The relevant would be the date on that the assessee is physically found to be in possession of the cash, etc. and not the date on that the finding concerning possession is recorded. – Patoa Bros. v. CIT [1982] 133 ITR 672 (Gau.).

• wherever assessee was managing a firm that collected deposits from public, however there was no proof relating to registration and genuineness of firm and assessee couldn’t justify supply of deposits, nor may assessee establish that such deposits didn’t belong to him, addition of such deposits as assessee’s unexplained investments was even – CIT v. K. Chinnathamban [2007] 162 tax collector 459/292 ITR 682 (SC).

Section 69B

Amount of investments, etc., not totally disclosed in books of account

Where in any year the remunerator has created investments or is found to be the owner of any bullion, jewelry or different valuable article, and [As amended by Finance Act, 2016] the Assessing Officer finds that the number spent on creating such investments or in getting such bullion, jewelry or different valuable article exceeds the number recorded during this behalf within the books of account maintained by the remunerator for any supply of financial gain, and therefore the remunerator offers no rationalization concerning such excess quantity or the reason offered by him isn’t, within the opinion of the Assessing Officer, satisfactory, than the surplus quantity is also deemed to be the financial gain of the remunerator for such year.

Explanation:

Excess quantity mustn’t be attributable within the Books of Accounts, if attributable, then Section 69B isn’t applicable. The word ‘explanation’ indicates that the chance of being detected should be to the assessee to prove the character and supply of investments. the employment of word ‘may’ and absence of the word ‘shall’ within the section indicates that the Assessing Officer has discretion to treat the actual investment because the financial gain of the investor-assessee relying of the facts and circumstances of every case at a specific scenario of your time.

Relevant Citations:-

• In Smt. Amar Kumari Surana v. CIT [1996] eighty nine tax collector 544 (Raj.), it had been command that the burden is on the revenue to prove that real investment exceeded the investment shown in account books of the assessee. just on the premise of honest market price no addition may be created underneath section 69B, however if on the premise of decent material on record some affordable abstract thought may be drawn that the assessee has invested with a lot of quantity in purchase of plot than that shown in account books, then solely the addition underneath section 69B may be created.

• In In CIT v. Daya Chand faith Vaidya, the Allahabad Court shifted the load on to the department locution that if the assessee’s rationalization that the investments were really command by his spouse and sons isn’t property, then the department needs to prove with material evidences that the investments were closely-held solely by the assessee himself. Having same this, it’s noteworthy that sec.69B as such uses the phrases like “is found to be the owner of any bullion, jewellery or different valuable article, and therefore the Assessing Officer finds that the number spent on creating such investments or in getting such bullion, jewellery or different valuable article……” (as opposition the word ‘reasons to believe’) that is extremely conclusive that there’s no space for any taxation supported a mere suspicion.

• just in case of doubt, Assessing Officer will build relevance Valuation Cell – If the assessee maintained books of accounts within the regular course of business and necessary entries regarding the expenditure towards value of construction area unit entered within the books of accounts, that area unit hospitable verification, and its correctness isn’t doubted, it ought to be accepted. just in case of doubt, Assessing Authority will refer the refer the valuation cell for determination of value of construction Associate in Nursingd rely on such report as an proof, however it’s hospitable the assessee to challenge the correctness of such valuation report and just in case if it establishes that such report isn’t correct and reliable, expenditure shown within the construction as per the books of accounts is vulnerable to be accepted. – CIT v. Meerut Cement Co. Pvt. Ltd. [2006] 15-0 tax collector seven (All.).

Section 69C

Unexplained expenditure, etc.

Where in any year the remunerator has incurred any expenditure and he offers no rationalization concerning the supply of such expenditure or half thence, or the reason, if any, offered by him isn’t, within the opinion of the Assessing Officer, satisfactory, then the number lined by such expenditure or half thence, because the case is also, is also deemed to be the financial gain of the remunerator for such year. same unexplained expenditure that is deemed to be the financial gain of the remunerator by virtue of section 69C shall not be allowed as a deduction underneath any head of financial gain.

Explanation:

Further for relevancy of section 69C, maintenance of books of accounts isn’t obligatory. The word ‘explanation’ indicates that the chance of being detected should be to the assessee to prove the character and supply of investments. the employment of word ‘may’ and absence of the word ‘shall’ within the section indicates that the Assessing Officer has discretion to treat the actual investment because the financial gain of the assessee relying of the facts and circumstances of every case at a specific scenario of your time.

Relevant Citations:-

• As per precondition to Section 69C, once expenditure is deemed to be the financial gain of the assessee, no allowance of an equivalent may be claimed as business expenditure.

• The Jaipur Bench of ITAT ruling in thirty one DTR 456- Nisraj property command that unproven purchases created by assessee couldn’t be treated as unexplained expense u/s 69C and no addition may be created thence u/s 69C precondition there underneath – as once sales were created by assessee, purchases were clearly created.

• Question of Addition depends on satisfactory rationalization of supply – Section 69C deals with unexplained supply of expenditure. If from documents it seems that there was expenditure, unless its supply is satisfactorily explained, an equivalent would even be deemed to be the financial gain of the assessee for such yr. The question depends on the satisfactory rationalization of the supply. – CIT v. Bhagwati Developers Pvt. Ltd. [2003] 261 ITR 658 (Cal.).

• Estimation of home expenditure in a very specific year can not be created on the premise of financial gain of subsequent years – wherever the search discloses that any expenditure is found to be false, applicable additions may be created however what’s relevant is that the addition may be created solely in relevance the financial gain associated with false claim of expenditure disclosed by material unearthed throughout the search. there’s fully no basis for forward that the expenditure incurred throughout a specific month/year ought to be the expenditure throughout the 10 years additionally. The monthly home expenditure might rely upon varied circumstances, one issue being the income/earning. Estimating the home expenditure in a very specific year with relevance the financial gain of a future year (that too five to ten years later) in absence of the other proof would be discretionary and ill-gotten – CIT v. C.L. Khatri [2005] 147 tax collector 652 (MP).

• Invocation of Powers underneath Section 142A – For purpose of obtaining himself happy concerning putative unexplained expenditure underneath section 69C, powers underneath section 142A couldn’t be invoked by Assessing Officer – CIT v. Aare Pee residences Pvt. Ltd. [2009] 319 ITR 276/[2010] 188 tax collector thirty-nine (Delhi).

Section 69D

Amount borrowed or repaid on hundi

Where any quantity is borrowed on a hundi from, or any quantity due on it is repaid to, anyone otherwise than through Associate in Nursing account receiver cheque drawn on a bank, {the quantity|the quantity|the number} thus borrowed or repaid shall be deemed to be the financial gain of the person borrowing or repaying the such amount. it’ll be treated as financial gain for the year during which it had been borrowed or repaid, because the case is also. but it ought to be noted that if any quantity borrowed on a hundi has been treated as financial gain of anyone by virtue of section 69D, than such person shall not be vulnerable to be assessed once more in respect of an equivalent quantity on reimbursement thence. quantity repaid shall embrace the number of interest paid on the number borrowed.

Taxability of higher than sections

As per section 115BBE, wherever the overall financial gain of a remunerator includes any financial gain spoken in section sixty eight, section 69, section 69A, section 69B, section 69C or section 69D, the financial gain-tax collectable shall be the combination of— (a) the number of income-tax calculated on income spoken in section sixty eight, section 69, section 69A, section 69B, section 69C or section 69D, at the speed of half-hour (plus surcharge and cess as applicable); and (b) the number of financial gain-tax collectable on his different income (i.e., financial gain apart from lined by sections sixty eight, 69, 69A, 69B, 69C, and 69D) at the rates applicable to such different financial gain. Section 115BBE additional provides that no deduction in respect of any expenditure or allowance or set out of any loss shall be allowed to the remunerator underneath any provision of Income-tax Act in computing his financial gain spoken in sections sixty eight to 69D. Thus, the remunerator is neither entitled to say any deduction nor entitled to line off any loss for the unexplained expenditure and nor entitled to regulate the essential exemption limit against money credits charged to tax by virtue of provisions of sections sixty eight to 69D.