Income Tax

Taxation of unexplained income or investment

CA Adityavikram Banka

Taxation of unexplained income or investment:

1. Sec .68 of Income Tax Act– Cash Credits
Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year.

2. Sec . 69 – Un Explained Investments
Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.

3. Sec. 69 A – Un Explained Money etc.
Where in any financial year the assessee is found to be the owner of any money, bullion, jewelry or other valuable article and such money, bullion, jewelry or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewelry or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewelry or other valuable article may be deemed to be the income of the assessee for such financial year.

4. 115 BBE – Rates of Tax.
Those incomes referred in sections 68, 69, 69 A, 69 B, 69 C and 69 D shall be taxed at the rate specified under section 115 BBE inserted via Finance Act 2012. After amendment w.e.f 1st of April 2017, it is expressly provided that no set of any losses shall be allowed in respect of these incomes and also to increase the rate of tax to 60% (prior to which it was 30%).

5. This means that such income, though already offered to tax by the taxpayer, would be taxable at flat rate of 60 per cent on gross basis (i.e., without any deduction / allowance), (plus surcharge @ 25% on such tax and cess, as applicable). Thus effectively the rate comes to 77.25 per cent if such income is reflected in the return of income furnished u/s. 139..

6. Section 115BBE of the Act is only a machinery provision to levy tax on income and it should not enlarge the ambit of before mentioned sections of the Act to create a deeming fiction to tax any sum already credited/offered to tax as income.

7. Burden of proof: The Supreme Court in the cases of Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) and Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) has held that the law is well-settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. Where the nature and source of a receipt, whether it be of money or other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source.

CA Adityavikram Banka
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