Aggregation of Income CA Venkatesan Murali
Overview of Act Section Number Particulars 68 Unexplained Cash Credits 69 Unexplained Investments 69A 69C 69B 69D Unexplained Money, Jewellery, etc., Unexplained Expenditure Investments Not Fully Disclosed Hundi Loan Borrowed or Repaid otherwise than by Account payee cheque or draft
Sec.68 Unexplained Cash Credit 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 :
Sec.68 Unexplained Cash Credit (Corp) Provided that where the assesse is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.
Sec 69 - Unexplained 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.
Sec 69A- Unexplained money, etc. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery 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, jewellery 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, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.
Sec 69B - Amount of investments, etc., not fully disclosed in books of account. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.
Sec.69C - Unexplained expenditure, etc. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year : Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income
Sec. 69D Amount borrowed or repaid on hundi. Where any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount aforesaid for the previous year in which the amount was borrowed or repaid, as the case may be : Provided that, if in any case any amount borrowed on a hundi has been deemed under the provisions of this section to be the income of any person, such person shall not be liable to be assessed again in respect of such amount under the provisions of this section on repayment of such amount. Explanation. For the purposes of this section, the amount repaid shall include the amount of interest paid on the amount borrowed.
Sec 68 Features * Only Cash Transactions or Any Credits A bare reading of section 68 shows that the expression used in the section 68 is any sum and it does not say that credit should be only in the nature of cash receipt. The credit shall also include both loans and trade creditors and also other receipts, be that of cash or kind. Davinder Singh v/s ACIT 101 TTJ (Asr-ITAT) 505 * Where amounts not credited in books of accounts? Held that amount not credited in books of accounts cannot be brought to tax u/s 68. Baladin Ram vs. CIT (71 ITR 427) (SC)
Sec 68 Features Credits of earlier years, not surfacing in current year, are outside the scope of section 68. Credits on first day of the previous year, can well be examined u/s 68. Credits on first day of new business of firm, can only be examined in the hands of the partners. Credits in pass book provided by bank.pass book is not books of account.cit vs. Bhaichand H Gandhi (141 ITR 67)(Bom)-adverse view of ITAT Delhi in 314 ITR [AT]001 Maintenance of books of account is a condition precedent for application of section 68-86 ITD 626 (Del.Trib) DCIT v/s Finlay Corporation Ltd
Sec 68 - Features In case of firm, once a partner having accepted that he advanced certain sum to the firm: No addition in hands of firm (investment can be examined in hands of partner as per section 69 etc): a) P&HHC in 208 CTR 459;224 ITR 180 b) Mad HC in Taj Browellers 291 ITR 232 c) SC in Lovely Exports (supra) d) All HC in 141 ITR 706; (- 272 ITR 136 first day partner s money credited in firm s books)
Sec 68 Features Theory of Onus Shifting Onus or Static Onus.? Onus U/s 68, is a shifting onus Primary Onus on whom? Primarily on assessee to prove: - Identity Genuineness Credit-worthiness Primary Onus when Discharged Secondary Onus on Revenue
Sec 68 Features AMOUNT RECEIVED BY REAL ESTATE DELVELOPER: In case subsequently offered to taxation as sale price or refunded to flat bookers DHC in Tulip Finance can be applied No taxation u/s 68 Otherwise, prima facie- SC Lovely Exports can be Applied and by proving the identity (names and Addresses of flat bookers)
Extent of onus on assessee Assessee should prove identity, capacity of lenders as well as genuineness of transaction Where lender is assessed to tax, assessee can avoid addition by filing confirmation with particulars of PAN
Extent of onus on assessee Precautions to be taken while furnishing confirmation of unsecured loans: Mode of payment Cash/DD/ Cheque Particulars of Bank, if available Whether interest-bearing loan Immediate source If possible Date of Signing of confirmation Confirmation of fact of transaction of giving the amount by the creditor PAN and place of assessment of creditor
When primary onus is discharged by assessee onus shifts to revenue Independent evidence adduced by revenue calling for information u/s 133(6) or issuing summons u/s 131 Mandatory that the assessee is confronted with the said evidence and an opportunity of cross examination afforded However cross-examination to be conducted within a reasonable time by assessee Failure to avail of opportunity may prove counter productive CA ANIL SATHE
Human Probability Test The Human Probability Tests were laid down for the first time in the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC) as: The Tribunal disbelieved the story, which is prima facie, a fantastic story. It is a story that does not accord with human probabilities. It is strange that the High Court found fault with the Tribunal for not swallowing that story. If that story is found to be unbelievable as the Tribunal has found, and in our opinion rightly, then the position remains that the consideration for the sale proceeded from the assessee and, therefore, it must be assumed to be his money.
Role of affidavit from lender Affidavit is only an assertion by the lender and needs to be corroborated by independent additional evidence Such evidence may be documentary or oral by way of examination of the deponent CA ANIL SATHE
Unexplained Share Application Money Treated as Cash Credit u/s 68 Initial burden on assessee to explain nature & source of credit Prove identity of shareholder by way of physical presence, registered address, PAN, etc. Prove Genuineness Confirmation letter, bank statements, shareholder register, share application form, share transfer register, etc. Prove Creditworthiness Creditor s IT return, Balance Sheet Profit & loss A/c
Section 68:Unsecured Loans Assessee should prove identity, capacity of lenders as well as genuineness of transaction. Where lender is assessed to tax, assessee can avoid addition by filing confirmation with particulars of PAN. Case Laws: CIT Vs. Orissa Corporation (P) Ltd. (159 ITR 78) (SC) CIT Vs. Rohini Builders (256 ITR 360) (Guj.) Metachem 245 ITR 360 (MPHC) Nem Chand Kothari 264 ITR 254 (Gau) DHC in ITAC (ITA 1194/2007) and Rajokri Farms Pvt Ltd (ITA 1410/2008); Real Time Marketing 221 CTR 716; Diamond Products 177 Taxman 331 Raj HC in 219 CTR 571 & 220 CTR 622; P&HHC in 180 Taxman 185; Guj HC in 177 Taxman 35
Section 68:Unsecured Loans Assessee is not required to prove source of the source of credit. Case Laws: Hastimal V. CIT (49 ITR 273)(Mad.)
Sec 68 Charitable Trust DHC in Keshav Social Charitable 278 ITR 152 (applied by Jodhpur ITAT in Geetanjali Education Society 114 TTJ 697 affirmed by Raj HC in 174 Taxman 440) In the present case, assessee has not only disclosed its donations, but has submitted a list of Donors. The fact the complete list of donors were not filed or the donors were not produced, does not necessarily lead to an inference that assessee was trying to introduce unaccounted money by way of donation receipts. This is more particularly when assessee has applied more than 75% of its donations for charitable purposes
Section 68 versus Section 145 In K.M.N.Naidu 221 ITR 451 : There is no objection to the proposition that ITO can rely upon rejected books for purpose of making addition towards unexplained cash as also held by APHC in 120 ITR 294 (also see Kale Khan SC in 50 ITR 1) that is, on facts, AO can both estimate. Enhanced Profits and tax unexplained cash credits- However benefit of Telescoping (that is tracing/covering unexplained cash credits by Profits Addition) is possible Raj HC in 165 ITR 453; Mad HC in 149 ITR 127; BHC in 151 ITR 353
Distinction between 68 and 69 to 69C Section 68 requires the assessee to explain credit in books of accounts Section 69 to 69 B require establishing of sources of investments, money, bullion jewellery or other valuable article, not recorded in books of account. In section 68 onus is only on assessee to explain the source of the entry In section 69 to 69B the revenue is to establish that the investment has been made by the assessee Or the assessee is found to be the owner of money bullion jewellery or any other valuable article In section 69 C it is essential to establish that the assessee has incurred the expenditure - before the provisions can be invoked
Issues w.r.t Section 69 to 69C Inflated stock to bank Investment by one person in the name of another person A husband made investment in units of Mutual FUNDS from joint bank account in the name of Him and his wife and wife being second holder, on AIR information in name of assessee s wife, AO made assessment in hands of wife as unexplained investment u/s 69 : Whether Valid NO (Delhi ITAT Kanta Dua AIR based case)
Issues w.r.t Section 69 to 69C Ø Understatement of purchase consideration Ø Unexplained household expenditure Ø Unaccounted marriage expenses Ø Unverifiable purchases
Issues w.r.t Section 69 to 69C Ø Whether addition u/s 69/69B for understatement of purchase consideration of property, can be made only on basis of DVO report collected u/s 142A? No. Del ITAT in 102 TTJ 964 Fav, 89 ITD 586; Ahd ITAT (Third Member) in Amit Estate 113 ITD 255 Ø Deeming Fiction of section 69/69B requiring factum of investment may not be discharged by solitary reference to DVO report u/s 142A Fav : Sandeep Intermediates P Ltd,... vs Assessee AHD ITAT Adv : Del ITAT in Haneamp 101 ITD 19
Insertion of New Charging Section 115BBE -Special rate of taxes in regard to income referred to in Sec 68 to 69D Where total income of an assessee includes income referred to in sections 68 to 69D amount of income taxable shall be aggregate of amount of income tax calculated on income referred to in 68 to 69D at the rate of 30% and the amount of income tax with which assessee would have been chargeable had his total income been reduced by the aforementioned sums No deduction in respect of any expenditure to be allowed in computing income referred to in 68 to 69D
Issues Earlier section 68 only a Rule of Evidence general principle to charge as Income from Business or Income from Other Sources Now section 115BBE Charging Section tax income referred to in section 68
Issues w.r.t. section 115BBE Whether provision applicable irrespective of slab rates or basic exemptions No deduction of expenses but whether set-off of losses allowed Total income includes Income referred to in sec 68 Income different concept than sum to be treated as income Whether Chapter VI-A deduction allowed or income taxable under similar lines as winning from lottery, puzzles u/s 115BB
Recent Judgements Principal Commissioner of Income-tax v. Delco India (P.) Ltd.- [2016] 67 taxmann.com 357 (Delhi) IT: No addition could be made under section 68 on basis of loose papers found during search in assessee's case indicating assessee's transaction with a company when assessee not only clearly denied having any dealing with said company but also produced all necessary details for Assessing Officer to make necessary inquiries and a letter from director of that company conforming that said company did not have any transaction with assessee Whether since assessee on its part had made necessary enquiry and also provided final account of SSL; confirmation of director of SSL: details of bank account; final accounts; directors report; PA number, etc., burden cast on assessee was sufficiently discharged
Recent Judgements Olwin Tiles (India) (P.) Ltd. v. Deputy Commissioner of Income-tax [2016] 66 taxmann.com 8 (Gujarat) I47 & 68 On the basis of such working out, he recorded his reason to believe that income to the extent of Rs. 5.80 crores had escaped assessment. The reasons are not perverse or so untenable as to terminate the assessment at instant stage on the ground that the Assessing Officer could not be stated to have any reason to believe that income chargeable to tax had escaped assessment. Prima facie, the facts appear to be glaring. Whether the assessee will be able to discharge the minimal burden of establishing identity, source and creditworthiness of the depositors is a question not possible to answer without scrutiny. Whether the assessee had started its manufacturing activity and consequently its business operations so as to earn income or not are the issues which cannot be gone into at this stage and must be made part of the reopened assessment to be judged on the basis of evidence which may be brought on record.
Questions? CA Venkatesan Murali mv@themv.in 9566133594