Section 68 of Income Tax Act, 1961

Introduction

• It is our responsibility to file our forms accurately and to pay our taxes on time. We should refrain from hiding our income, making incorrect deductions, hiding any other sources of income, and claiming excessive refunds to lower our income.
• In the event of a that doubt or upon the basis of evidence some of an assessee’s income has been lost, their genuine income has not been reported, or they have failed to file a return while being eligible to do so, the exchequer has the power to search, seize, and determine their true income.

Taking into account the stipulations of the Income Tax Act, the following analysis may be performed relating to Unappreciated Cash Credit, Investment, Money etc.

Conditions to be satisfied for applicability of SECTION 68

• The following requirements can be established based on the reading of section 68 to draw the application of section 68.
• The assessee has kept ‘books.’
• There must be a credit of amounts in the taxpayer’s records maintained during the year.
• The taxpayer provides no explanation concerning the nature and source of such credit identified in the books, or the taxpayer’s answer is not adequate in the Assessing Officer’s judgement.
• If all of the aforementioned requirements are met, the money thus credited may be charged to tax as the taxpayer’s income for that year.

Charging Section 68

• When section 68 is in effect, the assessee is not only responsible for paying taxes but also a penalty under section 271(1)(c) of the Income Tax Act of 1961, which cannot be less than three times the amount of tax that was intentionally avoided or concealed.

What is Cash Credit?

• As per Section 68, any amount found in the books of accounts of an assessee in any prior year that the assessee has not explained the source of or that the assessee’s explanation of the source is not, in the opinion of an Assessing Officer, satisfactory may be charged to income tax as the assessee’s income for that previous year under the definition of CASH CREDIT as per Section 68.

TAXABILITY OF UNEXPLAINED CASH CREDITS, INVESTMENTS, MONEY ETC.

• In the year it is received or discovered, Unaccounted Cash Credit is recognised as income. Unaccounted Cash Credit is taxed at a flat rate of 60%, regardless of the tax bracket, without any benefit exemption cap. penalty is assessed at 6% and surcharge is assessed at 25%. 83.25 percent will be the final tax rate (including cess) and the same is taxable in the year in which it is credited
• There is no deduction or allowance, and no loss can be set up against such unexplained cash credit that is considered income. If an unexplained cash credit has already been included in an income return and tax on it has been paid, or if the tax has been paid before the end of the financial year, no penalty is imposed.

SECTION 69: UNEXPLANIED INVESTMENTS

• Where the assessee made investments in the financial year immediately preceding the assessment year that were 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 assessee’s income of such financial year.

SECTION 69A: UNEXPLAINED MONEY

• 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 then the Assessee is deemed to be the owner of such assets.

SECTION 69B: AMOUNT OF INVESTMENT

• Where the assessee has made investments or is found to be the owner of any bullion, jewellery, or other valuable article during any financial year, and the Assessing Officer finds that the amount expended on making such investments or acquiring such bullion, jewellery, or other valuable article exceeds the amount recorded in the assessee’s books of account for any source
• of income and the assessee provides no explanation about the nature and source of acquisition of the money, bullion, jewellery, or other valuable article, or his explanation is not satisfactory in the Assessing Officer’s opinion, the money and the value of the bullion, jewellery, or other valuable article may be deemed to be the assessee’s income for such financial year.

SECTION69C: UNEXPLAINED EXPENDITURE

• Where an assessee incurs any expenditure in any financial year and fails to explain the source of such expenditure or a portion of it, or his explanation, if any, is not sufficient in the Assessing Officer’s judgement, the amount covered by such expenditure, or a portion of it, may be considered the assessee’s income for the financial year. Provided, however, that notwithstanding any other provision of this Act, any unexplained expenditure that is regarded to represent the assessee’s income shall not be recognised as a deduction under any head of income.

BURDEN OF PROOF

• In terms of section 68, the onus is entirely on the Assessee to explain the source of the entry. However, the terms employed in sections 69, 69A, 69B, and 69C reveal that before any of these provisions are used, the condition precedent as to the presence of investment, spending, etc. must be decisively shown by material on record/evidence.