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STUDY CIRCLE MEETING (VIRTUAL MODE)

ON 17TH MAY, 2024

ANALYSIS OF SECTION 68 TO 69C & 115BBE

T. BANUSEKAR, LLB, ACMA, FCA

CHENNAI

1. Mr.Basha filed his return of income declaring income from photo-copying and
desk top publishing u/s.44AD of Rs.14 lakhs (8% of Rs.1.75 crores).

(a) Since he was declaring income u/s.44AD, Mr.Basha did not maintain books
of account. The Assessing Officer on scrutiny and investigation, concluded
that Mr. Basha was not carrying on the said business, and assessed the
entire receipts of Rs.1.75 crores in the hands of Mr.Basha u/s.68 under the
head Income from other sources. He further taxed the income of Mr.Basha
u/s.115BBE. Was the Officer within his powers to do the above?

(b) If Mr.Basha did maintain books of account, but did not produce the same
during scrutiny, would a different conclusion be reached?

(c) What would be the position if Mr.Basha did maintain books of account, but
these were rejected by the Assessing Officer while making assessment? Can
the Assessing Officer refer to the credits in the rejected books of account,
and invoke Section 68?

(d) If the Assessing Officer finds that the total deposits made by Mr.Basha in his
bank account during the year was Rs.3 crores, can he invoke the provisions
of section 68 / 69 / 69A?

2. S, in order to meet an emergency, sold his land situated at Juhu for Rs.2.1
crores. The valuation adopted by the Stamp Valuation Authority for this property
was Rs.3.2 crores. In his return of income, S adopted the guideline value as the
deemed consideration for the property and filed his return of income. During
assessment, the Assessing Officer treated the difference of Rs.1.1 crores as
income u/s.69 and assessed accordingly. S seeks advice on how to handle the
situation.

3. (a) PQR Pvt Ltd. is proposing to seek investments towards its share capital from
certain friends / well-wishers of its directors. It wants to ensure that these
investments do not attract the provisions of section 68 and wishes to know how it

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 can ensure this. What type of documents and evidence does PQR Pvt Ltd. need
to maintain in order to discharge its onus u/s.68?

(b) Where the share investments are at a premium, which provision would apply
to PQR Pvt Ltd. – Section 68 or Section 56(2)(viib)?

4. STR Pvt Ltd received share application money prior to its commencement of
business. In this case, can the provisions of section 68 be invoked for adding the
share application money as unexplained credit in the hands of STR Pvt Ltd

5. In the event that a company is unable to prove the creditworthiness of the

investor, is the Assessing Officer mandatorily required to apply section 68, or
does he have the discretion to not do so? The proviso states that inability to
prove creditworthiness of the investor shall deem the assessee’s explanation to
be not satisfactory, but the section does provide discretion to the Assessing
Officer by using the words “may be charged”.

6. Where the assessee has received gifts from non-relatives, would section 56
apply or section 68?

7.
(a) What is the legal obligation of an assessee in respect of cash credit
appearing in his books of account?

(b) At what point of time is the assessee deemed to have discharged his burden
of proof?

(c) Beyond proving the genuineness of the credit in his books of account, does
the assessee have to prove the source of the source?

(d) Where the assessee has proved the genuineness of the credit, can the
Assessing Officer still proceed to invoke the provisions of Section 68?

(e) Does section 68 apply only to credits in actual cash, or credits other than in
cash are also covered by section 68? If the amount has been received by
account payee cheque, can section 68 still be invoked?

(f) Can the provisions of section 68 be invoked in respect of journal entries for
transfer of balances between sister concerns?

8. Where the assessee is a non-banking finance company which has received

numerous deposits, do the rigours of section 68 apply to each of such deposits?

9. Does section 68 also apply to capital contribution of partners in a partnership

firm? Is the firm required to establish the source of funds in the hands of the
partners as well? In whose hands would the provisions of section 68 / 69 / 69B
be attracted – the firm or the partners?

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10. Mr.Bala, a salaried individual, has purchased a property in the outskirts of
Chennai. The document value of the property is Rs.2.1 crores.

(a) In the assessment of the seller of the property, the Assessing Officer has
adopted the sale consideration as Rs.3.5 crores. That assessment is under
appeal. Now, Mr.Bala has received a notice for assessment proceedings. In
this case, is Mr.Bala under risk of addition u/s.69 / 69A / 69B? He does not
maintain any books of account.

(b) Alternatively, can the Assessing Officer apply the provisions of Section
56(2)(x), and bring to tax the differential amount as Income from other
sources?

(c) Would the situation be different if Mr.Bala does maintain books of account in
order to keep track of his investments?

(d) If Mr.Bala has paid an advance of Rs.2 crores for the property in Year 1 but
the sale has been finalized in Year 2, and assessment proceedings are
initiated for Year 2, in which year would the provisions of Section 69 / 69A /
69B be applicable?

(e) If Mr.Bala has purchased the property in the joint names of himself and his
wife, how would the provisions be invocable? Assuming that his wife does not
have any source of income, would Mr.Bala be required to demonstrate
source for the total value of the property, including the purported investment
by his wife?

11. M/s.XYZ Pvt Ltd. has closing stock of Rs.25 crores in its Balance Sheet.
Assessing Officer has obtained the stock statement furnished to the bank and
this statement shows the value of stock on hand at the year end at Rs.29 crores.
Can the Assessing Officer bring to tax the difference in value of stock as
unexplained investment u/s.69 / 69A / 69B?

12. In the course of survey in his business premises, Mr.A preferred a statement
accepting unrecorded investments to the tune of Rs.12 crores. Subsequently
during the course of assessment proceedings, Mr.A made a written submission
retracting the statement made during survey.

(a) The Assessing Officer completed the assessment and made an addition u/s
69 of Rs.12 crores. Is the action of the Assessing Officer right?

(b) Does Mr.A have a valid recourse against the assessment, given that it was
made on the basis of his own statement in the course of survey proceedings?

(c) Can Mr.A say in his defence that the Assessing Officer has not discharged
the burden of proof required by section 69?

(d) Mr.A retracted the statement on the ground that it was made out of fear and
confusion at the time of survey. Does he have to bring evidence to show that
there were no unrecorded investments?

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13. During April 2024, while traveling home, Mr.X was intercepted by police and cash
of Rs.75 lakhs together with gold ornaments was found in the ownership of Mr.X.
He claimed that this money belonged to his father-in-law. This was confirmed by
the father-in-law. Assessing Officer did not accept these statements and treated
cash and gold as Mr.X’s income. Was this the right action to take?

14. During the year 2021-22, M/s.Property Developers Pvt Ltd. had expended an
amount of Rs.20 crores on construction expenses. In the course of assessment
proceedings the Assessing Officer was of the opinion that the cost of
construction was incorrect. He therefore made a reference to the valuation
officer u/s.133(6) and based on the report of the valuation officer, made an
addition of Rs.5 crores to the income of the company u/s.69. Is the Assessing
Officer’s action within the provisions of the Income Tax Act? Can the addition be
made only if there is evidence of actual expenditure being made or will the report
of the valuation officer suffice?

15. (a) How does the theory of possessory title operate in the context of Section
69A? Does the Revenue have to establish ownership of the money, bullion,
jewellery, etc. before invoking Section 69A?

(b) In which year would the taxation arise – in the year in which the assessee
became the owner, or in the year in which the ownership is recorded by the
Assessing Officer?

16. Mr.Stephen has purchased a property for Rs.3 crores. Guideline value of the
property is Rs.3.75 crores. In the course of assessment proceedings, the
Assessing Officer finds that Mr.Stephen has actually spent an amount of Rs.3.75
crores on the purchase. Is it open for the Assessing Officer to invoke either the
provisions of Section 56(2)(x) or Section 69B in this case?

17. PVR Pvt Ltd. is in the textile business. Its return for the Assessment year 2022-
23 was selected for scrutiny. In the course of assessment proceedings, the
following findings were made by the Assessing Officer:

a. There were numerous cash deposits in the books totaling to Rs.7.8 crores
for which the assessee was unable to provide any explanation. Of these
credits, the fractional figures were held by the Assessing Officer to be
unreported sales. The other amounts which were rounded figures were held
by the Assessing Officer to be unexplained credits. The entire amount of
these credits were added to income u/s.68.

b. The Assessing Officer concluded that the unreported sales would have
corresponding purchases, and since the assessee did not have any
explanation for the source of these purchases, he proposed to make an
addition u/s.69C of the estimated amount of purchases.

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 c. The assessee had 5 undisclosed bank accounts and there were many
transactions of deposit / withdrawals in these accounts. The Assessing
Officer proposed to add all the credits in these accounts as unexplained
credits u/s.68.

d. It was found that the assessee had sold some of its assets, but the sale
proceeds were not included in the books of account. The Assessing Officer
proposed to add the total sale proceeds as income of the assessee.

The accountant of PVR Pvt Ltd. would like to know whether the Assessing
Officer is right in adding the entire amount of alleged unreported sales as
unexplained credit. He would also like to know about the possibility of success
of a plea for considering peak credit, and telescoping, in the computation of total
assessed income.

18. Search was conducted in the premises of Siraj in December 2021. In the course
of the search it was seen that Siraj was having two sets of books of account, and
the sales recorded in one set of books was not included by Siraj in his return of
income. Assessment has been completed, and the AO has made an addition of
Rs.3 crores, being the gross sales as per the undisclosed set of books. Siraj is
not intending to appeal against this addition.

(a) Can AO make an addition of Rs.3 crores u/s.68? Is he not required to allow
deduction for cost of the sales while completing the assessment?

(b) What is the rate of tax that Siraj has to pay? Are there any penalties
applicable?

19. In the assessment of B Pvt Ltd. for the assessment year 2021-22, the AO has
made the following additions. The accountant of B Pvt Ltd. wants to know if the
AO is justified in making all the above additions in the year under assessment.

(a) Addition u/s.68 in respect of short term loans obtained from M Pvt. Ltd., RQ
Pvt Ltd. and PS Pvt Ltd. Some of these loans are balances continuing from
December 2018.

(b) During the year the Profit and Loss account of B Pvt Ltd included interest
received from deposits. However the Balance sheet does not include any
deposits made by B Pvt Ltd. The AO proposes to make addition u/s.69 in
respect of undisclosed deposits.

(c) B Pvt Ltd. has constructed a factory building for Rs.250 crores, which was
completed during the financial year relevant to assessment year 2020-21.
On going through the records and books of account, the AO found a
confirmation from the contractor of the factory building which indicated that
the contractor had received from B Pvt Ltd. a total amount of Rs.275 crores
for the building, out of which Rs.25 crores had been paid during the financial
year relevant to the year under assessment, i.e. assessment year 2021-22.
The AO proposes to make an addition of Rs.25 crores u/s.69B

(d) In respect of the factory building, the documents show that an amount of
Rs.1 crore was spent during the year under assessment for the purpose of

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 registration with the Stamp authorities. This amount has not been recorded
in the books of account, and the assessee was unable to give a satisfactory
explanation about the source of funds for the payment of the stamp duty.
The AO proposes to make an addition of Rs.1 crore u/s.69C.

20. Anburaj is carrying on a trading business. For the assessment year 2017-18
proceedings were initiated for reopening the assessment for the reason that
Anburaj has made certain unexplained expenditure. In response to notice issued
u/s.148, Anburaj filed a return of income wherein he has included the
unexplained expenditure as his business income and claimed set off of brought
forward business losses and paid taxes at normal rates on the balance income.

(a) Is Anburaj correct in paying taxes at normal rates on the additional income
declared in the return filed in response to notice u/s.148.

(b) Will penalty proceedings be initiated on Anburaj. If so under what section.

(c) If penalty proceedings are invocable u/s.271AAC, can he be exempted from

the levy since he has declared the income in his return of income filed in
response to notice u/s.148?

21. Kuber Jewellers Pvt Ltd had made cash deposits of Rs.22,15,40,000/- into its
bank account during the period from 08.11.2016 to 30.11.2016. The Assessing
Officer during the course of assessment proceedings for the assessment year
2017-18, issued a notice to show cause why the said cash deposits should not
be treated as unexplained investment in the hands of Kuber Jewellers Pvt Ltd.
The company explained that the said cash deposits were nothing but sale value
of gold jewellery and that the same were reflected in its books of account as
cash sales and income out of the same has been admitted in the return of
income. The company also explained that the cash in hand as per cash book, as
on 07.11.2016 was a sum of Rs.16,45,32,650/-. The company also submitted all
the invoices in connection with the cash sales before the Assessing Officer.
However the Assessing Officer while completing the assessment has added the
entire cash deposits of Rs.22,15,40,000/- as unexplained investment u/s.69.
Further the Assessing Officer also observed that in respect of the cash sales, the
company has not obtained Permanent Account Number (PAN) of the buyers. The
said addition u/s.69 was made over and above the income admitted by Kuber
Jewellers Pvt Ltd in its return of income and the Assessing Officer taxed the sum
of Rs.22,15,40,000/- at 60% being rate specified u/s.115BBE for additions made
u/s.69. Is the Assessing Officer correct in doing so?