Summary: Under Sections 69 to 69C of the Income Tax Act, if an assessee fails to explain investments, money, or expenditures during scrutiny, these amounts may be deemed as income, leading to a significant tax liability. Section 69 deals with unexplained investments, while Section 69A concerns unexplained money, bullion, or valuable articles. Section 69B addresses instances where the recorded value of assets is less than their actual worth, and Section 69C covers unexplained expenditures. Before the 2016 demonetization, the tax rate on such unexplained amounts was 30%, but following the introduction of Section 115BBE in 2017, the rate increased to 60%. An additional surcharge of 25% on the tax (equating to 15% of the amount) brings the total tax to 75%, with a further 4% cess raising the overall liability to 78%. In addition to this, a penalty of 6% under Section 271AAC is imposed, further increasing the total tax payable. For example, if an officer disallows an unexplained expenditure of Rs. 2,00,000, the assessee would face a tax liability of Rs. 1,56,000 and a penalty of Rs. 12,000, totaling Rs. 1,68,000. Notably, no deductions or exemptions are allowed against such taxable income, making it a substantial financial burden for non-compliant taxpayers.
If assesse is not able to explain Investments or Expenditure during scrutiny, Tax liability is 78% plus 6% penalty
We know that now a days cases selected for scrutiny is reduce, due to online assessment. Details asked during scrutiny notice is very difficult to explain.
If assesse is not able to explain the details asked by assessing officer, has to face many difficulties, as per Section 69 to 69C.
Section 69: Unexplained investments.
Where in the financial year, the assesse has made investments which are not recorded in the books of account, if any, for any source of income, and the assesse is not able to explain the nature and source of the investment or the explanation given by assesse is not satisfactory to the assessing officer, the value of the investment may be deemed to be the income f the assesse for such financial year.
Section 69A: Unexplained money, etc.
Where in the financial year, the assesse is found to be the owner of any money, bullion, jewellery or valuable article, which are not recorded in books of accounts maintained by him for any source of income, and assesse has not offered any explanation or the explanation offered by him is not in the opinion of assessing officer, satisfactory, the money and the value of such articles may be deemed to be the income of the assesse for such financial year.
Section 69B: Amount of investments etc., not fully disclosed.
Where in any financial year, the assesse has made an investments or is found to be the owner of any bullion, jewellery or other valuable article, and the assessing officer find that the amount recorded in books of account is less than the value of such article, bullion, jewellery or other valuable article, the excess amount may be considered as deemed income of the assesse for such financial year.
Section 69C: Unexplained expenditure, etc.,
Where in any financial year an assesse has incurred any expenditure and he offers no explanation about the source of expenditure or part thereof, or the explanation offered by him is not satisfactory to the assessing officer, the amount covered by such expenditure or part thereof, may be deemed to be the income of assesse for such financial year.
Take an example, Mr. A has debited Rs.2,00,000 as bad debts in his books of account. During the course of scrutiny, officer has asked for the details and reason for bad debts. Officer found that Mr. A has given loan of Rs.2,00,000, which is not recovered, hence debited as bad debts as it is not pertaining to business, so officer has disallowed, and added to the income.
Rate of Income Tax: Up to assessment year 2016-17, under section 115BBE, on unexplained investments as well as on unexplained expenditure tax was levied at flat rate of 30%, plus education cess 3% and surcharge and cess 15%, total comes to 35.54%.
In November 2016, government announce Demonetization of Rs.500 and Rs.1000 notes, people started deposing the said notes in to their bank account, and as there was no explanation, they pay tax @ 30% under section 69A. To avoid this, section 115BBE was introduced from Assessment Year 2017-18. According to new section 115BBE, if an assesse is not able to explain any investment or expenditure is liable to pay income tax @ 60%(instead of 30%).
Over and above this surcharge @ 25% on 60% of tax, that means 15% more tax is to be paid. So total tax payable will be 75%. Again on this 75% of tax 3% Education Cess is levied that means 2.25%, which makes total tax payable 77.25%. Again from assessment year 2019-20, health and education cess increased to 4%, hence total tax liability will be of 78%.
On the above example when officer has disallowed Rs.2,00,000 his tax liability will be as under:
| Tax Rupees | |
| Income tax @ 60% | 1,20,000 |
| Surcharge @25% that means 15% tax | 30,000 |
| Education Cess on 75% is 4% that means 3% | 6,000 |
| Total Tax payable | 1,56,000 |
On 78% tax, Government was not satisfied, they have added penalty under section 271AAC @6% on tax payable, so it will comes to Rs.12,000 and total tax payable will be Rs.1,68,000 on addition of Rs.2,00,000.
Please remember that against taxable income neither deduction of any expenditure nor any deduction is allow.
Author Bio
