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:
Provided that where the assessee 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 –
– 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
– 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.
What we understand?
Following conditions need to be satisfied for Cash Credit:
– Any sum is found to be credited in assessee’s book maintained for previous year.
– Assessee doesn’t offers any explanation about the nature and source.
– If the Assessee offers any such explanation, the same stands un-satisfactory on the part of Assessing Officer.
As per the above section, the words “any sum” has a wider meaning and covers all types of credit including cheque received, drafts received, loan, any receipts in cash or kind, commercial as well as non-commercial loans or any other amount of similar nature.
Further if the assessee is a company not being a company in which the public are substantially interested then the sum so credited if consists of – share application money, share capital, share premium or any such amount by whatever name called.
The explanation offered by such company is deemed to be not satisfactory unless:
– the person is a resident in whose name such credit is recorded in the books of such company
– Such person offers an explanation about the nature and source of such sum so credited, and
– Such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory.
In case, the sum so recorded is a venture capital fund or of a venture capital company as per clause (23FB) of Section 10 of Income Tax Act, then the above criteria stand inapplicable.
Now, looking at Cash Credit on one side and companies incorporated under Companies Act of 2013 on other side, Section 68 is thereby invoked in following below mentioned cases, subject to fulfilment of above discussed provisions and conditions:
– Receipt of share application money in cash,
– Source of such money is doubtful,
– Share application money received from bogus shareholders,
– Converting such black money into white money by issuing shares by forming an investment company or companies,
– Such money shown without actual allotment thereby to be treated as unsecured loan,
– Transactions between group companies related to such application to improve debt-equity ratio,
– Issuing shares at very high premium without adequate justification.
Therefore, before invoking Section 68, certain points must be kept in everyone’s mind:
– Existence of books maintained for any previous year,
– Mere suspicion not enough,
– Onus of proving cash credit is on assessee, but certain circumstances may render the same to be shifted to Assessing Officer,
– Such officer must conduct proper and due enquiry,
– Additions on account of non-genuine gifts (In case of Pendurthi Chandrashekhar vs. DCIT (2018) 91 (Hyderabad), it was held that unexplained addition u/s 68 w.r.t gift of Rs. 73 Lakh received by nephew from his own maternal aunt needs to be deleted, and therefore said addition not tenable on the ground that a relative gave gift without any special occasion).
Note: The above provisions are Ad Verbatim as per the same under Income Tax Act of 1961.
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