Summary: Sections 68 and 69 of the Income Tax Act address unexplained cash credits and investments. Section 68 applies when an assessee has unexplained sums credited in their books of account. If the source or nature of such credits cannot be satisfactorily explained, they are treated as the assessee’s income for that year. For instance, in CIT vs. M. Ganpati Mudaliyar (1958), unexplained credits were deemed business income. Section 69 deals with investments not recorded in the books of account. If an assessee fails to explain the source of such investments, their value may be added as income, as observed in cases like N. Swami (Madras High Court). Both sections emphasize the taxpayer’s responsibility to substantiate claims regarding cash credits or investments. This includes proving the credibility of creditors, the genuineness of transactions, and the relationship between parties in the case of gifts. For example, courts have ruled that the giver’s financial capacity must be established, as in CIT vs. Anil Kumar (2008). However, certain cases, such as joint investments by spouses, have seen additions overturned due to lack of evidence connecting the unexplained income to the assessee (Delhi ITAT). These sections ensure transparency and accountability while considering case-specific nuances.
Section 68: Cash Credit:
Where any sum is found credited in the books of an assesse maintain for any previous year, and the assesse 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 assesse of that previous year.
The meaning of this is that, assesse must maintain books of accounts and the amount is credited in books of accounts and then only assessing officer can asked for explanation.
On the base of this section, there are number of different judgments by different High Courts and Supreme Court.
- In the case of Laxmichand Baijnath Vs. Commissioner of Income Tax (1959) 35 ITR 416. (S. C.) it was held that amount credited in the books of account of business is to be considered as Business Income.
- In the case of Commissioner of Income Tax Vs. M Ganpati Mudaliyar (1958) 34 ITR 807 (S.C.) it was held that if the assesse failed to explain source of amount credited in the books of account, the amount is to be considered as income of the assesse as business income. It is not necessary for the department to find out of the précised source of income.
- Kamal Motors Vs. Commissioner of Income Tax (2003) 131 Taxman 155 (raj) It is the duty of taxpayer to prove the capability of cash credit. He must know the creditor and his capability. If cash creditor is tax payer, no doubt about capability.
- When tenant give deposit to owner of the house, owner prove the genuineness of tenant that is enough. It is not necessary to prove capability of tenant. Commissioner of Income tax Vs. Nevendram Ahuja (2005) 195 CTR 462 (M.P.)
- So far as Gift is concern, it is not enough to prove that there is credit in the books of account of receiver as cash gift, but it is the duty of gift receiver to prove the capability of gift giver, like
What is the capability of gift giver?
What is the relationship of gift giver and gift receiver?
What is the source of fund with gift giver?
If he did not prove above particulars, tribunal is not able to reduce the amount of addition made by assessing officer, particularly when officer call him personally and he did not appear. Commissioner of Income tax Vs. Anil Kumar (2008) 167 Taxman 143 (Delhi).
- Mother can give gift to her son at any time without any occasion. Commissioner of Income Tax Vs. Sureshkumar Kkar (2010) 324 ITR 231(Delhi)
Section 69: Unexplained Investments:
Where in the financial year immediately preceding the assessment year the assesse has made investments which are not recorded in the books of account, if any, mentioned by him for any source of income and the assesse 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 assesse of such financial year.
Many times it happens that to avail loan against stock of goods, assesse shows the stock value in books of account at higher price and obtain higher loan. But this is only in statement given to Bank. No stock was added or no purchase have been shown in books of account. If the books of account are audited and no transection of goods is found, the difference of cost of real stock and stock shown in statement to banks, difference cannot be considered as concealed income of assesse. (241 ITR 363 – Madras High Court) (158 Taxman 363) and (236 ITR 240) Jammu and Kashmir High Court (201 CTR 178).
Husband and Wife have opened a joint account and from that account they have invested the fund in units of Mutual Fund in joint name. On the basis of AIR, assessing officer have considered bogus investment and added to the income of Wife. But Delhi ITAT have deleted the income.
It is the duty of the department to find out the concealed income of assesse. On the basis of statement given by assesse to third party is not connected with the assessment of assesse. N. Swami Madras High Court (241 ITR 363) and Omega Estate, Chennai ITAT and DR. R. L. Narag Chandigarh ITAT.
Section 69A,69B, 69C and 69D are also pertaining to the same.
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