CASH CREDIT [SECTION 68]  define as any sum is found in the books of account of an assessee in any previous year and assessee has not provided any explanation of source or explanation provided by the assessee is not, in the opinion of an Assessing Officer satisfactory, the sum so credited in the books of account of assessee may be charged to income tax as the income of the assessee of that previous year.

Section 68 is a charging section, if it is applicable the assessee is not only liable to pay the taxes but also penalty under section 271(1) (c) of the Income Tax Act, 1961, which shall not be less than three times of tax evaded or concealed.

Note: The word in Section 68 is used “May” not “Shall”- initially in the bill introduced in the Parliament the Clause read:” the sum so credited shall (i) be deemed to be income of the assessee; and (ii) shall be chargeable to income tax of that previous year.

The word “shall” occur in two places was replaced by “may” to give assessing officers ample power to assess any third person, in case it is found that the sum credited in the books belong to said third person and not to the assessee. The Selection Committee was of the view to give power to assessing officer to deal with in case, when it is found in the books of assessee that the credit entries belong to any third person and to assess that third person also.

The Clause accordingly modified and read as “the sum so credited may be charged to income tax as the income of the assessee”.

Jindal Udyog Vs. ITO (2003)263 ITR(AT) 123(Chd):  it was held that the word “may” in section 68 cannot be interpreted to mean “shall”, where adequate opportunity is not given, addition cannot be made.


There are two conditions to be satisfied;

  1. The assessee maintains books of accounts; and
  2. A credit entry occurs in the books of account.

Mittal (R.B.) Vs. CIT (2000)246 ITR 283(AP): the section dose not make any distinction between commercial loans and non-commercial loans or between amounts credited to an account of a third party and those credited to the assessee’s own capital account.

Shanti Devi Vs. CIT (1988) 171 ITR 532(P&H):  the books of account referred in this section is the books of account of assessee and not of another person.

Where such sum is occurred in the books of account of an assessee, the assessee should answer and give information of the source of credit entry to the satisfaction of the assessing officer. If he /she is unable to give satisfactory and documentary answer related to source of credit in his/her book of accounts then that credit may be deemed to be income of the assessee in the concerned period year. 


Goyal (S.P.) Vs. DCIT (2004) 269 ITR(AT)59(Mumbai):  where loose sheets are found, there is the usual inference of the Assessing Officer, that they represent concealed transactions. Such inference dose not readily follow. Such inference can be positively made only after identification of papers and after due verification. The figures therein could not be lightly inferred to represent unaccounted income, unless there is something more to it.

Section 158B(b); while defining Undisclosed Income, refers not only assets found but also income based on entries in books of account or other documents or transactions representing income. Similarly, Section 158B(b) providing for computation of undisclosed income refers not only evidence in the form of books of account or documents but also “such other materials” or information as are available with Assessing Officer. Loose Papers may come in category of “such other materials” following “books of account” and “documents”.

Atul Kumar Jain Vs. DCIT (1999)64TTJ786(Delhi):  the amount received Rs. 1050 spent on marriage was found to Rs. 10.50 Lakhs. But this was done without examining the author of the said paper to ascertain the code, if any adopted in deciphering the figures. The Tribunal has the following comment on the evidently value of the document and held as follows;

“ The word” document” has been defined in Section 32 of the Indian Evidence Act to mean- any matter expressed or described upon any substance by means of letters, figures or marks or by more than one of those means, intended to be used or which may be used for the purpose of recording that matter. The word “document” has also been similarly defined in the General Clauses Act. According to Honourable Supreme Court in the case of Ramji Dayawala & Sons(P) Ltd. Vs. Invert Import AIR 1981 (SC) 2085  mere proof of handwriting of a document would not tantamount to a proof of all the contents or the facts stated in the documents, if the truth of facts stated in a document is in issue, mere proof of the handwriting and execution of the document would not furnish evidence of the truth of the fact or contents of the document. The truth or otherwise the contents so stated would have to be proved by admissible evidence i.e. by the evidence of those persons who can vouchsafe for the truth of the facts in issue.”

Mofd. Yusuf (Sir) Vs. D AIT 1968 Bombay 112:  Honourable Supreme Court observed that the contents contained in document is hearsay evidence unless writer thereof is examined before the court. The Hon’ble’ court, therefor held that the attempt to prove the contents of the document by proving the signatures of the handwriting of the author thereof is to set at nought, the well-recognised rule that hearsay evidence cannot be admitted. If we consider the said piece of paper seized during search in light of definition of the word “ document” as given in the Indian Evidence Act , and General Clauses Act., and truthfulness of the contents thereof in light of the aforecited decisions of the Honourable Supreme Court, we find that the said paper contains jotting of certain figures by the same dose not describe or express the substance of any transaction and even if the said paper has been seized from the possession of the assessee the contents thereof are not capable of describing the transactions the way Assessing Officer has deciphered them without support of corroborative evidence of the parties attributed to the alleged transaction. The said paper, therefore dose not come within the compass of the definition of the word “document” to be used as an evidence.

The paper seized therefore, has no evidentiary value and accordingly the same cannot form basis for assessing the undisclosed income” 

Black’s Law Dictionary defines “ Books of account as a detailed statement, in the nature of debits and credits between person; an account or records of debits or credits kept in book; a book in which a detailed history of business transaction is entered; a record of goods sold or services rendered; statement in detail of transactions between parties.

 Black’s Law the book entries “a notation, generally of figures or numbers, made in an accounting journal, consisting, in double entry book keeping, of debits and credits.  

Shukla (V.C.) Vs. JT (1988) 2 SC 172 and L.K. Advani on Crl Revision Petition No. 265 of 1996.  This is one of the famous cases the Honourable Supreme Court held that the said piece of paper seized in search has not been proved to be written by the assessee relating to various business transactions in the normal course of business and, therefore , said paper also does not fall within the campus of the meaning of the books of account having credibility of its acceptance without support of corroborative evidence which is admittedly missing.

Mehrotra (Dr. RML) (1999) 68 ITD(Ahemdabad) 288 the Tribunal held that in absence of any other diary or note book for the remaining period, the multiplying formula or estimate, for the period for which no such omitted receipts were evidenced by slips or notebook or diary, cannot be made on the basis of Supreme Court decision of CST Vs. Esufali H.M. Abduali(HM)(1973)90 ITR271.  

CONCLUSION:  now a day assessing officers are prone to add undisclosed income in the had of assesses on the basis of seized loose papers found in search, seizures, in the premises of third parties. Although those loose papers and sheets does not belong to assessee. They are making additions on the basis of entries found in the loose sheets. Mere name of an assessee on loose sheet found with third party premises does not admissible as an evidence that entries belong to assessee. So, assessing officer should be advised to make additional on the basis of a corroborative and full proof evidence not on the basis of loose papers.

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January 2021