Heavy Liability of Tax on Tax Payer, If He Is Not Able To Explain, Investment or Expenditure

Section 69 to 69C, of Income Tax act, 1961 provides that, if the assesse is not able to explain about the investment and expenditure, will considered as Deemed Income of the assesse and has to pay higher tax rate and also penalty.

Section 69 of the Income Tax Act, is about unexplained investment.

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 maintained 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 investment may be deemed to be the income of the assesse of such financial year.

During the course of assessment, when an assessing officer asked about the source of investment, and if assesse is not able to explain the source, or source explained by the assesse is not accepted by the assessing officer may add the amount of investment as deemed income.

Example: Mr. A has made an investment in purchase of, shares but not shown in the books of account. During the course of assessment, assessing officer has find out that there is an income of dividend, but shares are not shown in the books of account. Assessing officer has ask that from where he is receiving dividend, where shares are not shown in books of account. Assesse has argued that this was not mentioned in books of account, but it was purchased by me. Now the question ask by officer that from where you brought money to purchase shares. Mr. A, was not able to explain the source of investment, the officer will considered the cost of shares as deemed income.

Tax Liability on Unexplained Investment/Expenditure

Section 69 A: Unexplained money, etc.

Where in any financial year the assesse is found to be the owner of any money, bullion, jewelry or other valuable article and such money, bullion, jewelry or valuable article is not recorded in books of account maintained by him for any source of income, and the assesse offers no explanation about the nature and source of acquisition of the money, bullion, jewelry or other valuable article or the explanation offered by assesse is not, in the opinion of the Assessing Officer, satisfactory, cost of all thing may be deemed to be the income of assesse for such financial year.

Section 69 B: Amount of investment, etc., not fully disclosed in books of account.

Where in any financial year the assesse has made investments or is found to be the owner of any bullion, jewelry or other valuable article, and the amount debited in books of account is less than the amount of investment. When assessing officer find out the difference, between investment and book entry, difference will be considered as deemed income of the assesse.

Section 69 C: During any financial year, where the assesse has made any kind of expenditure and is not able to explain or explanation given by the assesse is not accepted by the assessing officer, satisfactory, the amount of such expenditure is to be considered as deemed income of the assesse for that year.

Section 115BBE: Up to assessment year 2016-17, on unexplained investment or expenditure tax at flat rate of 30% was charged, plus surcharge, health and education cess. During Demonetization, in November, 2016 many persons have credited Rs. 500 and Rs. 1,000 notes in their bank accounts and pay tax @30% and transfer their money officially.

From assessment year 2017-18, flat rate of 30% make it 60%. Over and above this 25% surcharge to be levied on 60% tax that makes 15%, so total tax rate become 60 +15 =75%. On this 75% tax education cess of 3% that makes 2.25%, hence total tax rate become 77.25%

Again from assessment year 2019-20, health and education tax @4% which make total tax @78%. The calculation is as under:

Rate of Income tax 60%
Surcharge 25% on 60% 15%
Health & Education tax 4% on 75% 3%
Total rate of tax 78%

Section 271 AAC: Penalty

Under section 271 AAC a penalty @ 6% on tax calculated u/s 115 BBE is levied. Tax at flat rate is of 60% plus 10% penalty that makes 6%. Total tax will be 84%.

Rate of Income tax 60%
Surcharge 25% on 60% 15%
Health and Education Tax 4% on 75% 3%
Penalty u/s 271 AAC at the rate of 10% on 60% 6%
Total tax payable 84%

Assesse is not entitled to claim any kind of tax relief and u/s 115BBE, clarified that no claim of deduction as well as expenditure is available.

Conclusion

Understanding the implications of Sections 69 to 69C is crucial for taxpayers to avoid heavy tax liabilities. Maintaining accurate records and transparent financial dealings not only ensures compliance but also protects taxpayers from penalties and deemed income assessments. As tax regulations evolve, staying informed becomes paramount in navigating the intricate landscape of tax laws.

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