The officer says my explanation for an investment is unsatisfactory, so the money must be my income. Is he obliged to make the addition once he disbelieves me?
No. Section 69 says the value of an unexplained investment may be deemed to be the income of the assessee, and the Supreme Court held that the word is deliberate. The clause in the Bill used 'shall'; on the recommendation of the Select Committee it was changed to 'may'. Parliament therefore conferred a discretion on the Income-tax Officer, and he is not obliged to treat an unexplained investment as income in every case where the explanation is found unsatisfactory. Whether it should be treated as income has to be considered in the light of the facts of each case. On these facts the Tribunal had found that the assessee, a woman of about twenty during the first of the two years, could not be credited with having earned the amounts at all; the discretion had not been properly exercised, the High Court agreed, and the department's appeals were dismissed.
Decided by the Supreme Court (Supreme Court of India - S.C. Agrawal and G.T. Nanavati JJ) on 1997-01-15, reported as [1999] 237 ITR 570 (SC); AIR 1999 SC 1600; (1997) 11 SCC 198. It bears on section 69, section 68, section 102 (Act of 2025), section 103 (Act of 2025) of the Income Tax Act 1961, in Cash Credits & Unexplained Money, Assessment & Scrutiny and Evidence & Burden of Proof matters.
Most replies to a section 69 or section 68 notice are written as though everything turns on whether the explanation is believed. This judgment says that is only half the statute. The officer who disbelieves you has a discretion, not a duty, and an addition made on the footing that rejection of the explanation ends the matter is an addition made without applying the section. That is a ground of appeal in its own right, and it costs nothing to take. The case is also the answer to the situation practitioners meet most often at the bottom of the income scale: a housewife, a student, a young person or an elderly parent in whose name an investment or a deposit stands, whose explanation about family money cannot be documented, and who plainly never earned the sum in question. The Tribunal here did not believe the explanation and still deleted the addition, because section 69 taxes an investment as the assessee's income and on the facts it could not have been her income at all. Put the capacity-to-earn material on the record at the assessment stage, because it is a finding of fact and the appellate authorities will not make it for you.
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The assessee bought land at Ernakulam on two occasions. On 15 November 1967 she bought 16 cents for Rs 34,628, and on 27 November 1968 she bought 12 cents for Rs 25,902. She explained the money as savings from the income of property she had inherited from her mother's first husband. The Income-tax Officer accepted Rs 2,000 of it and no more, and added Rs 32,628 for the assessment year 1968-69 and Rs 25,902 for the assessment year 1969-70 as her income under section 69. The Appellate Assistant Commissioner confirmed the additions. The Appellate Tribunal allowed the assessee's appeals. It did not accept her explanation either, but it held that she was aged about twenty during the previous year relevant to the assessment year 1968-69 and that, having regard to her age and the circumstances in which she was placed, she could not be credited with having made any income of her own; the discretion under section 69 had therefore not been properly exercised and the sources of the investments could not be treated as her income. On a reference the Kerala High Court agreed, by its judgment of 21 November 1979 in ITR Nos. 137 and 138 of 1977. The Commissioner appealed to the Supreme Court.
There is no merit in the appeals and they are dismissed, with no order as to costs. Section 69 says the value of an unexplained investment 'may be deemed to be the income of the assessee'. In the corresponding clause of the Bill introduced in Parliament the word used was 'shall'; during consideration of the Bill, and on the recommendation of the Select Committee, it was replaced by 'may'. That shows that Parliament's intention in enacting section 69 was to confer a discretion on the Income-tax Officer in the matter of treating an unexplained source of investment as the income of the assessee, and that he is not obliged to treat such a source as income in every case where the explanation offered is found to be unsatisfactory. Whether the source of an investment may be treated as income has to be considered in the light of the facts of each case, and the discretion has to be exercised keeping the facts and circumstances in view. The Tribunal, having found that the assessee could not be credited with having made any income herself, was entitled to hold that the discretion had not been properly exercised, and the High Court was right to agree with it.
The Court read the section as drafted rather than as it is usually applied. Section 69 does not say that an unexplained investment is income; it says it may be deemed to be income. The Court treated that as a choice Parliament made knowingly, and it went to the legislative history to show it: the clause as introduced said 'shall', the Select Committee recommended otherwise, and the enacted text says 'may'. A word substituted on a committee's recommendation is not an accident of drafting. What follows is a two-stage enquiry rather than one. Rejecting the explanation opens the door to an addition; it does not compel one. The officer must then ask whether, on all the facts, the value of the investment should be treated as this assessee's income. That second question can be answered in the assessee's favour even though the first was answered against her, and it was answered that way here. The facts show what kind of material engages the discretion. The Tribunal did not believe the story about savings from inherited property. It nevertheless refused to treat the money as her income, because a woman of about twenty in her circumstances could not have earned Rs 34,628 and then Rs 25,902. The unexplained part of the case was where the money came from, not whether she had generated it; and section 69 taxes an investment as the assessee's income, which presupposes that it could be her income. The last step is about the standard of review. Once the Tribunal had found the facts and held that the discretion had not been properly exercised, the High Court on a reference was entitled to accept that, and the Supreme Court declined to disturb it. The department's case amounted to saying that rejection of the explanation ends the matter, and that is the proposition the Court refused.
the intention of Parliament in enacting Section 69 was to confer a discretion on the Income-tax Officer in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the Income-tax Officer is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory.
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Handle my notice → Ask a CA on WhatsAppNo. Section 69 says the value of an unexplained investment may be deemed to be the income of the assessee, and the Supreme Court held that the word is deliberate. The clause in the Bill used 'shall'; on the recommendation of the Select Committee it was changed to 'may'. Parliament therefore conferred a discretion on the Income-tax Officer, and he is not obliged to treat an unexplained investment as income in every case where the explanation is found unsatisfactory. Whether it should be treated as income has to be considered in the light of the facts of each case. On these facts the Tribunal had found that the assessee, a woman of about twenty during the first of the two years, could not be credited with having earned the amounts at all; the discretion had not been properly exercised, the High Court agreed, and the department's appeals were dismissed. This was decided by the Supreme Court (Supreme Court of India - S.C. Agrawal and G.T. Nanavati JJ) and bears on section 69, section 68, section 102 (Act of 2025), section 103 (Act of 2025) of the Income Tax Act 1961. It is reported as [1999] 237 ITR 570 (SC); AIR 1999 SC 1600; (1997) 11 SCC 198. Most replies to a section 69 or section 68 notice are written as though everything turns on whether the explanation is believed. This judgment says that is only half the statute. The officer who disbelieves you has a discretion, not a duty, and an addition made on the footing that rejection of the explanation ends the matter is an addition made without applying the section. That is a ground of appeal in its own right, and it costs nothing to take. The case is also the answer to the situation practitioners meet most often at the bottom of the income scale: a housewife, a student, a young person or an elderly parent in whose name an investment or a deposit stands, whose explanation about family money cannot be documented, and who plainly never earned the sum in question. The Tribunal here did not believe the explanation and still deleted the addition, because section 69 taxes an investment as the assessee's income and on the facts it could not have been her income at all. Put the capacity-to-earn material on the record at the assessment stage, because it is a finding of fact and the appellate authorities will not make it for you. If it applies to you, the first step is this: Separate the two questions in your reply. Whether your explanation is accepted is one question; whether the officer should make the addition even after rejecting it is a second, and section 69 leaves the second to his discretion.
The assessee bought land at Ernakulam on two occasions. On 15 November 1967 she bought 16 cents for Rs 34,628, and on 27 November 1968 she bought 12 cents for Rs 25,902. She explained the money as savings from the income of property she had inherited from her mother's first husband. The Income-tax Officer accepted Rs 2,000 of it and no more, and added Rs 32,628 for the assessment year 1968-69 and Rs 25,902 for the assessment year 1969-70 as her income under section 69. The Appellate Assistant Commissioner confirmed the additions. The Appellate Tribunal allowed the assessee's appeals. It did not accept her explanation either, but it held that she was aged about twenty during the previous year relevant to the assessment year 1968-69 and that, having regard to her age and the circumstances in which she was placed, she could not be credited with having made any income of her own; the discretion under section 69 had therefore not been properly exercised and the sources of the investments could not be treated as her income. On a reference the Kerala High Court agreed, by its judgment of 21 November 1979 in ITR Nos. 137 and 138 of 1977. The Commissioner appealed to the Supreme Court. The matter was decided on 1997-01-15 by the Supreme Court (Supreme Court of India - S.C. Agrawal and G.T. Nanavati JJ). On those facts the Supreme Court held as follows. There is no merit in the appeals and they are dismissed, with no order as to costs. Section 69 says the value of an unexplained investment 'may be deemed to be the income of the assessee'. In the corresponding clause of the Bill introduced in Parliament the word used was 'shall'; during consideration of the Bill, and on the recommendation of the Select Committee, it was replaced by 'may'. That shows that Parliament's intention in enacting section 69 was to confer a discretion on the Income-tax Officer in the matter of treating an unexplained source of investment as the income of the assessee, and that he is not obliged to treat such a source as income in every case where the explanation offered is found to be unsatisfactory. Whether the source of an investment may be treated as income has to be considered in the light of the facts of each case, and the discretion has to be exercised keeping the facts and circumstances in view. The Tribunal, having found that the assessee could not be credited with having made any income herself, was entitled to hold that the discretion had not been properly exercised, and the High Court was right to agree with it.
The Court read the section as drafted rather than as it is usually applied. Section 69 does not say that an unexplained investment is income; it says it may be deemed to be income. The Court treated that as a choice Parliament made knowingly, and it went to the legislative history to show it: the clause as introduced said 'shall', the Select Committee recommended otherwise, and the enacted text says 'may'. A word substituted on a committee's recommendation is not an accident of drafting. What follows is a two-stage enquiry rather than one. Rejecting the explanation opens the door to an addition; it does not compel one. The officer must then ask whether, on all the facts, the value of the investment should be treated as this assessee's income. That second question can be answered in the assessee's favour even though the first was answered against her, and it was answered that way here. The facts show what kind of material engages the discretion. The Tribunal did not believe the story about savings from inherited property. It nevertheless refused to treat the money as her income, because a woman of about twenty in her circumstances could not have earned Rs 34,628 and then Rs 25,902. The unexplained part of the case was where the money came from, not whether she had generated it; and section 69 taxes an investment as the assessee's income, which presupposes that it could be her income. The last step is about the standard of review. Once the Tribunal had found the facts and held that the discretion had not been properly exercised, the High Court on a reference was entitled to accept that, and the Supreme Court declined to disturb it. The department's case amounted to saying that rejection of the explanation ends the matter, and that is the proposition the Court refused. In the words reproduced by the source cited on this page: "the intention of Parliament in enacting Section 69 was to confer a discretion on the Income-tax Officer in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the Income-tax Officer is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory."
It was decided by the Supreme Court on 1997-01-15 and is reported as [1999] 237 ITR 570 (SC); AIR 1999 SC 1600; (1997) 11 SCC 198. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 69, section 68, section 102 (Act of 2025), section 103 (Act of 2025), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. There is no merit in the appeals and they are dismissed, with no order as to costs. Section 69 says the value of an unexplained investment 'may be deemed to be the income of the assessee'. In the corresponding clause of the Bill introduced in Parliament the word used was 'shall'; during consideration of the Bill, and on the recommendation of the Select Committee, it was replaced by 'may'. That shows that Parliament's intention in enacting section 69 was to confer a discretion on the Income-tax Officer in the matter of treating an unexplained source of investment as the income of the assessee, and that he is not obliged to treat such a source as income in every case where the explanation offered is found to be unsatisfactory. Whether the source of an investment may be treated as income has to be considered in the light of the facts of each case, and the discretion has to be exercised keeping the facts and circumstances in view. The Tribunal, having found that the assessee could not be credited with having made any income herself, was entitled to hold that the discretion had not been properly exercised, and the High Court was right to agree with it. It arises in Cash Credits & Unexplained Money, Assessment & Scrutiny and Evidence & Burden of Proof matters, on section 69, section 68, section 102 (Act of 2025), section 103 (Act of 2025) of the Income Tax Act 1961, and was decided by Supreme Court of India - S.C. Agrawal and G.T. Nanavati JJ. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put material on the record about capacity to earn. What carried this case was not a better explanation but a finding that the assessee could not have earned the money - her age, her circumstances, the absence of any source. That is a factual case you have to build, with evidence. Ask for the discretion to be exercised expressly, and ask for reasons. A discretion the officer does not know he has is a discretion he will not exercise; say so in the reply so that the omission is on the record for appeal. Use it where the funds are traced to somebody else's means - a parent, a spouse, an inheritance - and the assessee has no independent source. That is the shape of case in which the discretion has been exercised in the assessee's favour. Do not stretch it to section 68, and do not carry it past 31 March 2026. The words the Court relied on are the words of section 69; section 68 is drafted differently, and an argument built on the Select Committee's change to section 69 does not transfer without more. Section 103 of the Income-tax Act, 2025, which is what section 69 became, says the value of the investment shall be deemed to be the income of the assessee, so on its face the discretion belongs to the years the 1961 Act still governs. Expect resistance on quantum rather than principle. The department rarely disputes that the discretion exists; it disputes that the facts call for it. Meet that with facts.
Still good law. This is the standard authority for the discretion in section 69 and it is quoted constantly. The Karnataka High Court set out the reasoning word for word in K.P.C. Mohammed Kunhi v CIT, decided 26 August 2014, which is the decision this page relies on as its independent check. A search of later decisions returns it cited across Tribunal benches - Agra, Mumbai, Allahabad, Raipur, Jodhpur, Jaipur - whenever an assessee argues that the addition should not be made even though the explanation has failed; those orders were located but not read, and are named here only to show the case is in current use. No decision was found doubting it. Two limits are worth stating. The reasoning is tied to the words of section 69, and to the Select Committee's substitution of 'may' for 'shall' in that clause. Sections 69A, 69B and 69C carry the same permissive verb and the argument has been run on them, but section 68 is drafted differently and the legislative history relied on here is not its history. Second, the case is about whether the discretion exists, not about how it must be exercised: a bench that finds an assessee perfectly capable of earning the amount is not obliged by this judgment to delete anything. A full citator check was not run. What was checked is that the reasoning on 'may' and 'shall' and the dismissal of the appeals appear in the judgment's own text, and that the same reasoning appears in the same words in a High Court judgment published independently of it. The judgment was delivered on 15 January 1997 and is reported at [1999] 237 ITR 570, which is why it is usually cited as a 1999 case; the Supreme Court Cases report, at (1997) 11 SCC 198, files it under the year of decision, which is where the discrepancy comes from. The Income-tax Act, 1961 was repealed on 1 April 2026 by section 536(1) of the Income-tax Act, 2025, and section 536(2) continues it for proceedings about earlier tax years. The successor provision does not keep the permissive verb. Section 69's counterpart in the 2025 Act is section 103, headed 'Unexplained investment', and it says the value of the investment 'shall be deemed to be the income of the assessee'; section 68's counterpart, section 102, says the sum 'shall be charged to income-tax'. So the discretion this judgment construes governs the years the 1961 Act still governs, and on the face of the enacted text it does not carry into tax year 2026-27 and after. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This record rests on the judgment's own text, with the part everyone quotes checked against a court that quotes it. The judgment was read in its printed form. The facts - the two purchases of 15 November 1967 and 27 November 1968, the amounts of Rs 34,628 and Rs 25,902, the additions of Rs 32,628 and Rs 25,902 for the assessment years 1968-69 and 1969-70, the Tribunal's finding about the assessee's age and circumstances, and the closing sentence dismissing the appeals - come from that text. The passage on the discretion was then found again, in the same words, in the Karnataka High Court's judgment in K.P.C. Mohammed Kunhi v CIT, decided 26 August 2014, which reproduces it at length and gives the citation 237 ITR 570. That is a differently published source reading the same sentences the same way, and it is the check this library relies on for a quotation. A note on the date. The judgment was delivered on 15 January 1997. It is reported at [1999] 237 ITR 570 and is therefore cited almost everywhere as a 1999 decision, while the Supreme Court Cases report, at (1997) 11 SCC 198, files it under the year of decision. Both are right; the year on the page here is the year the Court decided it. Two things readers should hold in mind. The first is how narrow the winning point is. The Tribunal did not accept the assessee's explanation. It deleted the additions because she could not have earned the money, which is a different proposition, and it is the proposition that has to be established on evidence. A submission that simply says the officer has a discretion, without giving him facts on which to exercise it, will not carry. The second is the reach of the reasoning. It is built on the words of section 69 and on the Select Committee's substitution of 'may' for 'shall' in that clause. Sections 69A, 69B and 69C carry the same verb and benches have applied the case to them. Section 68 does not share the drafting history relied on here, and an argument that treats the two as interchangeable invites the answer that the legislative history is not the section's. Where the credit is in the books, Lakhmichand Baijnath and A. Govindarajulu Mudaliar are the authorities the department will be using, and this case is not a direct reply to them. The later decisions that cite this judgment were located by search and counted, not read one by one, so the statement that no court has doubted it is a statement about what a search turned up and not the result of a full citator exercise. The civil appeal numbers are not printed in the copy read. The Kerala High Court judgment appealed from is identified in the Supreme Court's own text by its date, 21 November 1979, by ITR Nos. 137 and 138 of 1977 and by the report citation (1980) Tax LR 726; that report was not consulted. The addition for the assessment year 1968-69 is stated as Rs 32,628 against a purchase price of Rs 34,628, the difference being the Rs 2,000 the Income-tax Officer accepted; the copy read does not spell that arithmetic out and it is an inference from the figures. The assessee's age is given only for the first of the two years. The 2025 Act's counterpart of section 69 is section 103, and it says the value of the investment shall be deemed to be income, so the verb the judgment turns on is not in it; what is not established is whether anything answering to the Select Committee's substitution appears in the making of that provision, because no committee report on it was examined. No decision under the 2025 Act has been found either, so there is nothing yet on whether a court will read a residual discretion into the requirement that the explanation be unsatisfactory in the officer's opinion. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
There is no merit in the appeals and they are dismissed, with no order as to costs. Section 69 says the value of an unexplained investment 'may be deemed to be the income of the assessee'. In the corresponding clause of the Bill introduced in Parliament the word used was 'shall'; during consideration of the Bill, and on the recommendation of the Select Committee, it was replaced by 'may'. That shows that Parliament's intention in enacting section 69 was to confer a discretion on the Income-tax Officer in the matter of treating an unexplained source of investment as the income of the assessee, and that he is not obliged to treat such a source as income in every case where the explanation offered is found to be unsatisfactory. Whether the source of an investment may be treated as income has to be considered in the light of the facts of each case, and the discretion has to be exercised keeping the facts and circumstances in view. The Tribunal, having found that the assessee could not be credited with having made any income herself, was entitled to hold that the discretion had not been properly exercised, and the High Court was right to agree with it.
TaxSphere, “CIT v P.K. Noorjahan”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-p-k-noorjahan-section-69-is-a-discretion/ (validity last checked 2026-09-23)
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Additions were made to my book profits in earlier years. Can I use that money to explain a cash credit or an unexplained payment in a later year?
The credit the officer has added sits in my own business books. Does the entry being in the business books, by itself, let him tax it as business profit?
My cash sales are already in my books and already in my turnover. The officer has added the same money again under section 68 and taxed it at 60%. Can he?
I made unexplained investments after the close of my accounting year. Which year can the officer tax them in, and can he reopen an earlier year to do it?
