Section 69

Section 69 — the law in short

What the courts have decided on section 69, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v P.K. Noorjahan Supreme CourtHelps taxpayer
  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.
• Anantharam Veerasinghaiah & Co v CIT Supreme CourtCuts both ways
  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?
  You can put the argument, and the Supreme Court says it is a real argument, but it does not win by itself. The Court held that when an intangible addition is made to book profits in an assessment, the amount added is the undisclosed income of the assessee, is as much a part of his real income as the profits shown in his books, has the same concrete existence, and could be available to him just as the book profits could. Secret profits of an earlier year may therefore constitute a fund, concealed but real, from which he may later draw to meet expenditure or to introduce amounts into his books. The Court then put the limit on it in the same paragraph: it is quite another thing to say that any part of that fund must necessarily be regarded as the source of a later unexplained expenditure or cash credit, and the mere availability of such a fund cannot in all cases imply that no further secret profits were earned in the later year. All the facts and circumstances have to be looked at.
• Baladin Ram v CIT Supreme CourtHelps department
  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?
  The financial year, and yes he can reopen. The Supreme Court held that where income is found to come from an undisclosed source, for which no accounts are kept and no previous year has been chosen, the only way it can be assessed is as income of the ordinary financial year. So investments of about Rs 27,000 made in the Sarpat and bamboo business between December 1943 and February 1944 fell in the financial year 1943-44 and were assessable for 1944-45, not 1945-46. Disclosing them in the 1945-46 proceedings was no disclosure for 1944-45, so section 34(1)(a) was attracted.
• Alishan Complex P Ltd v Initiating Officer High CourtHelps taxpayerJudgment not reachable
  The benami attachment rests on a retracted statement and they refused cross-examination. Is that evidence?
  No. An untested and retracted statement, standing alone, is no evidence at all on which a benami finding can rest. Where such a statement is the only material against a party, the power in s.19(1)(b) of the Prohibition of Benami Property Transactions Act to summon and examine the witness stops being discretionary and becomes a duty, and income-tax assessment findings on the source and genuineness of the funds are relevant material the Initiating Officer is bound to consider.
• M/s Sivasakthi Threads v Deputy Commissioner of Income-tax High CourtHelps taxpayerNo later treatment found
  A survey during a search on a connected group threw up excess stock, and it was added for AY 2007-08. The department says my unabsorbed depreciation cannot be set off against it, and now cites section 79A. Is that right?
  No, on both counts, for a year before AY 2022-23. The Madras High Court held that unabsorbed depreciation carried forward takes the character of current year depreciation under s.32(2) and, read with ss.71 and 72, can be set off against income of the current year other than capital gains — including an addition of unaccounted stock in business; and it recorded that s.79A, inserted by the Finance Act 2022 with effect from 1 April 2022, does not assist the Revenue for an earlier year.
• Saumya Chaurasia v Union of India High CourtHelps departmentNo later treatment found
  CBDT Circular 24/2019 says prosecution under s.276C(1) is to be launched only after the ITAT confirms the penalty. My appeal is still before the CIT(A). Can the sanction under s.279(1) be quashed on that ground?
  Not where the amount sought to be evaded exceeds Rs.25 lakh. On the Delhi High Court's reading of Circular No.24/2019 dated 09.09.2019 as clarified by Circular No.5/2020 dated 23.01.2020, the requirement of prior administrative approval of a collegium of two CCIT/DGIT rank officers, and the direction that prosecution be launched only after the ITAT confirms the penalty, are addressed to cases at or below the Rs.25 lakh threshold; above it the approval of the sanctioning authority, the Principal Commissioner, suffices and no pre-condition is attached. The challenge to Circular 5/2020 under Article 14 was rejected.
• Anurag Dalmia v Income Tax Office High CourtHelps taxpayerNo later treatment found
  The Tribunal has deleted the additions and the penalty has been cancelled. The criminal complaint is still pending on exactly the same allegations. Does it survive?
  No, where the complaint rests on the same material. The Delhi High Court quashed complaints under s.276C(1)(i), s.277(1) and s.276D, holding that once the Tribunal had set aside the additions on merits and the penalty had been cancelled, no offence survived and quashing of the prosecution followed automatically. It also held that the presumption of a guilty mind under s.278E arises only if a prima facie case is disclosed in the complaint.
• CIT v Satya Narain Patni High CourtHelps taxpayer
  The search party left our jewellery alone but the AO has still added part of it. Can he do both?
  No, on these facts, and the reason is wider than the seizure decision. The Rajasthan High Court held that once the Board has expressed the opinion in Instruction No. 1916 that jewellery up to 500 grams for a married lady, 250 grams for an unmarried lady and 100 grams for a male member is not to be seized, it should normally follow that jewellery within those quantities will not be questioned as to its source and acquisition either. Here the family's entitlement was 2,700 grams against 2,202.464 grams found, the authorised officer had seized nothing, and the Assessing Officer's later addition on part of the same jewellery had no basis — he gave no reason for fixing 1,600 grams as the reasonable quantity. The Court preserved the department's power over the excess: jewellery beyond those weights can be questioned and, if not properly explained, treated as unexplained investment.
• CIT v Chensing Ventures High CourtHelps taxpayerSuperseded by amendment
  I surrendered unexplained cash payments as income at a survey and I also have a business loss for the same year. Can the officer refuse to set the loss off against the surrendered income?
  Not on the law as it then stood. The Madras High Court dismissed the Revenue's appeal, holding that no substantial question of law arose. The Assessing Officer had added Rs 28,50,000 as undisclosed income under section 69 and had allowed no set-off of the determined business loss of Rs 8,20,384 against it, giving no reason for the refusal. Section 71 permits a loss remaining after set-off within a head to be set off against income of the same year under any other head, capital gains apart. Income tax is one tax on total income, so once the loss is determined it must be set off against income determined under any other head.
• Fakir Mohmed Haji Hasan v CIT High CourtHelps department
  An unexplained investment has been added to my income under section 69A and the asset was then confiscated. Can I set the loss off against that addition?
  No. The Gujarat High Court held that income deemed under sections 69, 69A, 69B and 69C falls under none of the heads in section 14, not even income from other sources, because those sections apply precisely where the source is unknown or unexplained. Since the deemed income cannot be classified under a head, the deductions that go with a head are not available against it. Gold worth Rs 48,72,000 found concealed in the assessee's car and confiscated by customs was rightly added under section 69A, and its confiscation could not be claimed as a trading loss.
• CIT v Metachem Industries High CourtHelps taxpayer
  There are credits in my partners' capital accounts. The officer says the partners cannot prove where the money came from and is adding it to the firm's income. Can he?
  No, once the firm has identified the depositor and he owns the entry. The Madhya Pradesh High Court answered the reference against the Revenue and held that where it is established that an amount was invested by a particular person, partner or otherwise, the firm's responsibility is over. The firm cannot be asked whether the money invested was properly taxed; it need only explain that the investment was made by that individual, and it is for him to account for it. If he owns the entry the firm's burden under section 68 is discharged, and the officer's remedy is to proceed against that person, if necessary under section 69.
• DCIT v Zaitoon Farouq Esmail ITATHelps taxpayerNo later treatment found
  The officer has added the whole of a property purchase shown against my client's PAN in the AIS, although my client never bought it. Is a reported entry enough to sustain an addition?
  No. The Mumbai Bench dismissed the Revenue's appeal and upheld the deletion of a Rs 2.53 crore addition made on the strength of reported information alone, holding that the Assessing Officer is not expected to make an addition mathematically simply on the basis of information without verification of the facts. The decisive fact was that the names of the purchasers in the reported data were different persons and only the assessee's PAN had been tagged against them.
• Krishnakumar Manda v DCIT, Circle-12(1), Hyderabad ITATHelps departmentNo later treatment found
  The addition under the s.68 group has been confirmed and I never showed the income in my return. Is there any discretion left to the AO not to levy the s.271AAC penalty?
  On this decision, none. The Hyderabad Bench held that once income of the s.68 to s.69D kind is brought to tax and sustained, and the conditions of the proviso are not satisfied, the levy of the s.271AAC penalty is automatic and mandatory, and the language of the section leaves the AO no discretion.
• Jagdish Kumar Arora v DCIT ITATHelps taxpayerJudgment not reachable
  You surrendered income in a survey. Is it taxed at 60% under s.115BBE, or at your normal rate?
  Where the source is your own business, at your normal rate. The deeming provisions only bite where the source is unexplained; unrecorded debtors from the business are explained, so s.115BBE was held not to apply.
• Seo Lehenga House v DCIT ITATHelps taxpayerNo later treatment found
  I have already offered the profit on the disputed transactions. Can the officer add the broker's commission on top under s.69C?
  Not where the commission is already inside the profit you offered. The Tribunal deleted a s.69C addition for cash commission paid to a broker for arranging bogus purchases and sales, in each of six consolidated appeals covering two assessees and five assessment years, because in every year the gross profit the assessee had already declared on those transactions exceeded the commission the Assessing Officer himself had determined. For the leading year the gross profit was Rs. 14,57,154 at 1.60 per cent against a determined commission of Rs. 5,31,795, and the Rs. 3,32,371 the first appellate authority had sustained was deleted. The rates differ year by year.
• Net Agri Company Pvt Ltd v ITO ITATHelps taxpayer
  The Commissioner (Appeals) accepted my explanation for the investment but then made a fresh addition for cash deposits he spotted in my bank statement, without telling me. Can he do that?
  No. The Delhi Tribunal held that the Commissioner (Appeals) cannot determine taxability from a new source, and cannot enhance without show-causing the assessee. The Assessing Officer had added the investment in property as unexplained under section 69. Having accepted the evidence and deleted most of it, the Commissioner (Appeals) went on to tax cash deposits in the bank account used to repay the bridging loan, treating them as unexplained cash credits under section 68. That was a different exercise from the one the officer had done, it went beyond the Tribunal's earlier remand, and no notice was given. The addition of Rs 1,75,50,000 was deleted.
• Jafferali K. Rattonsey v DCIT ITATHelps taxpayer
  I held shares in physical form for years and dematerialised them just before selling. The AO says my holding period runs from the demat date. Is he right?
  No. The date of purchase is taken from the broker's note or contract note, and the period of holding runs from that date, not from the date of dematerialisation. The Assessing Officer had converted a long-term gain into a short-term one by treating the demat date as the date of acquisition and the market price on that date as cost; the Tribunal rejected both moves.
• ITO v Smt. Parul Grover ITATHelps taxpayerNo later treatment found
  I refinanced. I took a fresh loan from another bank and used it to close my original house construction loan. The officer says the new loan was not taken for construction, so no s.24(b) interest. Is there authority against him?
  Yes. Where the second borrowing has really been used merely to repay the original loan taken for the house, interest on the second loan is deductible, and the Tribunal applied CBDT Circular No.28 dated 20 August 1969 to allow it. The deduction is confined to the part of the fresh loan actually traced to repayment of the original housing loan, worked out proportionately.
• Statutory position — section 158BB: how the block figure is built, what is kept out of it, and why Abhisar Buildwell does not simply carry across CBDT Circulars & InstructionsCuts both ways
  The block assessment adds amounts for which nothing was found in the search. Can I take the Abhisar Buildwell point that there must be incriminating material?
  Not in the form in which that case decides it, because Abhisar Buildwell construes section 153A and section 158BB is worded differently. Section 158BB(1) makes the total undisclosed income of the block period the aggregate of only two things — what the assessee declares as undisclosed income in his section 158BC return, and what the Assessing Officer determines under section 158BB(2); and section 158BB(2) requires that determination to be made 'on the basis of evidence found as a result of search or survey or requisition of books of account or other documents and any other material or information as are either available with the Assessing Officer or come to his notice during the course of proceedings under this Chapter'.
• Statutory position — section 79A: no set-off against undisclosed income found in a search, requisition or survey, from AY 2022-23 CBDT Circulars & InstructionsCuts both ways
  A search threw up unaccounted stock and cash and the Assessing Officer has added it. I have a large brought-forward loss and unabsorbed depreciation sitting there. Can I set them off against the addition?
  For AY 2022-23 and every later year, no. Section 79A, inserted by the Finance Act 2022 (Act No. 6 of 2022) with effect from 1 April 2022, says that where, consequent to a search under s.132, a requisition under s.132A or a survey under s.133A other than s.133A(2A), the total income of any previous year includes undisclosed income, no set-off of any loss — brought forward or of the current year — and no set-off of unabsorbed depreciation under s.32(2) shall be allowed against that undisclosed income under any provision of the Act.
• CBDT Circular No. 11/2019 — set-off of loss against s.115BBE income CBDT Circulars & InstructionsHelps taxpayer
  Is there anything from the Board itself I can put in front of the officer on setting off losses against s.68 or s.69 additions in an old year?
  Yes. Circular No. 11 of 2019 records the Board's view that an assessee is entitled to claim set-off of loss against income determined under s.115BBE up to assessment year 2016-17. It is the department's own instruction, so an Assessing Officer cannot take a contrary view for those years — and by the same document, the position from assessment year 2017-18 is that the set-off is denied.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.