Section 68 of the Income-tax Act is one among the debated sections which bring enormous numbers of litigation and judgments, mostly just in case of demonetization. We’ve seen a variety of assessment orders are gone by the assessing officer invoking section 68 and consequently applying section 115BBE.
Now we are going to get in-depth insights into every vital word utilized in the section and its meaning consistent with different judgments, as this may be helpful for tax professionals for filing an appeal.
Scope of section-68 Where any sum found credited in the books of the assessee maintained for any previous year, the assessee does not explain nature and source thereof, or the reason provided by him is not satisfactory within the opinion of assessing officer. The sum so credited could also be charged to tax because of the income of that previous year.
Credited Credit always results as a rise in liability within the record. Therefore, the belief from the sundry debtors can’t be treated as cash credits. Realization from the sundry debtors would scale back the sundry debtors appearing on the “assets” side of the record.
Books of the accounts as per section 2(12A) Books or Books of account includes ledgers, daybooks, cash books, account books and other books, whether kept within the written form or as print- outs of knowledge stored during a floppy, disc, tape or the different sort of electromagnetic data memory device. Assessee can file an appeal with a legitimate ground that he’s not susceptible to maintain books and assessing officer has made an addition by applying provisions of Section 68.
Can bank passbook examine as books of accounts? Passbook supplied by the bank to their account holders is only a copy of the transaction with the respective bank. It neither can be said the bank maintains books as an agent of the account holder nor can it be maintained under instruction by the bank. Hence, it is asserted to say that bank passbook could not be regarded as books of the assessee.
What if the assessee is susceptible to maintain books, but not held by him? Here, assessee can’t cash in of his wrong. If he’s susceptible to maintain books as prescribed under section 44AA and he has not held an equivalent, then the onus lies on the assessee to prove the source of the amount received and nature thereof.
What if assessing officer has rejected the books and still making addition u/s 68? The assessing officer can’t take two ways to use the most straightforward judgment by applying a flat rate also as counting on books for the aim of adding unexplained cash credits.
Previous year Section 3 of the Act determines that the previous year means the fiscal year immediately preceding the assessment year. Suppose assessing officer is making addition where the assessee has deposited cash in his bank account from opening balance of cash-in-hand which doesn’t belong to impugned year, and then assessing officer is not asserted in making addition under section 68 of the Act.
No explanation about nature and source It is very impractical for a small business person who deals in cash can maintain the name, address, PAN of the purchaser to prove the genuineness of transactions. In case of the cash sales transaction, seller rarely needs to record the name and address except in few transactions mentioned in rule 114B. The failure to continue the identity, prove the creditworthiness of customers can’t be considered as situations giving rise to doubts as there is no obligation for the assessee to maintain identify of cash customer.
The assessee has deposited cash in the bank on account of a cash sale. Can such sale be added on under section 68? If assessing officer has doubted the cash sales and accordingly made addition under section 68 and assessee has already revealed such sale in P&L A/c and offered for taxation. Now assessing officer can’t treat such sale as undisclosed income, and no addition under section 68 are often made once more in respect of that sale because it has already been offered for taxation.
Cash deposit was on account of cash sale but not revealed in P&L A/c by the assessee If the assessing officer finds that cash deposit was on account of money sales, then the only margin of profit should be add on such cash deposit.
Why unrecorded sale to be added under section 68 and not under the head PGBP? Even if profit element is added in the total income of the assessee towards unaccounted sales, It can only be assessed under the head PGBP and not under section 68 to use section 115BBE if all other conditions of section 68 are satisfied.
Following are the conditions where the assessing officer must make additions under section 68 If stock exists and it’s not proved by backdating. The assessing officer accepted the books also gross profit margin maintained by the assessee. The proper invoice was directed, and GST or VAT returns have been appropriately filed by the assessee.
Cash deposit out of cash withdrawals Assessee is merely susceptible to explain why he kept such take advantage hand. If there’s the higher time between the withdrawal and deposit, it’s tough for the assessee to elucidate and prove the truth. But merely time break between withdrawal and deposit of money, the clarification offered by the assessee couldn’t be refused unless assessing officer has proof that such amount has been used for the other purpose.
Burden of Proof Initial charge lies on the assessee to prove the legality for the transaction. After discharge of initial burden by the assessee, the onus shifted to the department to confirm that explanation offered by the assessee.
At AJSH, we assist our clients in dealing with various income tax compliances including income tax assessments, ITR Filings, TDS returns, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about the Income-tax Act under Section-68, kindly contact us.
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