Sec.69 : Unexplained Investments
Many times investments are being made out of unaccounted funds and black moneys are being settled in such investments. Section 69 gives the power to the revenue department to detect the tax evasion in respect of investments made by the assessee & naturally which are not recorded in the books of accounts, if any, maintained by him. Section 69 also gives power to AO to treat the value of investments as the income of the assessee if the assessee does not offer any explanation or the explanation offered by him is not satisfactory. This is a very wide power given to Assessing Officer.
For convenience, Section 69 has been reproduced below:
“Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee 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 investments may be deemed to be the income of the assessee of such financial year.”
Brief Analysis :
- The above section indicates that in order to be an income, there must be fulfillment of two conditions since the word “and”has been used in the section. The investments made in the current year must not be recorded in the books of accounts AND the explanation not offered or not satisfactorily offered. In addition to the same, it may be noted that this is a deeming provision which means that even though the assessee has no real income it may be deemed to be his income. The use of the words ‘if any’ in the section indicates that it is not compulsory that the assessee must have maintained the books of accounts. He can prove the genuineness of the investments by some other evidence which proves investment out of disclosed source.
- The opportunity of being heard must be given to the assessee to prove the nature and source of investments.
- The Assessing Officer has discretion to treat the particular investment as the income of the investor-assessee depending of the facts and circumstances of each case at a particular situation of time.
- It may be noted that the AO is under obligation to give reasons for not accepting the explanations offered by the assessee.
- It may happen that even though the assessee has recorded the investment in the books of accounts, submitted the Balance Sheet, P & L A/c etc. with the Return of Income but he fails to produce the books of accounts before AO during the course of assessment proceedings and AO makes the addition under section 69 with the contention that such addition has been made since the investment made, recorded in the books of accounts could not be verified with the books of accounts due to failure of assessee to produce before him during the course of assessment proceedings. In such a situation it may be argued that Balance Sheet and Profit and Loss Accounts are the abstract of books of accounts maintained by the assessee. In case of Tax Audit Cases, the Tax Audit Report is the strong evidence of adequate maintenance of books of accounts duly audited by the auditor and all the additions made in the investments are duly verified by the auditor during the course of audit process and duly certified by the auditor through audited Balance Sheet and Tax Audit report.
- Burden of Proof :The initial burden lies on the assessee to offer the explanation in respect of the investment. Therefore, it is the duty of the assessee to offer the relevant explanation with suitable proof with respect to the investment. It is the right of the Assessing Officer to make the opinion whether the explanation offered by the assessee is acceptable or not.
- The amount of unexplained investment will be deemed to be the income of the assessee of the financial year in which said investment is made by him.
- It is possible to argue that the unexplained investment may be the deemed income of more than one financial years.
Relevant Case Laws :
- In Mad HC in 241 ITR 363,158 Taxman 363, 236 ITR 340, J&K HC in 201 CTR 178, it was held that when there was inflated stock to avail higher credit facility from bank (only amount inflated but quantity remained same), the books of the Assessee were duly audited and no trading outside the books were detected, the addition of difference in stock value could not be made as undisclosed income.
- In Delhi ITAT Kanta Dua, a husband made investment in Units of Mutual fund from Joint Bank Account in the name of himself and wife (second holder), the AO based on AIR information, made assessment in the hands of wife as unexplained investment, which was held as invalid by higher Tax authorities.
- In Mum ITAT in Rupee Finance 119 TTJ 643, it was held that merely because assessee purchased certain shares at value much less than market price, difference in purchase cost and market price cannot be added u/s 69.