Section 69 of the Income Tax Act 1961 deals with undisclosed investments made by an individual in the financial year preceding the assessment year. According to this section, if an assessed has made investments that are not recorded in their books of account, and they are unable to provide a satisfactory explanation for the nature and source of these investments, the value of these investments may be deemed as the income of the assesse for the financial year in which they were made.
The scope of this section is to cover instances where an individual has made investments that are not recorded in their books of account and they are unable to provide a satisfactory explanation for these investments. The assessing officer must first determine that the individual has made such investments before calling for an explanation regarding the nature and source of these investments. If the explanation is found to be unsatisfactory, the assessing officer can treat the value of these investments as the income of the assesse for the financial year in which they were made.
There are three essential conditions that must be met for the provisions of Section 69 to be applied:
- The assesse has made investments in the financial year immediately preceding the assessment year.
- These investments are not recorded in the books of account, if any, maintained by the assesse for any source of income.
- The assesse is unable to provide a satisfactory explanation for the nature and source of these investments.
It is important to note that an assesse is entitled to an opportunity to explain their investments before the assessing officer proceeds with the addition of the undisclosed investment to their income. The burden of proving that the income is subject to tax is on the revenue, but the burden of proving that the transaction is genuine primarily lies on the assessee. The assessee must provide a plausible explanation with suitable proof for the investments under consideration. If the explanation is not accepted, the burden shifts to the department to prove that the explanation offered by the assessee is insufficient.
This article is for informational purposes only and is based on the author’s interpretation of the relevant provision. It should not be taken as professional advice.
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