Unexplained Cash Credit - Section 68 of Income Tax Act
Cash Credit:- Any sum found credited in the books of the taxpayer, for which a taxpayer offers no explanation about the nature and source thereof or the tax authorities are not satisfied by the explanation offered by the taxpayer, is termed as cash credit.
Basic provisions of Section 68:- As per section 68, any sum found credited in the books of a taxpayer, for which he offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, may be charged to income-tax as the income of the taxpayer of that year.
Provision in case of company:- In case of a taxpayer being a closely held company (i.e., not being a company in which the public are substantially interested), if the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such company shall be deemed to be not satisfactory, unless:
(a) the person, being a resident in whose name such credit is recorded in the books of such company, also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer has been found to be satisfactory.
Condition to attract the applicability of section 68:- From the reading of section 68, following conditions can be stated to attract the applicability of section 68 :
- Assessee has maintained 'books'
- There has to be credit of amounts in the books maintained by the taxpayer of a sum during the year.
- The taxpayer offers no explanation about the nature and source of such credit found in the books or the explanation offered by the taxpayer in the opinion of the Assessing Officer is not satisfactory.
- If the taxpayer is a closely held company and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such company shall be deemed to be not satisfactory, unless: (1) the person, being a resident in whose name such credit is recorded in the books of such company, also offers an explanation about the nature and source of such sum so credited; and (2) such explanation in the opinion of the Assessing Officer has been found to be satisfactory.
If all the above conditions exist, sum so credited may be charged to tax as income of the taxpayer of that year.
Tax rates applicable to amount charged to tax by virtue of sections 68.
As per Section 115BBE, income tax shall be calculated at 60% where the total income of assessee includes following income:
- Income referred to in Section 68 and reflected in the return of income furnished under Section 139; or
- Which is determined by the Assessing Officer and includes any income referred to in Section 68 if such income is not covered under clause (a).
Such tax rate of 60% will be further increased by 25% surcharge, 6% penalty, i.e., the final tax rate comes out to be 83.25% (including cess). Provided that such 6% penalty shall not be levied when the income under Section 68, 69, etc., has been included in return of income and tax has been paid on or before the end of relevant previous year.
No deduction in respect of any expenditure or allowance [or set off of any loss] shall be allowed to the assessee in computing his income referred to in clause (a) of sub-section (1) of Section 115BBE.