Section 69 of the Income Tax Act is the weapon in the hands of the revenue to trace the tax evasion in connection with investments made by the assessee which are not mentioned in their books of accounts.
Section 69 also authorizes the Assessing Officer to treat the investments as the income of the assessee if there is no genuine explanation offered by him.
Even after making the addition, the Assessing Officer may initiate the penalty under section 271(1)(c) of the Income Tax Act either for concealing details of income or for furnishing incorrect particulars of income depending upon the kind of addition made.
Section 69 gives a very wide power to the Assessing Officer. However the provisions of the section do not provide the guidelines for the extent of the discretionary power in treating the investment as income of the assessee.
The provisions of Section 69:
Section 69 of the Income Tax Act states that where in a financial year immediately prior to the assessment year, the assessee has made investments which have not been reflected in the books of account, if any, maintained by the assessee, and he fails to give an explanation about the source of such investments or the explanation given is not satisfactory, the value of the investments may be treated as the income of the assessee in such financial year.
The above section states that to be an income, there must be satisfaction of two conditions. Firstly, the investments made in the financial year must not be reflected in the books of accounts and secondly, the explanation offered must not be not satisfactory.
The provision of Section 69 is a deeming provision. It means that even though the assessee may have no real income, it may be treated as his income. However it is not mandatory that the assessee must have maintained the books of accounts. He can prove the genuineness of his investments by means of evidence which proves his source.
The section also provides that the opportunity of being heard must be allowed to the assessee to prove the source his investments. The Assessing Officer has discretion to treat the particular investment as the income depending upon the circumstances of the case at a particular point of time.
The Assessing Officer is bound to give grounds for not accepting the explanations of the assessee. The revenue cannot rely on the statements of the assessee made to the third parties.
Meaning of the term “investment”:
The word “Investment” has not been defined in the act. Meaning of the term “investment” should be construed in normal meaning. The investment may not be available physically but it might be in existence in the earlier Financial Year. In such cases also the provisions of Section 69 would be applicable.
Where Books of Accounts are not produced:
It may happen that even though the assessee has mentioned the investment in his books of accounts filed along with his return but he failed to produce the books of accounts during the assessment proceedings and Assessing Officer made the addition under section 69 for the investment made, in such a situation it may be considered that Balance Sheet and Profit and Loss Accounts are the contents of the books of accounts of the assessee. In case of Tax Audit, the Audit Report is an evidence of maintenance of books of accounts and the additions made in the investments are verified and duly certified by the auditor during the audit.
Burden of Proof:
The burden of proof initially lies upon the assessee to give the explanation for the source of investment. It is the also duty of the assessee to offer the relevant proof regarding the investment in question. The Assessing Officer is empowered to frame the opinion whether the explanation is justified or otherwise.
Opportunity of Being Heard:
The essential condition before making an addition under Section 69 is that the assessee must be given an opportunity of being heard to.
Judicial precedents:
The Assessing Officer should appreciate any reasonable explanation offered by the assessee, if any. He has to examine the evidences, if any, produced before him regarding the source of investment and he cannot make the addition only on suspicion. This was held in the case of Ashok Kumar Rastogi vs. CIT (1991) 100 CTR 204.
The Kerala High Court in the Case of Upasana Hospital and Nursing Home vs. CIT (1997) 142 CTR 541 has clarified that the assessee has the right to get an opportunity of being heard to.
The Orissa High Court in Aurobindo Sanitary Stores vs. CTC (2005) 276 ITR 549 (Ori.) passed a judgment in connection with Section 69 and clarified the provisions of section 69.
The ITAT Hyderabad in the case of Musaddilal Projects Ltd. vs. Dy. Commissioner of Income Tax, Central Circle -3, Hyderabad held that if the payments made after registration of the sale deed are at all treated as unexplained investment, they cannot be considered for addition in the impugned Assessment Year.
The Chhattisgarh High Court in Dhanush General Stores vs. Commissioner of Income Tax (2011) 339 ITR 651 has held that the value of unexplained investment should be assessed under Section 69 of the Act.
