>>CASH CREDIT, UNEXPLAINED
INVESTMENTS, ETC.
AMOUNT OF INVESTMENT ETC. NOT FULLY DISCLOSED
IN THE BOOKS OF ACCOUNT – SECTION 69B
Ajay Sekhri
Chartered Accountant
Section 69B has been enacted to take care of
shortcoming in sections 69 & 69A. Section 69 & 69A apply when investments, etc are
not all recorded in books of accounts whereas 69B will apply when, though, investments,
have been recorded in books of accounts, the amount recorded is less than amount incurred.
The article brings out the difference & discusses its
applicability in various eventualities with detailed analysis of judicial pronouncements
on the subject.
1. Legislative History
1.1 Section 69B is an extension of
sections 69 and 69A, sections 69 and 69A are applicable when investment, money or other
valuable article is not recorded in books of account, if any maintained by the assessee.
Section 69B would be applicable when investments, etc have been recorded in the books of
account but cost thereof has not been fully recorded in the opinion of Assessing Officer.
Except for this difference, all other issues are similar.
Section 69B was inserted by section 19 of the Finance Act, 1965, with
effect from 1-4-1965. Prior to 1-4-61 there was no similar provision either in IT Act,
1922, nor in the IT Act, 1961 till 1965.
1.2 Applicability of section 69B
The following is the text of the said section: -
"Amount of Investments, Etc., Not Fully Disclosed in the Books of
Account.
Where in any financial year the assessee has made investments or is
found to be the owner of any bullion, jewellery, or other valuable article, and the
Assessing Officer finds that the amount expended on making such investments or in
acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in
this behalf in the books of account maintained by the assessee for any source of income,
and the assessee offers no explanation about such excess amount or the explanation offered
by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount
may be deemed to be the income of the assessee for such financial year".
1.3 The provisions of section 69B have
been explained by the Rajasthan High Court in case of Smt. Amar
Kumari (1979) 120 ITR 747 (Raj) in the following words: –
"Section 69B of the Act requires that if in any financial year the
assessee has made investments or if he is found to be the owner of some valuable property
and the Income Tax Officer finds that the amount spent on making such investments or in
securing such valuable property exceeds the amount recorded in this behalf in the books of
account maintained by the assessee from any source of income and the assessee offers no
explanation about such excess amount or the explanation offered by the assessee is not
satisfactory in the opinion of the Income Tax Officer, then such excess amount may be
deemed to be the income of the assessee for such financial year."-
If the above statement of High Court is analysed, it will be clear that
there are very rigid requirements for section 69B to come into operation.
1.4 Departmental circular
The following departmental circular explains the provisions of this
section:-
Assessment of income represented by investments etc., not fully
disclosed in books of account. "The Finance Act, 1965, has made a provision in this
matter in a new section 69B introduced in the Income-tax Act with effect from 1st April,
1965. The effect of this section is that where the Income Tax Officer finds that the
amount expended by an assessee in making an investment or acquiring in any bullion,
jewellery, or other valuable article exceeds the amount recorded in this behalf in his
books of account, and assessee offers no explanation about such excess or the explanation
offered by him is, in the opinion of the Income Tax Officer, not satisfactory, the excess
amount may be deemed to be the income of the assessee for the financial year in which the
investment is made or the assessee is found to be the owner of the bullion, jewellery, or
other valuable article."
[Circular No.3 – P (LXXVI-57) of 1965, dated 11th
October, 1965, para 114]
2. Ingredients for invoking section 69B
For the purpose of better comprehension the section may be divided into
following parts, which form important factors of the provisions of section 69B, they are:
it is found that the assessee has made investment or the assessee is
found to be the owner of any bullion, jewellery or other valuable article,
and value of such bullion, jewellery or other valuable article,
exceeds the amount recorded in that behalf in the books of account maintained by the
assessee, and
either the assessee offers no explanation about such excess amount,
or the explanation offered by him is not satisfactory.
The above circumstances are cumulative. If all these circumstances
exist, the excess amount may be deemed to be the income of the assessee for the financial
year in which such investment was made or the financial year in which ‘A’ is
found to be the owner of bullion, etc.
3. Books of Account Maintained by ‘A’ for any
source of Income
The charge created under this section will be enforceable when sum is
partially recorded in the books of account of an assessee maintained for any previous
year, and assessee does not offer any explanation and explanation offered by him is not
satisfactory in the opinion of Assessing Officer. The relevance of the books of account
and maintenance thereof assumes importance in the circumstances. The term ‘books of
account’ is nowhere defined in the Act. A reference however is available under
section 44AA, but the same is not applicable to all the assessees and is not exhaustive.
In the circumstances, one will have to rely on the meaning of the term, as is understood
in common parlance. Accordingly, the term will encompasses all kinds of books of account
maintained by assessee, irrespective of the fact whether, they are prescribed by the Act
or not. The books maintained for recording unaccounted transactions may also be considered
as books of account and any credit therein, may be required to be proved to the
satisfaction of the Assessing Officer. Further to ascertain whether books of account has
been regularly kept, the nature of occupation is an eminent factor for weighment.
Thus, in order to charge any person with liability, it is enough merely
to prove that the books have been regularly kept in course of business and entries therein
are correct. It is further incumbent upon the person relying upon those entries to prove
that they were in accordance with facts. So much so, where the genuineness and regularity
of the accounts have not been challenged , the accounts are prima facie proof of the
entries.
4. Section 69B and section 132
It may be noted that the legal fiction enacted in section 69B comes
into effect only where all the circumstances of proving the excess amount do factually
exist. The onus to prove the existence of all these circumstances lies on the department.
Thus, there is no room or scope for making any presumption about existence of any of the
requisite circumstances. The presumption as to ownership, etc. enacted in section 132(4)
cannot be taken help in invoking section 69B.
5. Comparative analysis of section 69B
The main difference between section 69A and section 69B is that if
investments are not at all recorded section 69A comes into operation while if there is a
partial recording section 69B would come into operation. Hence section 69B would require
the Revenue to prove that though the investments are recorded they are not recorded fully.
Following is the chart showing the difference between section 69A and section 69B:
| PARTICULARS |
SECTION 69A |
SECTION 69B |
| Assessable in which year |
Financial year in which such
is acquired |
Financial year in which the
asset part investment is recorded |
| Section when applicable |
Unexplained money, bullion,
jewellery and other valuable articles of which assessee is found to be the owner. |
Amount of investment etc. –
not fully disclosed in books of account which assessee is owner |
| Quantum of Addition |
Value of such investment. |
Value to the extent not recorded
in books. |
6. Operation
Section 69B comes into operation where such value is not fully, but is
partially, recorded. If the omission, to record such acquisition is not explained, or if
the explanation offered is found to be not satisfactory, the investment, full or part, as
the case may be shall be treated as assessee’s income for the financial year
concerned.
7. Burden of proof
7.1 In order to invoke the provisions of
section 69B,
the burden is on revenue to prove that the real investments exceeded
the investment shown in the account books of the assessee. Merely on the basis of the fair
market value no addition can be made under section 69B. But, where on the basis of
sufficient material on record some reasonable inference can be drawn that the assessee has
invested more amount than shown in the books, the addition under section 69B can be made.
Thus, it can be interpreted that to prove the excess investment
Assessing Officer may call for explanation from assessee and if assessee offers no
explanation or explanation offered is not in the opinion of Assessing Officer,
satisfactory, then such excess amount may be deemed to be the income of the assessee of
that relevant financial previous year.
7.2 Section 69B provides for rules of
evidence.
It cast onus of proof on the assessee to prove the source of excess
investment expended. However, before such onus is cast on assessee, the department has to
prove that the provision of section 69B is applicable. It means that before applying the
section 69B the department has to prove that assessee has incurred excess amount, which is
not recorded fully in books of account. However, once department gives the preliminary
finding as to applicability of the section, the onus of proof would be on assessee to
prove the source of investment/expenditure.
The second issue is whether merely because of difference between cost
recorded and cost estimated, the provision of section 69B would be applicable and the onus
would be on the assessee to explain the source? As discussed earlier primary onus is on
the department to prove the state of affairs and before the onus is cast on the assessee,
the department has to prove that cost more than is recorded in books has been incurred.
Mere estimate of an expert cannot prove that excess cost has been incurred, and merely
because the Valuation report estimates cost of construction at higher figure would not
lead to applicability of section 69B. The Assessing Officer would have to prove that cost
incurred has not been fully recorded and that state of affairs as disclosed by the books
of account is not reliable. Merely higher valuation will not shift burden of proof on the
assessee, and the Assessing Officer will have to gather some evidence other than the
valuation report to prove that the assessee has incurred cost in excess of amount recorded
in books of account to shift the onus of proof on the assessee.
From the above, it can be seen that section 69B comes into operation
where assessee’s investments or valuable possessions are undervalued in his books.
The phraseology used in section 69B shows that before section 69B is
invoked, the condition precedent as to the existence of understatement of the value, etc.,
must be conclusively established by evidence and/or material on record. If the revenue
cannot, or fails to prove, the subject cannot be taxed. The primary onus, under section
69B, is on the revenue.
7.3 Case Laws
The assessee-firm maintained regular books of account, the
construction of the property was carried through the firm of contractors, who were paid
the rate per sq.ft. of the area constructed and that no defects were found by the tax
authorities either in books of account maintained by the assessee –firm and or/ the
vouchers, documents and/or contractor’s bills produced by it in support of the
construction cost incurred. On these facts, the tribunal was held correct in law in
deleting the addition on account of unexplained investment in construction cost under
section 69B.
Western Estates (1993) 209 ITR 343 (Cal)
Where there was no material evidence brought on record to show that
the assessee made higher investment in the construction of property than that recorded in
the books, no addition could be made under section 69B. If the cost of construction was
estimated, it is question of accepting one estimate against another. In the absence of any
material the addition on the basis of higher estimate cannot be made.
The cost of construction was determined on estimate basis without
bringing on record anything to show that the assessee’s actual expenditure was more
than what is recorded in the books.
"There was no material brought on record to show that the assessee
made more investments in the construction of the building than the one recorded in the
books of account, because of which its case could be covered under section 69B of the
Act."
Prahlad Industries (1995) 52 TTJ 345 (Delhi) (AT)
Roshan alias Rakesh G. Shah (1995) 53 TTJ 267 (Ahd) (AT)
The assessee maintained regular books of account and the cost of
construction of launch was correctly and properly reflected therein. The Assessing
Officer, however, found that the launch was insured for higher price amount. It was held
that a person would insure plant and machinery at a price higher than the cost so that in
event of destruction, loss or damage, it is fully compensated. Without finding anything
wrong in the books maintained by the assessee, the addition under section 69B should not
have been made.
Meghji Jadav & Co. (1986) 18 ITD 170 (Ahd) (AT)
8. Head of Income
Section 69B does not constitute any separate head of income. Income
assessable due to applicability of section 69B is assessable under various head of income
as specified under section 14 of the IT Act. Though, in most of cases the income is
assessed under the head "income from other sources" due to non availability of
any evidence to assess the same under any particular head, in cases where the assessee can
prove that income arises from particular activity, the income would have to be assessed
under respective head. The issue becomes important and relevant when certain deduction
/exemptions are available to the assessee for income assessable under a particular head of
income.
For example, if stock-in-trade in excess of stock as recorded in books
of account is found to be owned by the assessee, the head of income under which the value
of excess stock is to be assessed becomes relevant. If the assessee is entitled to
deduction u/s 80HHC and if the income is assessed under the head "Profits and Gains
of business and profession" the assessee would be entitled to deduction under section
80HHC even in respect of said income.
- CIT vs. Ganpatrai Gajanan (1977) 108 ITR 403
- CIT vs. Dayabhai Pitamberdas & Co. (1974)
- Decision of ITAT – E Bench, Bombay in case of M/s. GEM – X ITA No. (Bom) of
1986 and 4365-6/Bom of 1989
9. Cost of construction
9.1 The issue as to whether the cost of
construction of property incurred by an assessee has been fully recorded in books of
account frequently arises under section 69B. When the assessee has incurred cost for
construction of some property, the department tends to obtain Valuation Report of
estimated cost of construction and proposes to add difference between such estimated cost
and cost recorded in books of account. Three issues arise in such cases:
Whether the Assessing Officer can refer the matter to Valuation
Officer and validity and evidential value of Valuation Report;
Whether merely because the Valuation Officer on reference has
estimated the cost of construction at a higher figure, the onus would be on the assessee
to explain the nature and source of the excess cost of construction;
Whether the whole of the difference between estimated cost and cost
recorded in books of account can be deemed to be income.
9.2 Reference to Valuation Officer
The first issue is whether the Assessing Officer can call for valuation
report u/s 55 A of the IT Act or u/s 16A of the WT Act 1957. It has been held by the full
bench of Hon’ble Punjab and Haryana High Court in the case of Jindal Strips Ltd. vs.
ITO (1979) 116 ITR 825, that no reference can be made to the Valuation Officer u/s 55A
except for the purpose of computing income under the head capital gains. The Assessing
Officer possibly cannot call for valuation Report u/s 55A, however, that does not preclude
him from calling for Valuation Report itself.
For the purpose of making an assessment, the Assessing Officer is
vested with wide powers including power to call for expert witness. The Assessing Officer
can call for valuation report under his general powers. However, the report will have to
be treated as evidence tendered by a witness and will have to be dealt accordingly. The
Assessing Officer is not bound to follow the said report and has to arrive at an
independent decision after evaluating all evidence and circumstances. Even if there is
substantial difference between cost recorded and cost estimated the Assessing Officer
cannot and need not make addition at all or of the whole of the difference. The Valuation
Report will have to be treated as a piece of evidence and nothing else.
9.3 Additions based on Valuer’s Report
There has been a clear finding that there is partial recording of the
amounts spent on investments. In this finding, an expert opinion cannot be substitute for
evidence. Additions under section 69B are often made on the ground that the amount shown
in the books as investments or in acquisition of valuables are less than the cost as
estimated by the valuers in their report.
It may further be noted that in view of specific provisions of section
52 (2) consideration for transfer in case of understatement operative up to 31-3-1988 and
section 55A, a valuation report by a Valuation Officer may be relevant for the purpose of
computation of any capital gains in hands of the vendor. Keeping in view the phraseology
of section 69B, it appears clear that such valuation report cannot be made on the basis
for extending the implication of the expression "expended" so far as the
purchaser is concerned. It has been held in following cases that additions under section
69B merely on the basis of such expert reports are not sustainable.
9.4 Case Laws
After obtaining, the valuation report of the plot of land, notice was
given to the assessee to show cause notice as to why the value of plot of land in question
should be taken as per the valuation report and on the basis of comparable cases. The
assessee had not given any reason as to why the property has been sold to assessee for
roughly half the prevalent market rate. In the absence of that only inference that could
be drawn was that the assessee had, in fact, concealed the actual consideration paid to
seller. Therefore, the addition made under section 69B was justified.
Smt. Amar Kumari Surana vs. CIT (1997) 226 ITR 344, 349
(Raj)
The assessee firm was running hotel and it made some modifications
and alternations to the existing building. The assessee maintained detailed accounts of
the expenditure incurred. The Assessing Officer did not accept the cost of construction
and made a reference under section 55A to the Valuation cell. He, thereafter, made the
addition under section 69B on the basis of the report of the Departmental Valuation
Officer on the ground that there was a difference between the cost determined by the
District Valuation Officer and cost as reflected in books.
On these facts the Tribunal held "Indisputably, the assessee firm
had incurred some expenditure on the renovation of building as well as on the construction
of the new portion and that it had duly maintained a detailed account of the expenditure
in the books being regularly maintained by it in the regular course of its business.
The order of the Assessing Officer did not show that he had found any
defect in such account. There were, therefore, no reasons at all to have doubted the
correctness of the account of expenditure on renovation/construction of the hotel building
as maintained by the assessee. The Assessing Officer, was therefore, not justified in
calling for a report in the matter from the District Valuation Officer.
Hotel Hilltop (1995) 83 Taxman 355 (JP) (AT)
In the construction account of the assessee’s wife defects were
found. The Assessing Officer, however, rejected the books and referred the matter to
valuation cell. The assessee also got the cost valued by the Registered Valuer. In view of
these peculiar circumstances the Tribunal held that since the assessee engaged a
Registered valuer and expert solely to rely on it as evidence it shall not be proper for
it now to go back from the report and plead acceptance on the book figures.
Hotel Joshi (1995) 82 Taxman 146(JP)(AT)
The assessee pledged certain goods, showing the same in pledged
documents as synthetic sheets, with bank for obtaining a loan. In spite of this, the
assessee contended that the goods pledged were insertion sheets. The assessee released the
sheets in question, after the Income-tax officer started enquires in that regard and
disposed of the same without notice to the Income Tax Officer. The values of the synthetic
sheets were not reflected in the books of account of the assessee. Such value was treated
as income of the assessee under section 69B. The Tribunal deleted the addition by casting
burden of proof on the Income Tax Officer and by omitting to take into account the
relevant materials on records. On reference it was held that onus was on the assessee to
prove that the pledged goods were not synthetic sheets and he has failed to prove it.
Therefore, the Tribunal was not justified in deleting the addition. The addition was
sustained.
South Indian Rubber Products (1987) 166 ITR 687 (Ker)
Where there was discrepancy between the value of stock disclosed to
the bank and the value shown in the books of account and no satisfactory explanation
regarding such discrepancy is forthcoming, the amount of discrepancy has been held
assessable under section 69B.
Dhansiram Agarwalla vs. CIT (1993) 201 ITR 192, 204
(Guahati), Special Leave Petition dismissed by the Supreme Court (1993) 204 ITR (ST.)
45-46 (SC)
If full details of cost of construction of the house are available
with the assessee and is recorded in his books, normally section 69-B shall not apply.
However, if no such particulars are available or not fully recorded in such case a fair
and proper estimate of cost of construction can be made by Approved Valuer or Registered
Valuer. But determination of the fair market value of the house under section 16A of the
WT Act cannot be used in estimating the cost of construction of the house. Thus the
difference between the fair market value of the house determined by the valuer u/s 16A of
the WT Act and the estimate of approved valuer Re: cost of construction cannot be assessed
as income from undisclosed sources.
The case law on the subject is as follows:
- CIT vs. Roshan Lal Seth (1989) 178 ITR 160 (Pun).
- CIT vs. Rajkumar (1990) 182 ITR 436 (All)
- CIT vs. Pratapsingh Amrosingh, Rajendrasingh and Deepak Kumar (1992) Taxman 585 (Raj.)
- ITO vs. J.K. Textile Processing Mill (1990) 88 CTR 77 (Mad.) (Tribunal) (SB)
10. ILLUSTRATIONS
Admission on 'A' of 'on money' binding on assessee
Where assessee himself had admitted in declaration under section 132(4)
payment of Rs. 4,70,000 as ‘on money’ on purchase of flat, revenue authorities
were justified in making addition of that sum as unexplained income in absence of any
explanation regarding source thereof, despite retraction of admission by assessee.
Ramesh T. Salve vs. Asstt. CIT [2000] 75 ITD 75 (Mum)
Section 69B & S-158BC
Where as a result of search and seizure operations, assessees
surrendered certain amount and paid tax thereon and during assessment, Assessing Officer,
suspecting under valuation of properties shown in regular returns, referred matter to
Departmental valuation officer and based on his report, made additions, action of
Assessing Officer in referring matter to valuation cell without any material and just for
collecting evidence would be impermissible in law and out of purview of section 158BC.
Subhash Mehra vs. Dy. CIT [2000] 113 Taxman 79 (Delhi)
(Mag.)
Where copies of sale deeds, rent receipts and other information
clearly established that cost of acquisition of property was properly recorded in books of
account of assessee and there was no evidence to show that any underhand transaction had
taken place, provisions of section 69B would have no application.
Where property was encumbered with tenancy and sub-tenancy rights on
date of purchase, its value would not be computed according to comparable cases or on
basis of land and building method but on basis of rent capitalization method.
Bigjos Stores (P) Ltd. vs. Asstt. CIT [1999] 106 Taxman 127
(Delhi) (Mag.)
Where assessee-company purchased shares of a company from its holder
at a price lower than their quoted price and even their face value, Assessing officer
having failed to establish that anything more than what was admitted to have been paid and
received, had passed hands, could not invoke provisions of section 69B.
Asstt. CIT vs. Associated Technoplastics (P) Ltd. (1999) 106
Taxman 65 (Delhi)
Spectra Fusion vs. Asstt. CIT [1999] 105 Taxman 236
(Ahmedabad.) (Mag)
Even if section 69B is held to be applicable, whole the difference
between cost recorded and cost estimated cannot be treated as income, but the AO will have
to prove that addition sought to be made represents extra cost incurred.
Sagar Engg. (P) Ltd. vs. ITO (1992) 43 TTJ (JP) 23
ITO vs. J.K. Textile Processing Mills 88 CTR 77 (Mad) (Trib)
(SB)
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