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Feb 23, 2024


Any income received by an assessee in the previous year, for which the source is known and accounted, is subject to income tax under the particular head under which that source of income falls. Issues arises when the source of income is unknown or hidden from the revenue. In order to charge income tax on such unaccounted income, the parliament introduced Section 115BBE in the Income Tax Act, 1961 through the Finance Act of 2012. The objective of section 115 BBE of the Income Tax Act was to curb the practice of laundering of unaccounted money by taking advantage of basic exemption limit.

The provisions of Sec.115BBE was held to be applicable from the assessment year 2013-2014. This section contains “Tax on income in nature of cash credits, unexplained investments, money, expenditure, etc., referred to in section 68, 69, 69A, 69B, 69C or 69D”. Any income falling under the above said section shall be subject to tax at a flat rate of 30%.

Post-demonetization in FY 2016–17, there has been large scale cash deposits in bank accounts, out of which a substantial portion could be unexplained. Some persons with malafide intention can take the benefit of law under section 115BBE of the Income Tax Act, 1961 and convert their unexplained

money to explained with payment of 30 percent tax plus applicable surcharges only. Therefore, Section 115BBE has been amended with effect from 01.04.2017 to increase the rate of tax from 30% to 60%.

Section 115BBE – Taxing the unexplained

Section 115BBE includes any income that is not disclosed in the books of accounts, returns, or other documents furnished under the Income Tax Act. The section applies to all types of taxpayers, including individuals, companies, and partnerships. Section 115BBE is applicable when the following conditions are met:

  • The taxpayer has earned income from an undisclosed source.
  • The income has not been disclosed in the books of accounts, returns, or other documents furnished under the Income Tax Act.
  • The taxpayer has not paid tax on such income.
  • The income is discovered during the course of any proceeding under the Income Tax Act.

Such income in nature of Cash credits, unexplained investments, money, expenditure, etc. under Sections 68 to 69D has been made liable for being taxed at higher rate @ 60% u/s 115BBE. Same would be the case for unexplained bullion/ jewellery/ stock/ other investment in shares and property etc. found during search or survey.

Taxability of income disclosed during survey, search and seizure
But the question arise where the income disclosed during survey, search and seizure sought to be taxed at higher rate of tax.

Under the Punjab and Haryana High Court in case of Kim Pharma Pvt Ltd v CIT [2013] 35 taxmann.com 456 (Punjab & Haryana) held that the unexplained money disclosed during survey, which was not reflected in books of accounts and no source from where it was derived was declared by the assessee, was assessable as deemed income u/s 69 A and not the business income.

The ITAT Chandigarh, in case of Famina Knit Fab v ACIT [2019] 104 taxmann.com 306 (Chandigarh – Trib.) has also held that amendment made to section 115BBE w.e.f. 1-4-2017 denying set off of losses is prospectively applicable and the assessee could claim set off of losses, both current and brought forward, against its business income as well as deemed income under sections 68 to 69C in assessment years prior to 1.4.2017.

However, in the recent case, DCIT Vs. Tapesh Tyagi, [TS-642-ITAT-2023(DEL), Delhi ITAT sets aside rectification order under Section 154 for applying Section 115BBE on the income voluntarily surrendered by the Assesse in course of search and seizure and offered to tax in the return of income.

If an Assesse surrendered an amount as income which was offered to tax in the return of income for AY under dispute which itself establishes that at the time of search and seizure and an Assesse has explained the source of the amount offered as income which was not disputed by the Revenue; Observes that the term ‘may’ used in Section 69A implies that if explanation offered by the Assesse regarding source of money, bullion, jewellery or other valuable articles is satisfactory, it cannot be treated as unexplained money under Section 69A .

There is nothing on record to suggest that Assesses explanation regarding the source of the income offered has either been doubted or disputed at the time of search and seizure or even during assessment proceedings; Opines that income offered by an Assesse cannot be treated as unexplained money under Section 69A and Section 115BBE would not be applicable.


Section 115BBE is a powerful tool in the hands of the Income Tax Department to curb tax evasion and black money. It imposes a higher tax rate on income earned from undisclosed sources and penalizes non-compliance.

If we closely observe that in invoking provisions of sections 69, 69A, 69B & 69C, two conditions are required to be satisfied. They are (i) investment/expenditure are not recorded in the books of account of assessee & (ii) the nature and source of acquisition of assets or expenditure are not explained or not explained satisfactorily. The expression “nature and source” used should be understood to mean requirement of identification of source and its genuineness. To explain “Nature” it would require the

assessee to explain what is description of investment or expenditure, period and the manner in which it was done. To explain the source it would require the assessee to explain the corpus or fund from where investment or expenditure has been met and also the head under which the investment or expenditure would fall such as whether investment/expenditure pertains to business or relates to acquisition of capital asset or to other source or to agriculture.