Unexplained investments deemed as taxable income

Can notings, WhatsApp chats, SMS found from third parties justify additions in case of a taxpayer?

- JIGAR MUKESH PATEL

Sections 69, 69A and 69B of the Income-tax Act deal with tax treatment of unexplained investments, money, bullion, jewellery and valuables of a taxpayer.

The provisions therein empower tax authorities to treat the value of such assets, the nature and source of acquisition of which the taxpayer is not able to satisfactorily explain, as his deemed income for that financial year.

Dire Tax Implications of the Deeming Provisions

When the deeming income provisions of the aforesaid sections come into play, the same can result in serious tax consequences. Under Section 115BBE, such deemed income is taxed at a flat rate of 60%, added by a surcharge of 25% on such tax and capped with a 4% cess. This works out to a tax burden of 78% and with penalty u/s. 271AAC, the effective liability on the taxpayer can mount up to 84% of the addition made by way of deemed income.

Distinct Burden of Proof on AO & Taxpayer