Section 115BBE in The Income Tax Act, 1961

What is Section 115BBE?

Section 115BBE of the Income Tax Act deals with the taxation of unexplained income. This article examines concerns about the misuse of Sections 68 to 69D, the heavy tax implications of Section 115BBE, and judicial precedents that clarify its scope and application. The main purpose of introducing this provision was to curb black money and tax evasion.

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Applicability of Section 115BBE

Section 115BBE applies under the following conditions:

• Section 115BBE of the Income Tax Act is applicable to income that is deemed to be unexplained under sections 68, 69, 69A, 69B, 69C, and 69D. This includes unexplained cash credits, investments, money, bullion, jewelry, or other valuable articles.
• The taxpayer has income from undisclosed sources.
• This income is not reported in the books of accounts, tax returns, or any documents filed under the Income Tax Act.
• The taxpayer has not paid taxes on this income.
• The income is identified during proceedings under the Income Tax Act.
• This section applies to all taxpayers, including individuals, HUFs, companies, and others, regardless of their legal status.

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Exceptions to Section 115BBE

Certain exceptions apply to Section 115BBE:

1. Income Declared under the Income Declaration Scheme (IDS): Income disclosed under IDS will not be taxed under Section 115BBE.
2. Income Disclosed During a Search or Survey: If undisclosed income is identified during a search or survey by the Income Tax Department, it falls under Section 115BBE. However, if the taxpayer voluntarily declares this income and pays taxes on it before the search or survey concludes, it is exempt from Section 115BBE.
3. Income Disclosed to the Settlement Commission: Income disclosed before the settlement commission and taxed accordingly is not subject to Section 115BBE.

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Provisions Under Section 115BBE

Section 68 outlines the tax treatment for sums credited in a taxpayer’s books for which the taxpayer either fails to explain the nature and source or provides an explanation deemed unsatisfactory by the Assessing Officer. Such sums may be taxed as the taxpayer’s income for that year.

Section 68

Section 68 is applicable if the following conditions are met -

• Maintenance of Books: The assessee has maintained proper books of accounts.
• Credit Entry: A sum is credited to the books during the financial year.
• Lack of Satisfactory Explanation: The taxpayer fails to provide an explanation regarding the nature and source of the credited amount, or the explanation provided is deemed unsatisfactory by the Assessing Officer.

If these conditions are satisfied, the credited sum can be taxed as the taxpayer's income for that year.

Section 69

If a taxpayer makes investments during a year that are not recorded in their books of accounts, and:

• Fails to provide an explanation about the nature and source of the investments, or
• Provides an explanation deemed unsatisfactory by the Assessing Officer,

then the value of such investments may be treated as the taxpayer’s income for that year.

Section 69A

If a taxpayer is found to own money, bullion, jewellery, or other valuable items during a year and:

• These items are not recorded in the taxpayer’s books of accounts (if maintained), and
• The taxpayer fails to provide a satisfactory explanation about the nature and source of their acquisition,

then the value of such money, bullion, jewellery, or valuable articles may be treated as the taxpayer’s income for that year.

Section 69B

If a taxpayer makes investments or owns bullion, jewellery, or other valuable items, and:

• The amount spent on such investments or acquisitions exceeds the amount recorded in their books of accounts,
• The taxpayer fails to explain the excess amount or provides an explanation deemed unsatisfactory by the Assessing Officer,

then the excess amount may be treated as the taxpayer’s income for that year.

Section 69C

If a taxpayer incurs any expenditure during a year and:

• Fails to provide an explanation regarding the source of the expenditure (or part of it) or
• The explanation offered is deemed unsatisfactory by the Assessing Officer,

then the amount of such unexplained expenditure may be treated as the taxpayer's income for that year.

Additionally, any unexplained expenditure treated as income under Section 69C cannot be claimed as a deduction under any head of income.

Section 69D

Amount Borrowed or Repaid on Hundi under Section 69D

• If a taxpayer borrows an amount on a hundi or repays any amount due on a hundi to any person, and the transaction is not done through an account-payee cheque drawn on a bank, the borrowed or repaid amount will be deemed to be the taxpayer’s income for the year in which the amount was borrowed or repaid.
• However, if any amount borrowed on a hundi has already been treated as income under Section 69D, the taxpayer will not be assessed again for the same amount upon repayment.
• The repayment amount also includes any interest paid on the borrowed sum.

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Tax Rates Under Section 115BBE

As per Section 115BBE, if the total income of an assessee includes income from unexplained sources referred to in Sections 68, 69, 69A, 69B, 69C, or 69D, the tax rate on such income will be 60%. This rate is applicable in the following cases:

• Income included in the return: If the income from unexplained sources is reflected in the return of income filed under Section 139.
• Income determined by the Assessing Officer: If the income is determined by the Assessing Officer but not covered under the first case.

The tax rate of 60% is further increased by:

• 25% surcharge, and
• 6% penalty,

resulting in a final tax rate of 84% (including cess).

However, the 6% penalty will not be levied if the income under Sections 68, 69, etc., is disclosed in the return and tax is paid by the end of the relevant previous year.

Additionally, no deductions for expenditure, allowances, or set-off of losses will be allowed in calculating the income under Section 115BBE.

Hope this article helped you understand all about section 115BBE. Failing to report income under sections 68, 69, 69A, 69B, 69C, and 69D can result in huge penalties under section 115BBE. If you are someone who finds taxes complicated, you can connect with our tax experts, who can not only help you file your ITR but also maximize your tax savings and stay tax compliant. Book a tax expert now!

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