INTRODUCTION
Why Section 68 was introduced under Income Tax Act, 1961.
There was a great need and importance for introducing the provisions of section 68 under the income tax act, 1961 to safeguard and protect the interest of revenue, as assessee was engaged in harmful tax practices to evade tax in the form of fake cash credit entries in the books of account, after the introduction of this section many amendments have been taken place from time to time to enhance its applicability and to curb the menace and unearthing of Black Money, Accommodation Entries, Cash Credit Entries etc.
Assessee used to hide its Income or supress income by diverting its cash receipts and showing it as "Unsecured Loan" or in any other form in the books of accounts, thereby avoiding payment of tax on business receipts. It is a tax evasion device or tool used by large number of assesses across the nation to evade tax and thereby result in tax revenue loss to the Government of India.
To curb such malpractices and tax evasion tactics, section 68 came into light with timely amendments in it,
SECTION 68. Where any sum is found credited in the books61of an assessee maintained for any previous year, and the assessee offers no explanation61 about the nature and source thereof or the explanation offered by him is not, in the opinion of the 62[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:
63 [Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless -
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.]
Let us understand this section critically and in easy way;
1. Applicability
This Section is only applicable and can only be invoked when assessee is maintaining books of account and there is any sum which is found credited in the books of an assessee maintained for any previous year and assessee offers no explanation with regard to such cash credits or explanation offered by assessee was not satisfactory, then assessee will be held guilty under this section and thereby as a result, provisions of this section will trigger. All credit entries appearing in the books of accounts of the assessee are covered under this section. Reliance can be placed Smt. Shanta Devi Vs. CIT [ 1988] 171 ITR 532 (Punjab & Harayana High Court). In the abovementioned Case Law, it was held that on perusal of section 68 of the act shows that in relation to the expression ‘Books' the emphasis is on the word 'assessee' meaning thereby that such books have to be the books of the assessee himself and not of any other assessee.
2. Onus to prove
The burden lies on the assessee to prove that any sum which is found credited in books was a genuine transaction; nature and source of such entry should be proved by assessee, otherwise it would be treated as income of the assessee. But Assessee was not required to prove "Source of Source", means assessee was not required to prove the source of income of the person from whom he has received the amount. The only thing which assessee was required to do is to prove the genuineness of the transactions as well as the creditworthiness of the person providing credit along with documentary evidences, it is not the business of the assessee to find out the source of money of the person providing loan or any other credit in any form. Once assessee furnishes sufficient documents and explanations, it is on the onus of the department to verify the same and act accordingly.
3. Taxability
Unexplained Cash Credits are chargeable to tax u/s 115BBE of the Income Tax Act, 1961 at the rate of 60% plus surcharge plus Cess that comes to overall 78% that too without deduction of any expenses. The real and main purpose of introducing this provision is to charge the tax at higher rates than the normal rates, so that assessee would avoid concealing and hiding its income. The logic behind increasing the tax rate from 30% to 60% was to make sure assessee who is hiding and concealing its income will not be treated at par with other taxpayers i.e. both disclosed and undisclosed income will be taxed at roughly 30%, to penalise the tax evaders, the tax rate was increased.
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