Income TaxIncome from Undisclosed Sources Source of Funds in Hands of Loan Creditors Need to be ExplainedDraconian Amendment by Finance Act, 2022

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The Tax Publishers Income Tax--Income from Undisclosed Sources Source of Funds in Hands of Loan Creditors Need to be Explained--Draconian Amendment by Finance Act, 2022 CA. Nisha Bhandari Presently it is held in many cases that in case of loan creditors source of source is not required to be proved i.e. such creditors are not required to prove their source. But the Finance Act, 2022 has provided a new condition to the effect that now source of any sum whether in form of loan or borrowing, or any other liability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or entry provider. The learned author analyses the said amendment in light of existing judicial decisions in this regard. 1. Addition when can be made by invoking provision contained in Section 68 and assessing officer's jurisdiction thereto According to Section 68 where any sum is found credited in the books of an assessee, maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Thus whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the assessing officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the assessing officer to be satisfied whether the said explanation is correct or not. It is, in this regard, that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the assessing officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not. The assessing officer thus has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words 'any sum found credited in the books' in Section 68 indicates that the said section is very widely worded and an assessing officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Income from Undisclosed Sources

Source of Funds in Hands of Loan Creditors Need to be Explained--Draconian Amendment by Finance Act, 2022

CA. Nisha Bhandari

Presently it is held in many cases that in case of loan creditors source of source is not required to be proved i.e. such creditors are not required to prove their source. But the Finance Act, 2022 has provided a new condition to the effect that now source of any sum whether in form of loan or borrowing, or any other liability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or entry provider. The learned author analyses the said amendment in light of existing judicial decisions in this regard.

1. Addition when can be made by invoking provision contained in Section 68 and assessing officer's jurisdiction thereto

According to Section 68 where any sum is found credited in the books of an assessee, maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

Thus whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the assessing officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the assessing officer to be satisfied whether the said explanation is correct or not. It is, in this regard, that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the assessing officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not. The assessing officer thus has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words 'any sum found credited in the books' in Section 68 indicates that the said section is very widely worded and an assessing officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money.