If you have got any credit in Bank account, that may not necessarily be an explained income. In some cases even if the assessee has received any amount of money via proper banking channels still it may liable to income tax @ 82.50% where the assess fails to explain or disclose its source, creditworthiness and identity etc of the lender of such money to the satisfaction of A.O, then the entire amount so received shall be liable to Tax under section 68 of the Income Tax Act and would be taxed as Undisclosed Income.
Irrespective of the fact that the transaction is done through proper banking channels, as it is not sufficient to prove the genuineness of the transactions.
Section 68 of the Income Tax Act
As per the provisions of the section 68 of the Income Tax Act, any amount of sum found credited in the books of accounts of an assessee, for which assessee fails to explain or fails to disclose its source, creditworthiness, and identity of the lender or the explanation provided by him is not, in the opinion of the A.O, satisfactory, then the amount so credited shall be liable to income tax for that year as undisclosed income.
Where the assessee being a closely held company, if the amount of money so credited in the books of account consists of share capital, share premium, share application money or any other amount by whatever name called, and the explanation provided by such company in respect of above mentioned sum shall be deemed to be not satisfactory, unless:
- The person whose name is recorded in books of accounts of the company in respect of such credit is a resident, and the said person offers an explanation about the some so credited.
- The explanation provided by the said person is deemed to be satisfactory to the Assessing officer.
Implication on Shares Application money received
- Where a taxpayer has received any sum as share application money from shares subscription, the taxpayer has to authenticate the genuineness of the transaction, creditworthiness of the subscriber and the identity of the subscribers even though such application money is received via proper banking routes and channels.
- Where the taxpayer fails to prove the genuineness of the transaction or subscribers’ identity or creditworthiness to the satisfaction of Assessing Officer then the amount so received as share application money would be taxed @ 75% plus penalty.
Implication on Unsecured Loan received
- In a case where an assessee received an unsecured loan from any person being its relative, partner, from NBFC, from his firm etc. , the unsecured load has been taken through proper banking channels still assessee has to authenticate the genuineness of the transaction, creditworthiness of the subscriber and the identity of the lenders even though such unsecured loan is received via proper banking routes and channels.
- Where the taxpayer fails to prove the genuineness of the transaction or subscribers’ identity or creditworthiness to the satisfaction of Assessing Officer then the amount so received as the unsecured loan would be taxed @ 75% plus penalty.
- However, proposed amendment has given wide power to levy tax as high as 82.50% on any addition made by taxman in course of assessment proceeding u/s 68, section 69, section 69A, section 69B, section 69C or section 69D of the Income Tax Act 1961.