Section 271AAC of Income Tax Act

Section 271AAC of Income Tax Act imposes a penalty on assessees for possessing unaccounted income. Under Section 271AAC, a taxpayer will be bound to pay penalties if it is determined by the Assessing Officer that the taxpayer is holding any income specified in Section 68, Section 69, Section 69A, Section 69B, Section 69C or Section 69D. This article is a brief analysis of the various sections covered in the Act, and the corresponding liability of the assessee.

Section 271AAC of Income Tax

Section 271AAC of the Income Tax Act is reproduced below for reference:

271AAC. (1) The Assessing Officer may, notwithstanding anything contained in this Act 
other than the provisions of section 271AAB, direct that, in a case where the income 
determined includes any income referred to in section 68, section 69, section 69A, 
section 69B, section 69C or section 69D for any previous year, the assessee shall pay 
by way of penalty, in addition to tax payable under section 115BBE, a sum computed 
at the rate of ten per cent of the tax payable under clause (i) of sub-section (1) of 
section 115BBE:
Provided that no penalty shall be levied in respect of income referred to in section 68, 
section 69, section 69A, section 69B, section 69C or section 69D to the extent such income 
has been included by the assessee in the return of income furnished under section 139 and 
the tax in accordance with the provisions of clause (i) of sub-section (1) of section 115BBE 
has been paid on or before the end of the relevant previous year.
(2) No penalty under the provisions of section 270A shall be imposed upon the assessee 
in respect of the income referred to in sub-section (1).
(3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to 
the penalty referred to in this section.

Relevant Sections

An assessee will be penalized under Section 271AAC for holding any income as specified in Section 68, Section 69, Section 69A, Section 69B, Section 69C or Section 69D. We will briefly examine these sections:

Section 68 of the Income Tax Act

Section 68 of Income Tax Act specifies that if any sum is credited in the books of the assessee for a particular previous year, and the assessee offers no explanation about the nature and source of the credit or if the explanation offered by the person is found to be unsatisfactory by the Assessing Officer, the credited amount will be taxable as the income of the assessee for the particular year. The applicability of this section is subject to the condition that the assessee, in this case, is a company (not being a company in which the public are substantially interested), and the credited amount includes share application money, share capital, share premium or the likes of it.

Section 69 of the Income Tax Act

If the taxpayer has made any investments in the financial year immediately preceding the assessment year, which is not recorded in the books of account and the assessee abstains from making any explanation about the nature and source of the investments, or the explanation offered by him is found to be unsatisfactory, the value of the investments may be deemed to be the income of the assessee for the particular financial year.

Section 69A of the Income Tax Act

If in a given financial year, the assessee is found to be the owner of any money, bullion, jewellery or valuable article maintained by him for any source of income, and the assessee has neither recorded the same in the books of account nor has offered an explanation on the nature and source of its acquisition, the specified valuables may be deemed to be the income of the assessee for the particular financial year.

Section 69B of the Income Tax Act

Section 69B of the Income Tax Act provides that if in a given financial year, the assessee has made investments or is found to be the owner of any bullion, jewellery or any valuable article, and the Assessing Officer opines that the amount expended on the same exceeds the amount specified in the books of account maintained by the assessee for any source of income, and the assessee has offered an opinion which is found to be unsatisfactory, the excess amount will be considered as the income of the assessee for the particular financial year.

Section 69C of the Income Tax Act

While the previously discussed sections deal with the income of the assessee, Section 69C covers expenditure. The rules under this Section stipulates that if the assessee has incurred any expenditure and offers no explanation for the same, or if the assessee offers an explanation which isn’t satisfactory in the eyes of the Assessing officer, the amount covered by such expenditure or part thereof will be deemed to be the income of the assessee for the particular financial year. This is subject to the condition that such unexplained expenditure which is considered as the income of the assessee shall not be allowed as a deduction under any of the income heads.

Section 69D of the Income Tax Act

If any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount for the particular year; on the condition that if a person is deemed to be the recipient of such income, the person will not be assessed again in respect of the provisions of this section on repayment of such amount.

Section 115BBE

Section 115BBE was introduced to curb the use of unaccounted money and to penalize the taxpayers who are holding incomes as specified in Section 68, Section 69A, Section 69B, Section 69c and Section 69D. Under this section, the defaulting taxpayers will be imposed with taxes at the highest rate of 30% irrespective of the slab of income. The taxes will be imposed on those incomes which are deemed to have been earned by the assessee. The assessee would not get the benefit of any deductions in respect of any expenditure or allowance in computing the deemed income.

Penalty under Section 271AAC

The defaulting taxpayer will be imposed with a penalty that is computed at the rate of 10% of tax payable. This will be in addition to the taxes payable under Section 115BBE.