DEEMED

INCOME
SRIVATHSAN .K (85201010)
PRANAV .G.R (85221716)
 DEEMED INCOME
◦ Deemed income refers to income that is not directly earned but is treated as taxable under the
Income Tax Act, 1961. This concept ensures that income is taxed under various circumstances
where actual receipt or specific conditions might otherwise lead to tax avoidance or evasion.
Deemed income includes unexplained cash, investments, expenditure, and financial
transactions where the source is not disclosed or justifiable.
PROVISIONS DEALING
WITH DEEMED INCOME
 DEEMED DIVIDEND – SECTION 2(22)
◦ Deemed dividend is a concept under the Income Tax Act, 1961, specifically outlined in Section 2(22)(e).
It treats certain transactions as dividends for tax purposes, even if they are not actual dividends. This
provision aims to prevent tax evasion by ensuring that distributions made by companies to their
shareholders, which are not in the form of actual dividends, are still subject to taxation.
◦ It defines deemed dividends as loans or advances provided by a company to its shareholders who hold at
least 10% of the voting power, or to entities where such shareholders have a substantial interest.
◦ It also includes payments made by the company for the individual benefit of substantial shareholders.
◦ After April 2021 the Dividend Distribution Tax was abolished, and dividend income, including deemed
dividends, is now taxable in the hands of the shareholders at their applicable income tax slab rates .
 CASH CREDIT – SECTION 68
◦ If any sum is credited in the books of an assessee maintained for the P.Y. and the assessee offers
no explanation about its nature and source or the explanation offered by him is not satisfactory,
the sum so credited may be charged to income tax as income of the assessee for the P.Y.
◦ The following shall also be treated as deemed income under section 68:
Where a closely held company credits any sum in its
book as share application money, share capital, securities premium reserve etc. , it shall be
deemed unexplained unless:
(i) The resident person in whose name such credit recorded in the books of such
company also offers an explanation about the nature and source of the such sum so credited; and
(ii) Such explanation in the opinion of A.O. is satisfactory
◦ VISP Pvt. Ltd. v. CIT (2004)
R Ltd. claimed that it had purchased goods for S Ltd. and made
entry in the books of account as a liability.-The A.O. on enquiry found that purchases were not
genuine and the whole transaction of alleged purchase by R Ltd. was bogus and that the entry
made in account was only a paper entry and invoked section 68. - R Ltd. however contended
that Sec. 68 can be invoked only in respect of cash entries and not otherwise.- The court held
that if the liability shown in the account is found to be bogus and no reasonable explanation is
offered by the assessee, the amount would be added towards the income of the assessee and
Section 68 is not limited to cash entries.
 UNEXPLAINED INVESTMENT –
SECTION 69
◦ If in the relevant P.Y. the assessee has made investment which are not recorded in the books of
account and the assessee offers no explanation about the nature and source of money invested
or the explanation offered by him is not satisfactory, the value of investment may be deemed
to be the income of the assessee for such P.Y.
◦ Subodhchandra and Co. v. DCIT(2017)
Documents regarding manufacture of gold ornaments,
percentage of gold purity was recorded as 93.37% and in export document as well as in
certificate of custom authorities, it was recorded that ornaments sold were carrying purity of
91.66%, excess consumption of gold was to be considered as unaccounted local sales of
assessee under section 69 of ITA, 1961.
 UNEXPLAINED MONEY – SECTION 69A
◦ If in any F.Y. the assessee is found to be the owner of any unrecorded money, bullion, jewellery or
valuable articles and offers no explanation about the nature and source of acquisition of these items or
the explanation offered by him is not satisfactory, the money and the value of the bullion, jewellery or
other valuable articles may be deemed to be the income of the assessee for such F.Y.
◦ CIT v. SarwanKumar Sharma (2014)
Assessee filed return declaraing income from salary and interest.
In the course of assessment, the A.O. found that assessee had a bank account in which a sum of Rs. 45
lakhs was deposited.- Assessee explained that said amount belonged to its business transactions relating to
the sale of silk clothes.- A.O. rejected assessee’s explanation and added amount deposited in bank to
assessee’s income under section 69A as there was no document to substantiate his claim.- It was held that
since assessee failed to produces a single document to substantiate his claim that he was engaged in
business of trading of silk cloth, therefore action taken by A.O. was correct.
 UNEXPAINED INVESTMENTS –
SECTION 69B
◦ If in any F.Y. the assessee has made investment or is found to be the owner of any bullion, jewellery or
other valuable articles and the A.O. finds that the actual sum spent on these items is more than what is
recorded in the book of account and the assessee offers no explanation about such excess amount or
explanation offered is not satisfactory, the excess amount may be deemed to be the income of the
assessee for such F.Y.
◦ IT v. Jaipal Aggarwal(2013)
Documents pertaining to a property were found and seized from
assessee’s premises. Assessee submitted that said property paper were given by a property dealers for
verification. Name of purchaser of property was not mentioned in documents. Further no one came forward
to claim these documents. Even summons served on owner of property came back being unserved. In view
of aforesaid, addition made under section 69 B was justified.
 UNEXPLAINED EXPENDITURE –
SECTION 69 C
◦ If in any F.Y. an assessee has incurred any expenditure and the assessee is unable to explain
properly the source of such expenditure or part thereof, the amount of such unsatisfactorily
unexplained expenditure will be treated as the income of assessee for the financial year in
which the expenditure is incurred.
◦ Further, notwithstanding anything contained in any other provision of the Income tax Act,
such unexplained expenditure which is deemed to be the income of the assessee, shall not be
allowed as a deduction under any head of income.
 HUNDI BORROWALS AND REPAYMENTS –
SECTION 69 D
◦ Borrowals on hundies and repayments thereof must be made by Account Payee cheques
otherwise the amount so borrowed or repaid will be treated as the income of the person
borrowing or repaying the amount for the P.Y. in which such borrowal or repayment is made.
The amount repaid shall include the amount of interest on the amount borrowed.
◦ If any amount borrowed on hundi has deemed to be the income of the borrower, he shall no be
liable to be assessed again in respect of such amount on repayment of such amount.
 TAXATION OF DEEMED INCOME –
SECTION 115 BBE
◦ Where the total income of an assessee includes any deemed income under sections 68,69, 69A , 69
B, 69 C or 69D, whether reflected in the return of income furnished under section 139 or
determined by the A.O., the tax payable shall be the aggregate of:
(i) On deemed income : Income tax @60% , surcharge @ 25% , Health and Education cess @ 4%.
(ii) On balance income as per the provision of the ITA,1961.
◦ This section has been inserted to restrict the benefit of basic exemption regarding such incomes
being claimed by assessees liable to pay tax as per slab system (i.e., individuals, HUF, etc.) Further,
while calculating the above incomes, no deduction for any expenditure or allowance shall be
allowed to the assessee. The Finance Act 2016 has provided that no set-off of any loss shall be
allowable for income under sections 68, 69, 69A, 69B, 69C or section 69D.
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