Standard Procedure for applying provisions of unexplained cash credits u/s 68 of Income tax Act,1961
Central Board of Direct Taxes (CBDT) has issued a detailed instruction specifying SOP for dealing with unexplained cash credits u/s 68. As per the said Instruction, the following sequence of steps have been prescribed to be followed by the Assessing Officers (AO) for applying provisions of section 68 of the Act:
SOP for applying unexplained cash credits provisions
Step 1: Whether there is credit of a sum during the year in the books of accounts maintained by the taxpayer.
Step 2: If yes, the assessee should be asked to explain the nature and source of such credit appearing in the books of accounts of the assessee.
Step 3: If the assessee offers no explanation, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.
Step 4: If the assessee furnishes an explanation, the AO should examine whether the explanation so offered establishes. the three ingredients i.e. identity of the creditor, creditworthiness of the creditor and genuinenes of the transactions.
Step 5: Whether explanation of the assessee is reliable or acceptable? If yes, no further action is required and the sum so credited may not be charged to income tax.
Step 6: If the explanation so offered by the assessee is not acceptable or reliable, the AO should give a detailed reasoning in the assessment order for not accepting the same.
Step 7: The reasons for not accepting the explanation of the assessee should be communicated to the assessee.
Step 8: The Order passed by the AO should be speaking one bringing on record all the facts, explanation furnished by the assessee in respect of nature and source of the credit in its books of accounts and reasons for not accepting the explanation of the assessee. Relevant case laws should be relied upon wherever possible.
The Instruction also contains a detailed Background Note to section 68 along with some important case laws.