1. Where  the assessee has made investments which are not recorded in the books of accounts ‘if any’ maintained by him for any source of the income and
  2. Assessee could not explain about the nature and source of the investments ,or
  3. The explanations given by the assessee is not satisfactory in the opinion of the Assessing  Officer

Than the value of the investments may be deemed to the income of the assessee of such financial year.


  • The initial burden of proof lies on the assessee.
  • He should offer the explanation with suitable proof in respect of the concerned investment.


There must be an opportunity of being heard given by the A.O. to the assessee.


  • Orissa High Court in the case of Aurobindo Sanitary Stores V. CTC (2005) Reported in 276 ITR 549 (Ori) which is a unique judgement on Section 69, which has made the clarity of section 69 in a very ameliorated manner.
  • The relevant abstract of the judgement is reproduced herewith :
  • “ For, applying Section 69, the Assessing Officer must first come to a finding that the assessee made investments which are not recorded in the books of account and thereafter call for an explanation from the assessee about the nature and source of the investments and if he finds that no such explanation was furnished by the assessee-firm or the explanation offered by the assessee was not satisfactory, he could treat the value of the investments to be the income of the assessee-firm of the financial year in which it has made the investments. The Assessing Officer had come to the conclusion that the assessee-firm had made investments during the financial year previous to the assessment year only on an analysis of different figures of assets and liabilities taken from the balance-sheet and the party ledgers and not on the basis of any material or information that the appellant had in fact made investments in some form or the other such as immovable and movable assets which were not recorded in the books of the assessee-firm, the source and nature of which the appellant had failed to explain to the satisfaction of the Assessing Officer. Therefore, section 69 could not be applied to treat the said sum as income”


  • The amount of unexplained investment will be treated the income of the assessee in which year he has made the investment.
  • For Example if an assessee has made the FDR in the year 2013-14 but it is found in the year 2016-17 than the investment of the FDR  will be treated the deemed income for the year 2013-14 the year of investment.


  • The amount of income tax calculated on the unexplained investment at the rate of 60% + 25% Surcharge on such tax and cess as applicable. The effectively rate comes to 78.00% for the A.Y. 2019-20 if such income is reflected in the return of income furnished U/s 139.
  • If such income is not reflected in the return of income furnished u/s 139 then penalty of 10% of tax payable. In such case burden including penalty will come to 84%.

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