Section 102 — Unexplained credits
Old Act equivalent: Section 68 of IT Act 1961 Sub-part: Chapter VI — Aggregation of Income
Statutory Text
(1) Where any sum is found credited in the books of an assessee maintained for any tax year, and—
(a) the assessee offers no explanation about the nature and source of such credit; or
(b) the explanation offered about the nature and source of such credit by assessee is not satisfactory in the opinion of the Assessing Officer,
then, the sum so credited shall be charged to income-tax as income of the assessee of that tax year.
(2) For the purposes of sub-section (1), where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, the explanation offered by such assessee shall be deemed to be not satisfactory, unless,—
(a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer has been found to be satisfactory.
(3) For the purposes of sub-section (1), where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount, by whatever name called, the explanation offered by such assessee company shall be deemed to be not satisfactory, unless—
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation, in the opinion of the Assessing Officer has been found to be satisfactory.
(3) Nothing contained in sub-section (2) or (3) shall apply if the person, in whose name the sum referred to in those sub-sections is recorded, is a venture capital fund or a venture capital company as referred to in Schedule V (Table: Sl. No. 6).
Sub-sections
Sub-section (1)
Basic rule: any unexplained credit in books of account is deemed income if the assessee cannot satisfactorily explain its nature and source.
Sub-section (2)
Enhanced burden for loans/borrowings: the lender must also explain the nature and source — assessee’s explanation alone is not enough.
Sub-section (3)
Enhanced burden for private companies: for share application money, share capital, share premium — the resident investor must also explain nature and source.
Sub-section (4)
Exception: venture capital funds/companies (Schedule V, Sl. No. 6) are exempt from the enhanced burden under sub-sections (2) and (3).
Key Structure
- Applies to: Any assessee with unexplained credits in books of account
- Burden of proof: On the assessee to explain nature AND source; for loans/share capital — the creditor/investor must also explain
- Private company share capital: Resident subscriber must independently explain — deemed unsatisfactory otherwise
- Exception: Venture capital fund/company credits
- Charge: As income of the tax year in which the credit appears
- Tax rate: Per section 107 → section 195 (at maximum marginal rate)
Cross-References
- s107-charge-of-tax — Section 107: income under sections 102–106 charged per section 195
- s195-tax-sections-102-106 — Section 195: tax rate on unexplained income
- Schedule V (Table: Sl. No. 6) — Venture capital fund/company exemption
Amendment Notes
None noted from the extracted pages.
Practical Notes
- This is the successor to the heavily litigated old Section 68. The three-pronged test remains: identity of the creditor, creditworthiness of the creditor, and genuineness of the transaction.
- Sub-section (2) reverses the burden for loans: even if the assessee explains, the lender must independently corroborate.
- Sub-section (3) targets shell company share capital infusion — the resident shareholder must explain, not just the company.
- Tax on unexplained credits is at the maximum rate under section 195 — plus surcharge and cess. No deductions, exemptions, or set-off are allowed.