Section 105 — Unexplained expenditure
Old Act equivalent: Section 69C of IT Act 1961 Sub-part: Chapter VI — Aggregation of Income
Statutory Text
(1) Where any expenditure has been incurred by the assessee in any tax year, and—
(a) the assessee offers no explanation about the source of such expenditure or part thereof; or
(b) the explanation offered about the source of such expenditure by the assessee is not satisfactory in the opinion of the Assessing Officer,
then, the amount covered by such expenditure or part thereof, shall be deemed to be the income of the assessee for that tax year.
(2) Irrespective of any other provision of this Act, the amount deemed as income in sub-section (1) shall not be allowed as a deduction under this Act.
Key Structure
- Applies to: Any expenditure where the assessee cannot explain the source
- Deemed income: Amount of unexplained expenditure
- Double hit (sub-section 2): The deemed income is NOT allowed as a deduction — so the assessee is taxed on the unexplained source AND cannot claim the expenditure as a business expense
- Tax rate: Per section 107 → section 195
Cross-References
- s102-unexplained-credits — Section 102: unexplained credits
- s107-charge-of-tax — Section 107: charge at special rates
Practical Notes
- Sub-section (2) creates a “double whammy”: the unexplained expenditure is deemed income AND cannot be claimed as a deduction. Example: if Rs. 10 lakhs is spent on repairs but the source is unexplained, Rs. 10 lakhs is added as income AND the Rs. 10 lakhs repair expense is disallowed.
- This is one of the harshest provisions in the Act — frequently invoked in search cases where expenditure is found without corresponding disclosed income.