| R & D Law Chambers LLP
Practice is led by Ravish Bhatt | Advocate, Bar Council of Gujarat (G/504/2008) | Dual-qualified lawyer (India and England and Wales) | Solicitor of England and Wales (non-practising), SRA Registration No. 492 477 | ADIT, Chartered Institute of Taxation, London Published: 4 November 2026 | Last reviewed: 4 November 2026 |
| This guide is written against the Income-tax Act, 2025 (Act No. 30 of 2025), in force from 1 April 2026, which replaced the Income-tax Act, 1961. Section numbers are given in the 2025 Act, with the 1961 Act number in brackets on first mention, because taxpayers and search engines still use the old numbers. Assessment of a tax year beginning before 1 April 2026 continues under the repealed 1961 Act. This note states Indian law only. |
| Sections 102 and 104 are not sections 68 and 69A renumbered. The source of source burden that the 1961 Act confined to share capital in closely held companies now reaches every loan and borrowing credited in any assessee’s books, under section 102(2). An addition under either section is taxed at a flat 60 per cent under section 195, with no deduction and no set off. |
What must the Assessing Officer establish before an addition for unexplained credits under section 102?
| A sum credited in the books of the assessee maintained for the tax year, and either no explanation of its nature and source or an explanation the Assessing Officer finds unsatisfactory. Where the credit is a loan or borrowing, section 102(2) adds a second condition: the lender must explain the nature and source of the sum as well. |
Section 102(1) reproduces section 68 of the 1961 Act almost word for word. The opening condition is that a sum is found credited in the books of an assessee maintained for any tax year, the only change from the old text being the substitution of “tax year” for “previous year”. The sum so credited is then charged to income-tax as income of the assessee of that tax year. Because the operative words are unchanged, the jurisprudence on what discharges the burden continues to apply.
That jurisprudence has two limbs, and they are often presented as a conflict. They are not. The first limb fixes what the Revenue must do with an explanation it receives. In Srelekha Banerjee v. Commissioner of Income Tax, Bihar and Orissa (1963) 49 ITR 112, the Supreme Court stated the approach:
“Before the Department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The Department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof.”
The Supreme Court applied that passage in the section 68 context in Commissioner of Income Tax, Orissa v. Orissa Corporation (P) Ltd. (1986) 159 ITR 78, where the assessee had given the names and addresses of the creditors, the Revenue issued summonses which were returned unserved, and nothing further was done. The Court held that in those circumstances the assessee could do no more, and an adverse inference was not open.
The second limb fixes what the assessee must do. In Sumati Dayal v. Commissioner of Income Tax (1995) 214 ITR 801, the Supreme Court held that the apparent must be considered real until there are reasons to believe it is not, and that the taxing authorities are then entitled to look into surrounding circumstances and apply the test of human probabilities. In Vijay Kumar Talwar v. Commissioner of Income Tax (2011) 330 ITR 1 the addition was upheld on that footing, the assessee having produced confirmations that could not be correlated with the entries.
Read together, the dividing line is material. Where the Revenue holds material that contradicts the explanation, or can show an inherent weakness in it, the explanation may be rejected and probabilities applied. Where it holds none and has not sought any, Orissa Corporation governs. The practical consequence is that the first reply to a section 102 query should be built to put material on the file, not merely to assert a position.
Is a bank statement “books of an assessee” for section 102?
| Section 102 requires a sum credited in the books of an assessee maintained for the tax year. That is a condition precedent, and it is why the question matters. Section 104 carries no equivalent requirement: it applies to an asset not recorded in “books of account, if any, maintained”. The absence of books defeats section 102. It does not defeat section 104. |
The answer turns on the statutory words rather than on any gloss. Section 102(1) does not speak of a credit in a bank account. It speaks of a sum found credited in the books of an assessee, maintained by that assessee, for the tax year in question. Where an assessee maintains books, transactions passing through the bank are recorded in them, and a credit in the ledger is a credit in the books. Where an assessee maintains no books at all, the opening condition of section 102 is not satisfied on the face of the provision.
Parliament has carried that asymmetry forward deliberately. Section 104 applies to an asset which “is not recorded in the books of account, if any, maintained by him for any source of income”. The words “if any” contemplate an assessee with no books and keep the provision available against that assessee. Section 102 has no such words, because it cannot: a credit in books presupposes books.
Two points follow for practice. The first is that an assessment order which adds a bank receipt without identifying the books in which the sum stands credited has not engaged with the opening condition of the section it is applying. The second is that the point is rarely worth leading with, because the Revenue is not disarmed by it; it is redirected to section 104, where the year of charge is fixed differently. The question is therefore better used to test which provision the officer is actually applying than as a free standing answer.
In which tax year is an unexplained asset taxable under section 104?
| The tax year in which the asset is found to be owned by the assessee. Not the year of acquisition, and not the year of any later sale. Section 104 fixes the year by the finding of ownership, so an addition under it stands or falls on an identified finding, in an identified year, that the assessee owned the asset. |
Section 104 applies where, in any tax year, an asset is found to be owned by the assessee and is not recorded in the books of account, if any, maintained for any source of income, or where the Assessing Officer finds that the amount expended on acquiring it exceeds the amount recorded. If no explanation of the nature and source of acquisition is offered, or the explanation is not satisfactory in the opinion of the Assessing Officer, the value of the asset or the excess is deemed to be the income of the assessee for the tax year in which the asset is found to be owned. Section 104(2) defines “asset” to include money, bullion, jewellery, virtual digital asset and other valuable article.
Three consequences follow from the way the year is fixed. First, section 104 is not interchangeable with section 103 (formerly sections 69 and 69B), which deals with an unexplained investment and attaches to the tax year in which the investment is made. A choice between the two provisions is a choice of year. Second, an unexplained acquisition does not become taxable in a later year merely because the asset was realised in that later year. Third, and most practically, the finding of ownership is not a formality.
On that last point the Supreme Court has been express. In M/s. D.N. Singh v. Commissioner of Income Tax (Central), Patna, Civil Appeal Nos. 3738 to 3739 of 2023, decided on 16 May 2023, the Court said of the corresponding provision:
“it is indispensable to invoke the said provision that the assessing officer must find that the articles in question was under the ownership of the assessee in the financial year. This is apart from other requirements being met.”
The Court held that a carrier whose possession began as a bailee was not the owner, and that the Assessing Officer had acted illegally in holding otherwise. The ownership requirement is carried into section 104 in the same terms, so the holding applies. What may found that finding is a separate question: in Chuharmal v. Commissioner of Income Tax (1988) 172 ITR 250, the Supreme Court accepted that possession can establish ownership, applying the principle that title follows possession, which is now in section 113 of the Bharatiya Sakshya Adhiniyam, 2023 (formerly section 110 of the Indian Evidence Act, 1872).
One point is genuinely open, and is stated as open. D.N. Singh also held that “other valuable article” in the 1961 Act provision took its colour from the preceding words money, bullion and jewellery, so that bitumen was not within it. Section 104(2) now defines “asset” as an inclusive term and adds virtual digital asset to that list. Whether the reasoning on the genus survives a defined term that has been extended in that way has not been tested. It should not be assumed either way.
Section 102 or section 104: which applies to an unexplained bank credit?
| Section 102 where the sum stands credited in books the assessee maintains. Section 104 where there are no such books and the receipt is treated as an asset found to be owned. The choice is not cosmetic: it changes the condition the officer must satisfy, the year of charge, and whether a source of source explanation is required. |
The two sections sit next to each other in Chapter VI of the 2025 Act and overlap in practice, because the same receipt can often be described either way. They are not alternatives of equal effect, and an assessment order that does not identify which of them is being applied leaves the assessee unable to know what case is being made.
| Section 102 (formerly section 68) | Section 104 (formerly sections 69A and 69B) | |
|---|---|---|
| What it attaches to | A sum found credited in the books of the assessee | An asset found to be owned by the assessee and not recorded |
| Books required | Yes. Books of an assessee maintained for the tax year are a condition precedent | No. The section reads “books of account, if any, maintained” |
| Year of charge | The tax year in which the sum is credited | The tax year in which the asset is found to be owned |
| Source of source | Required for a loan or borrowing under section 102(2), and for share capital in a closely held company under section 102(3) | Not imposed by the section |
| What the officer must find | A credit, and no satisfactory explanation of its nature and source | Ownership, non-recording, and no satisfactory explanation of the nature and source of acquisition |
| Rate | 60 per cent under section 195 | 60 per cent under section 195 |
The row that matters most in current practice is the fourth. Under the 1961 Act, the requirement to explain the source of the source was introduced by the Finance Act, 2012 with effect from assessment year 2013-14, and it was confined to share application money, share capital, share premium or any such amount received by a company in which the public are not substantially interested. Loans were outside it. Section 102 of the 2025 Act keeps that limb, as section 102(3), and adds a new one.
Section 102(2) applies “where the sum so credited consists of loan or borrowing or any such amount”. It applies to every assessee, not only to closely held companies. Its effect is that the assessee’s explanation is deemed unsatisfactory unless the person in whose name the credit is recorded also explains the nature and source of the sum, and the Assessing Officer is satisfied with that explanation. Section 102(4) exempts a credit recorded in the name of a venture capital fund or venture capital company specified in Schedule V from both sub-sections.
For an individual or a firm that has taken a loan, that is a change of substance and not of numbering. Under the old provision the lender’s own source was not part of the assessee’s burden. Under section 102(2) it is, as a matter of statutory language rather than of judicial gloss, and the body of authority built on the narrower proviso was decided on words that Parliament has replaced. Loan documentation prepared on the earlier footing is unlikely to meet the new test.
At what rate is an addition under section 102 or section 104 taxed?
| A flat 60 per cent under section 195 of the Income-tax Act, 2025, which applies to income referred to in sections 102 to 106. No deduction for any expenditure or allowance is allowed in computing that income, and no loss may be set off against it. Section 195 itself does not deal with surcharge or cess. |
Section 195 is the successor to section 115BBE of the 1961 Act. It charges income referred to in section 102, 103, 104, 105 or 106 at 60 per cent, whether that income is reflected in the return furnished under section 263 or is determined by the Assessing Officer, and the balance of the total income is taxed as if the specified income had been excluded. Section 195(2) then bars, irrespective of anything else in the Act, any deduction for expenditure or allowance and any set off of loss against that income.
The practical weight of that provision is easy to understate. The difference between a receipt characterised as business income and the same receipt brought within sections 102 to 106 is not a difference of rate alone. It is the loss of every deduction and every set off that would otherwise apply, on top of a rate that will usually exceed the slab or corporate rate. The characterisation argument is therefore the whole argument, and the material that decides it is the material placed on the file at the assessment stage.
How R & D Law Chambers Works on These Matters
R & D Law Chambers advises individuals, firms, Indian companies, foreign businesses and non-residents on assessment and reassessment proceedings under the Income-tax Act, 2025, including additions for unexplained credits and unexplained assets, and on appeals from those assessments. The practice is led by a dual-qualified lawyer (India and England and Wales) who holds the Advanced Diploma in International Taxation.
The approach on these matters starts from the provision rather than from the figure. Which section is being applied decides the condition the officer must satisfy, the tax year the addition attaches to, and whether the person in whose name a credit stands must be brought on record. Those are questions to settle in the first reply, because the material placed on the file at that stage is the material every later forum reads.
Related services and reading:
- Income tax lawyers in Ahmedabad: assessments, reassessments and ITAT appeals
- Responding to income tax notices in India
- Responding to a reassessment notice under sections 280 and 281
- Faceless assessment procedure, timeline and key features
| This article is general information on Indian law as at 4 November 2026 and is not legal advice. It does not create a lawyer-client relationship. Section references are to the Income-tax Act, 2025 unless otherwise stated. Specific advice should be taken on any particular assessment, addition or appeal before acting. |