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CS Professional · Advanced Direct Tax Laws and Practice · Income Tax Implication on Specified Transactions

Under the Income-tax Act, 2025, Arjun Exports Pvt Ltd receives Rs 40 lakh from a person located in a notified jurisdictional area. It gives no explanation of the source of the sum in the hands of that person or the beneficial owner. What is the tax consequence?

The Rs 40 lakh is deemed to be Arjun Exports' income for that tax year. The assessee must explain the source in the hands of the payer or beneficial owner. Without an explanation, or with one the Assessing Officer finds unsatisfactory, deeming applies.

  1. AThe sum is deemed to be Arjun Exports' income for that tax yearCorrect
  2. BOnly the interest earned on the sum is taxed
  3. CThe sum is taxed only if the Assessing Officer proves that it was unaccounted
  4. DThe sum is treated as a capital receipt and is exempt

Explanation

Under section 176(4), if the assessee gives no explanation about the source, or gives one that the Assessing Officer finds unsatisfactory, the sum is deemed to be the assessee's income for that tax year. The burden is on the assessee, so the option requiring the AO to prove it is wrong.

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