Taxation of Unexplained Expenditures in Clause 105 of Income Tax Bill, 2025 Vs. Section 69C of Income Tax Act, 1961

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..... y will provide a detailed analysis of Clause 105, compare it with Section 69C, and explore their implications within the broader legal framework of income tax law. Objective and Purpose The primary objective of both Clause 105 and Section 69C is to curb tax evasion by treating unexplained expenditures as income. The legislative intent is to ensure that all income, whether in the form of receipts or expenditures, is accounted for and taxed appropriately. Historically, taxpayers have sometimes attempted to reduce their tax liability by not declaring the sources of their expenditures. These provisions aim to close such loopholes by imposing a legal obligation on taxpayers to justify their expenditures or face taxation on the unexplained amou .....

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..... lowing them to consider the context and circumstances surrounding the unexplained expenditure. 2. Proviso: The proviso to Section 69C explicitly states that such unexplained expenditure will not be allowed as a deduction under any head of income. This aligns with Clause 105 and underscores the principle that income cannot be reduced by expenditures whose sources are not satisfactorily explained. Comparative Analysis While Clause 105 and Section 69C are fundamentally similar in their objective to treat unexplained expenditures as income, there are subtle differences in their construction and potential implications: - Discretionary Language: Clause 105 uses the phrase "shall be deemed," indicating a mandatory treatment of unexplained ex .....

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..... on the potential consequences of failing to provide satisfactory explanations. - Revenue Authorities: The provisions empower tax authorities to scrutinize expenditures closely. However, they must exercise their discretion judiciously to avoid arbitrary or unfair assessments. Training and guidelines may be necessary to ensure consistent application of these provisions. Conclusion Clause 105 of the Income Tax Bill, 2025, and Section 69C of the Income Tax Act, 1961, play a critical role in the taxation framework by addressing unexplained expenditures. Their effective implementation is vital in combating tax evasion and ensuring that all income is appropriately taxed. While Clause 105 introduces some changes in language and potential applic .....

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