In wake of audit observations of C&AG in its Draft Report on Compliance Audit on Application of Provisions under Section 68, 69A, 69B, 69C and 69D read with Section 115BBE of the Income-tax Act, 1961 (hereinafter referred to as “the said Report”), Central Board of Direct Taxes (CBDT), Ministry of Finance hereby issues Letter F.No. 225/26/2026-ITA.II, dated 29-05-2026 to all the Principal Chief Commissioners of Income Tax and Director Generals of Income Tax.
CBDT’s Letter: CBDT’s Letter dated May 29, 2016 (F.No. 225/26/2016-ITA.II) has been addressed to all Principal Chief Commissioners of Income Tax and Director Generals of Income Tax. The said Letter has been issued by Central Board of Direct Taxes (CBDT), Ministry of Finance, drawing attention of all the aforesaid officers to the audit objections raised by Comptroller and Auditor General of India (C&AG) in its Draft Report on Compliance Audit on Application of Provisions under Section 68, 69A, 69B, 69C and 69D read with Section 115BBE of the Income-tax Act, 1961.
Sections 68 to 69D — Deeming Provisions for Unexplained Credits and Investments: These sections are deeming provisions to treat unexplained cash credits, unexplained investments, unexplained expenditure, and amounts borrowed or repaid on hundi in an undisclosed manner as income of the assessee. The corresponding provisions under new Income-tax Act, 2025 are Sections 102, 103, 104, 105 and 106 respectively.
(6) Sections 68 to 69D read with Section 115BBE of the Act correspond to Sections 102 to 106 read with Section 195 of the New Act and the income referred to in these sections is required to be charged to tax at a special flat rate and no deduction of any expenditure or set-off of any loss is permitted while computing such income from any other provision of the Act. Thus, non application or incorrect application of the above provision by AOs was a significant finding in the C&AG audit.
All Field Offices Are Directed As Under:
Before invoking the aforesaid sections of the Act, the assessing officer shall satisfy himself regarding the true nature of the amount under consideration and its source. He shall also hold necessary investigation or conduct enquiry as required and shall use his expertise while applying the provisions of section 133(6) of the Income-tax Act, 1961 (corresponding to section 252 of the Income-tax Act, 2025) to collect evidence as required. He may hold survey under section 132 of the Act, issue summons under section 37 of the Act and collect information required from any other person etc.
As assessing officer has to apply the relevant provisions of the Act for dealing the income which has been found to have been received by an assessee. Such application of a provision should not be of a mechanical or a blanket nature and has to be made only after holding a proper inquiry and finding the facts of the case under consideration.
Mandatory Application of Section 115BBE: While making additions under Sections 68, 69A, 69B, 69C and 69D of the Income-tax Act, 1961 (corresponding Sections 102, 103, 104, 105 and 106 of the Income-tax Act, 2025), the provisions of Section 115BBE of the Income-tax Act, 1961 (corresponding Section 195 of the Income-tax Act, 2025) must be applied. Section 115BBE of the Income-tax Act, 1961 (corresponding Section 195 of the Income-tax Act, 2025) mandates tax at special rates on such additions and expressly prohibiting deduction of any expenditure or set-off of any loss in computing income under these sections.
Also ensure that relevant columns of the computation sheet are accurately filled while computing income, tax thereon and also for carryover of any losses in cases where sections 68, 69C and others are involved.
The instruction issued by the CBDT follows up the C&AG Audit findings and seeks to remove practices followed in the Assessing Offices of taking colors of law and causing loss of revenue. Sections 68 to 69D read with Section 115BBE are some of the most contentious sections of the Income-tax Act and have been increasingly invoked by the Income-tax Department in search actions and in survey under the Act. Hence, there is an immense necessity for uniform application of law by all the Assessing Officers across the country.
This circular of CBDT would be useful for assessment scrutinized under Sections 68 to 69D read with Section 115BBE of the Act. The assessment would succeed if Assessing Officer makes proper inquiry into facts leading to application of a provision of law; identifies appropriate provision for facts of case; applies rate of tax to be applied as fixed under Section 115BBE for computing income under Sections 68 to 69D of the Act; and correctly fills up relevant columns of computation of income in ITBA portal.
https://www.incometaxindia.gov.in/documents/d/guest/cag-draft-report-29-5-26-pdf