The Central Board of Direct Taxes (CBDT), Ministry of Finance, has issued a Letter bearing F.No. 225/26/2026-ITA.II, dated May 29, 2026, to all the Principal Chief Commissioners of Income Tax and Director Generals of Income Tax, drawing attention to audit objections raised by the 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.
Background — C&AG Audit Findings: The C&AG, while carrying out its Compliance Audit, has pointed out that there was variation in the manner in which Assessing Officers (AOs) across field formations invoked the provisions of Sections 68, 69A, 69B, 69C and 69D of the Income-tax Act, 1961. The audit has also noted that incorrect application of the rate of tax applicable to additions made under these sections led to a loss to the exchequer. The CBDT letter has been issued in response to these audit observations, with a view to ensuring uniform and correct application of the law across all field offices.
Sections 68 to 69D — Deeming Provisions for Unexplained Credits and Investments: Sections 68, 69A, 69B, 69C and 69D of the Income-tax Act, 1961 are deeming provisions under which unexplained cash credits, unexplained investments, unexplained expenditure, and amounts borrowed or repaid on hundi in an undisclosed manner are treated as income of the assessee. Under the new Income-tax Act, 2025, the corresponding provisions are Sections 102, 103, 104, 105 and 106, respectively.
Section 115BBE — Special Rate of Tax: Section 115BBE of the Income-tax Act, 1961 (corresponding to Section 195 of the Income-tax Act, 2025) mandates that income referred to in Sections 68 to 69D shall be taxed at a special flat rate. Crucially, no deduction in respect of any expenditure or set-off of any loss is permissible under any provision of the Act while computing income chargeable under these sections. The CBDT has noted that non-application or incorrect application of this provision by AOs was a significant finding in the C&AG audit.
Directions to Field Offices: The CBDT letter directs all field offices to take into account the following while invoking provisions of Sections 68, 69A, 69B, 69C and 69D read with Section 115BBE:
- Satisfaction as to True Nature and Source: Before invoking any of these sections, the Assessing Officer must satisfy himself as to the true nature and source of the amounts in question. Necessary investigation or enquiry must be conducted, including, inter alia, by using the powers of survey, summons, and calling for information available under section 133(6) of the Income-tax Act, 1961 (corresponding section 252 of the Income-tax Act, 2025).
- Correct Identification of Applicable Provision: The relevant provisions of the Act must be invoked based upon the inquiry conducted and the specific facts of each case. Mechanical or blanket invocation of any single provision without reference to the nature of the income is to be avoided.
- 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 mandates tax at special rates on such additions and expressly prohibits deduction of any expenditure or set-off of any loss in computing income under these sections.
- Correct Filling of ITBA Computation Sheet: The relevant columns of the computation sheet on the Income Tax Business Application (ITBA) portal pertaining to these sections (viz. Sections 68, 69C, etc.) must be filled up correctly to prevent recurrence of errors in computation of income, tax, or carry forward of losses.
Significance: The CBDT instruction is significant in that it directly follows C&AG findings and seeks to close a compliance gap that has been leading to revenue leakage. The provisions of Sections 68 to 69D, read with Section 115BBE, are among the most heavily litigated provisions in direct tax law, frequently invoked in search and survey assessments. Ensuring their uniform and correct application by all Assessing Officers is critical to both revenue protection and the integrity of the assessment process.
Taxpayers and practitioners appearing before Income Tax authorities in matters involving these provisions should take note of the renewed emphasis by CBDT on thorough factual inquiry before invocation, correct identification of the applicable section, mandatory application of the special tax rate under Section 115BBE, and accurate entry of relevant data on the ITBA portal.
The Letter can be accessed at: https://www.incometaxindia.gov.in/documents/d/guest/cag-draft-report-29-5-26-pdf
