CBDT Mandates Uniform Enforcement of Sections 68, 69A, 69B, 69C & 69D Read with Section 115BBE: Key Directions to Field Formations

Background and Context

The Central Board of Direct Taxes (CBDT), vide its official communication bearing F.No.225/26/2026-ITA.II dated 29th May 2026, has issued binding directions to all field formations across the country. These directions stem from significant observations recorded by the Comptroller and Auditor General of India (CAG) during its Compliance Audit focused on how Assessing Officers (AOs) have been applying the provisions of Section 68, Section 69A, Section 69B, Section 69C, and Section 69D of the Income-tax Act, 1961, read together with Section 115BBE.

The CAG's Draft Report on Compliance Audit flagged serious irregularities in the manner these provisions were being invoked at the field level, raising concerns about revenue leakage and procedural inconsistencies that could undermine the integrity of tax assessments.

What the CAG Audit Revealed

The Compliance Audit conducted by the CAG brought to light two broad categories of deficiencies:

1. Inconsistency in Invoking Relevant Provisions

  • Assessing Officers across different jurisdictions were found to be non-uniform in their approach to invoking Section 68, Section 69A, Section 69B, Section 69C, and Section 69D
  • Additions made under these provisions varied significantly, suggesting the absence of a standardised fact-finding methodology
  • In certain cases, the appropriate section was not invoked even when the factual matrix clearly warranted its application

2. Incorrect Application of Tax Rates

  • A critical finding related to the incorrect application of tax rates on additions made under these provisions
  • Section 115BBE prescribes a special rate of taxation for income covered under Section 68 through Section 69D, and AOs were found to have either ignored or misapplied this provision
  • Such errors directly resulted in a loss to the exchequer, as the correct quantum of tax was not levied on unexplained income

Important: The CAG's observations underscore that procedural lapses at the assessment stage — whether in invoking the correct provision or computing tax at the right rate — can have significant revenue implications at a macro level.

CBDT's Directive: Four Key Instructions

In response to the CAG's findings, CBDT has issued four specific operational directions to all Principal Chief Commissioners and Director Generals of Income Tax, to be followed uniformly across all field offices:

Direction 1: Ascertain the True Nature and Source of Unexplained Amounts

The Assessing Officer is required to independently satisfy himself regarding the true nature and source of the amounts before invoking any of these provisions. This is not a mere formality — the AO must carry out substantive inquiry and investigation to establish the factual foundation for making any addition.

The directive specifically mentions that such inquiry may include, but is not limited to, exercise of powers under Section 133(6) of the Income-tax Act, 1961 (corresponding to Section 252 of the Income-tax Act, 2025), which empowers the AO to call for information from third parties such as banks, financial institutions, and other entities.

Key takeaway: Mechanical or routine invocation of these sections without adequate inquiry is discouraged. The foundation of any addition must rest on verified facts.