Chapter VI - Aggregation of Income
Section 104
Section 104: unexplained asset
Section 104 works like Section 103, but for assets rather than investments. If an assessee is found to own an asset that is not recorded in their books, or the amount spent acquiring it exceeds what is recorded, and the nature and source cannot be satisfactorily explained, the value of the asset (or the excess) is deemed to be the assessee's income.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Where in any tax year, any asset has been found to be owned by or belonging to the assessee which is not recorded in the books of account, if any, maintained by such assessee for any source of income, or the Assessing Officer finds that the amount expended in acquiring such asset exceeds the amount recorded in such books of account and— (a) the assessee offers no explanation about the nature and source of acquisition of such asset, or such excess amount, as the case may be; or (b) the explanation offered about the nature and source of acquisition of such asset by the assessee, is not satisfactory in the opinion of the Assessing Officer, then, the value of such asset, or such excess amount, as the case may be, shall be deemed to be the income of the assessee of the tax year in which such asset has been found to be owned by, or belonging to, the assessee.
(2) For the purposes of this section, “asset” includes money, bullion, jewellery, virtual digital asset or other valuable article.
Introduction
An asset found with the taxpayer that is absent from the books, or cost more than the books show, can lead to deemed income if its acquisition is unexplained. This provision expressly covers money, bullion, jewellery, virtual digital assets and other valuable articles.
Key takeaways
Unrecorded asset
The value of an asset found to belong to a taxpayer but omitted from the books, or acquisition spending beyond the recorded amount, can be deemed income if its source is not satisfactorily explained.
Covered assets
The definition expressly includes money, bullion, jewellery, virtual digital assets and other valuable articles.
What Section 104 says
Where in any tax year an asset is found to be owned by or belonging to the assessee that is not recorded in the books of account (if any) maintained for any source of income, or the Assessing Officer finds that the amount spent acquiring the asset exceeds the amount recorded in the books, and the assessee either offers no explanation about the nature and source of acquisition of the asset or the excess amount, or the explanation offered is not found satisfactory by the Assessing Officer, then the value of the asset, or the excess amount, is deemed to be the assessee's income of the tax year in which the asset is found to be owned by or belonging to the assessee.
What counts as an "asset"
For this section, "asset" includes money, bullion, jewellery, virtual digital asset, or other valuable article.
Discovery year matters
Unlike Section 103's investment rule, this section assigns the deemed income to the tax year in which the asset is found to be owned by or belonging to the assessee.
Step-by-step flow for applying Section 104
- 1
Has an asset been found to be owned by or belonging to the assessee?
Under Section 104(2), "asset" includes money, bullion, jewellery, virtual digital asset or other valuable article.
- No: Section 104 is not triggered.
- Yes: Go to the next step.
- 2
Is the asset missing from the books, or did the acquisition cost exceed the recorded amount?
Section 104(1) covers an asset not recorded in the books of account (if any) maintained for any source of income, and a case where the Assessing Officer finds that the amount spent on acquiring it exceeds the amount recorded.
- Neither: Section 104 does not apply to that asset.
- Unrecorded asset or excess cost: Go to the next step.
- 3
Has the assessee explained the nature and source of acquisition?
- Explanation accepted as satisfactory: No deemed income under Section 104.
- No explanation, or not satisfactory in the Assessing Officer's opinion: Go to the next step.
- 4
What amount is deemed income, and for which year?
The value of the asset (for an unrecorded asset) or the excess amount (for under-recorded cost) is deemed income of the tax year in which the asset is found to be owned by or belonging to the assessee. Section 107 then routes it to Section 195.
Practical checklist
Do
- Record when the asset was found and establish ownership or belonging.
- Reconcile acquisition price, book entry and source-of-funds documents.
Avoid
- Do not overlook virtual digital assets in the statutory asset definition.
- Do not use the investment year automatically where the provision specifies the discovery year.
Illustrative example
Worked example: jewellery recorded at less than its cost
Hypothetical facts (illustration only, not a real taxpayer): Mrs. Iyer's books record a jewellery purchase at ₹4,00,000. During an enquiry, the Assessing Officer finds that ₹6,50,000 was actually spent acquiring the same jewellery. She cannot satisfactorily explain the source of the difference.
Asset and ownership
Jewellery is expressly an "asset" under Section 104(2), and it is found to belong to her.
Excess over recorded cost
Amount spent ₹6,50,000 less amount recorded ₹4,00,000 = excess of ₹2,50,000.
Explanation test
Because the explanation about the source of the excess is not satisfactory to the Assessing Officer, clause (b) of Section 104(1) is met for the ₹2,50,000.
Year of taxation
The ₹2,50,000 is deemed income of the tax year in which the jewellery is found to be owned by or belonging to her, not automatically the year of purchase.
Outcome
- Deemed income under Section 104: ₹2,50,000 (only the excess, since the recorded ₹4,00,000 is already in the books).
- Had the jewellery not been recorded at all, the value of the asset would be the measure instead of the excess.
- The charge is then applied as per Section 195 through Section 107.
Glossary
- Deemed income
- Asset value or excess acquisition amount treated as income when the statutory explanation test fails.
- Virtual digital asset
- A type of asset expressly included by subsection (2).
Frequently asked questions
What kinds of assets does Section 104 cover?
Money, bullion, jewellery, virtual digital assets, or any other valuable article that is found to be owned by the assessee but is not recorded in their books.
In which year is the unexplained asset taxed?
In the tax year in which the asset is found to be owned by or belonging to the assessee.
Need help applying this provision to your situation?
Get help responding to an unexplained asset queryLast updated 9 October 2026