16. Clauses 28 to 30B Deemed Income, Hundi Transactions & Transfer Pricing Adjustments
Clauses 28 to 30B deal with anti-abuse provisions and deemed income disclosures. These clauses are designed to bring into tax net non-genuine transactions, unexplained benefits, and cross-border profit shifting, even when such items do not arise from normal business accounting.
1. Introduction
These clauses focus on:
Deemed income under section 56
Cash-based borrowing through hundi
Transfer pricing primary adjustments
Excessive interest expenditure in group financing
Disclosures under these clauses often lead to direct additions without scope for estimation or debate.
2. Objective of Clauses 28 to 30B
The objectives are to:
Capture income taxable under deeming provisions
Discourage non-transparent financing practices
Enforce repatriation of transfer pricing adjustments
Restrict base erosion through excessive interest claims
These clauses operate independently of accounting treatment.
3. Clause 28 — (Reserved / Not Applicable in Certain Years)
Clause 28 is applicable only if notified for the relevant assessment year.Auditors must:
Verify applicability for the audit year
Report strictly as per the notified Form 3CD
If not applicable, “Not Applicable” should be reported with due care.
4. Clause 29A — Deemed Income under Section 56(2)(ix)
Clause 29A(a) — Applicability Test
The auditor must report whether any amount is includible as income from other sources under section 56(2)(ix).This typically covers receipt of compensation or damages on account of termination or modification of contracts.
Response required: Yes / No
Clause 29A(b) — Details Where Applicable
If the answer is “Yes”, disclose:
Nature of income
Amount thereof
Audit focus:
Whether such receipt is capitalised, netted off, or omitted from income computation.
5. Clause 29B — Deemed Income under Section 56(2)(x)
Clause 29B(a) — Applicability Test
Report whether any amount is includible as income under section 56(2)(x), relating to receipt of money or property without or for inadequate consideration.
Response required: Yes / No
Clause 29B(b) — Details Where Applicable
If “Yes”, disclose:
Nature of income
Amount thereof
These disclosures often relate to gifts, property transfers, or undervalued transactions and are closely scrutinised.
6. Clause 30 — Borrowings or Repayments on Hundi
[Section 69D]
Clause 30 requires reporting of:
Any amount borrowed on hundi
Any amount due thereon (including interest)
Repaid otherwise than through an account payee cheque
Tax consequence:
Such amounts are deemed income under section 69D.
Auditors must examine:
Mode of borrowing and repayment
Supporting documentation
Cash flow trails
7. Clause 30A — Primary Adjustment to Transfer Price
[Section 92CE]
Clause 30A(a) — Applicability
Report whether primary adjustment to transfer price has been made during the previous year.
Response required: Yes / No
Clause 30A(b) — Detailed Disclosures
If “Yes”, disclose:(i) Clause of section 92CE(1) under which adjustment is made(ii) Amount of primary adjustment(iii) Whether excess money is required to be repatriated(iv) Whether repatriation is done within prescribed time(v) If not, amount of imputed interest income
Non-repatriation triggers deemed interest income automatically.
8. Clause 30B — Interest Expenditure Restriction
[Section 94B]
Clause 30B(a) — Threshold Test
Report whether the assessee has incurred interest or similar expenditure exceeding ₹1 crore during the previous year.
Response required: Yes / No
Clause 30B(b) — Detailed Reporting
If “Yes”, disclose:(i) Amount of interest or similar expenditure incurred
This clause applies primarily to foreign associated enterprise financing.
9. Common Errors Observed in Practice
Frequently observed issues include:
Ignoring deemed income under section 56
Non-disclosure of contract termination receipts
Treating hundi transactions as normal borrowings
Missing transfer pricing repatriation implications
Ignoring section 94B thresholds
These are routinely flagged through data analytics.
10. Practical Guidance for Auditors and Assessees
Best practices include:
Reviewing all exceptional receipts
Scrutinising cash-based borrowings
Coordinating TP and tax audit disclosures
Maintaining section-wise applicability checklists
Reconciling clauses with computation schedules
These clauses require legal and factual review, not mechanical reporting.
11. CABTA Insight
“Clauses 28 to 30B exist to tax what accounting may never show.”