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Judgment
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
This appeal arises from order dated 09.03.2026, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by Ld. CIT(A)-3, Gurgaon.
In this case, a survey action u/s 133A of the Act was conducted at the business premises of the assessee on 15.09.2016. During the course of this survey the partner of the firm disclosed additional income of Rs. 1 crore mainly on the basis of alleged discrepancies in the books of account found during the course of survey and other incriminating documents. Thereafter, the assessee filed return of income with the surrendered amount of Rs.1 crore being reflected on the credit side of the profit and loss account. The Ld. AO separately added this amount u/s 68 of the Act r.w.s. 115BBE of the Act.
The assessee approached the CIT(A) where he could not succeed mainly on the basis of a finding that the assessee was not able to conclusively establish that the impugned receipts were business income and thus, could not be brought to tax u/s 68 of the Act r.w.s. 115BBE of the Act. The Ld. CIT(A) further upheld the action of Ld. AO on the ground that Section 115BBE would apply for the entire FY 2016-17, relevant for AY 2017-18 following the explanation given in CBDT Circular No.2 of 2017 dated 18.01.2017.
The aggrieved assessee has approached the ITAT with grounds challenging the action of Ld. CIT(A) in confirming the treatment of Rs.1 crore u/s 68 and taxing the same at higher rate of 60% u/s 115BBE of the Act.
Before us the Ld. AR argued with the help of written submissions and certain coordinate bench orders of the ITAT. It was the submission that the Ld. AO has discussed the provisions of Section 69C of the Act for unexplained expenditure and has parallelly also utilized the provisions of Section 68 of the Act. It was the submission that the Ld. AO was not sure as to the treatment that needed to be given to Rs.1 crore which was not only surrendered on the date of survey being 15.09.2016, and the same being duly offered to tax as a business receipt in the return of income. It was the submission that even while surrendering the impugned amount the assessee had clearly mentioned that this was a business receipt which was being offered to tax. It was the submission by the Ld. AR that once the surrendered amount was duly offered to tax as a business receipt then there was no reason why it should be considered beyond any of the heads of income mentioned in Section 14 of the Act. The Ld. AR relied on the case of S.M.I.L.E. Microfinance Ltd. reported in 479 ITR 172 (Mad.), order dated 19.11.2024, to argue that the enhanced rate of tax would apply from 01.04.2017 only. It was argued that there can be no separate treatment for the receipt u/s 68 of the Act and more over for the financial year under consideration enhanced rate of transaction prescribed u/s 115BBE of the Act could not be applied.
The Ld. DR relied on the orders of the authorities below and stated that the CBDT Circular of 2017 dated 18.01.2017 clearly indicated that the provisions of Section 115BBE of the Act would apply for the entire FY 2016-17. It was argued that the circulars issued for explaining any amendment to the Act clearly indicated the will and intention of the Legislature and there could be no other interpretation, as proposed by the Ld. AR. It was argued that the Ld. AO has clearly indicated that the source of the impugned amount was never established by the assessee and therefore the same needed to go out of consideration of the heads of income mentioned in Section 14 of the Act.
We have considered the rival submissions and have gone through the records before us. We find that the terms of surrender before the authorities conducting the survey operation clearly indicated that the partner of the assessee-firm was offering Rs.1 crore as undisclosed business income. In support of this contention even the return of income filed contained a profit and loss account in which this amount was shown as a business receipt. Thus, since there is no visible documentary evidence to show that the impugned receipt arose from any other activity than the business operations being carried out by the assessee-firm, we are inclined to agree with the Ld. AR that the impugned receipt arose from business operations. Thus, clearly Section 68 of the Act would not apply in this case. Normally this finding would also take care of any enhanced rate of taxation being applied u/s 115BBE of the Act, but for the sake of completeness, we need to discuss this issue as well.
It is seen that in the case of S.M.I.L.E. Microfinance Ltd. (supra) in para 16 the following finding has been given: -
“16.The next contention raised by the Learned Senior Counsel is that the under section 115BBE the rate of tax imposed is increased from 30% to 60% and the same is applicable with effect from 01.04.2017 onwards as per the amendment. Therefore, the same is applicable to any transaction from 01.04.2017 onwards and not prior to any transactions prior to 01.04.2017. Since in the present case all alleged transactions are for the period from 08.11.2016 to 30.12.2016, hence the erstwhile rate of tax 30% only is applicable. But the contention of the revenue is that the amendment was with effect from 01.04.2017 and hence the same is applicable for the FY 2016-17 and the AY 2017-18. Further the amendment to section 115BBE is directly related to demonetization which would be evident from objects and reasons for such amendment. In order to consider the same, the objects and reasons of Taxation Laws (Second Amendment) Bill 2016 is extracted hereunder: …………
17.In the aforesaid objects and reasons nowhere it is stated that due to “demonetization” the unaccounted money ought to be charged 60% rate of tax. It only states that step had been taken to curb black money by withdrawing specified Bank Notes of denomination of Rs.500 and Rs.1000. And also states the people may find illegal ways of converting their black money into black again, hence as per experts advice heavy penalty ought to be levied. From the language of the object “that instead of allowing people to find illegal ways of converting their black money into black again”, it is evident that the government is intended to impose the same for future transactions. Especially the use of word “again” in the object would clearly indicate it is for future transactions i.e. from 01.04.2017. Therefore, this Court is of the considered opinion that the revenue is empowered to impose 60% rate of tax for the transactions from 01.04.2017 onwards and not prior to the said cut-off date. And for prior transaction the revenue is empowered to impose only 30% rate of tax.”
Furthermore, in the case of Deepak Maratha reported in 187 taxmann.com 27 (Rajasthan), order dated 27.05.2026, the legal aspects of the issue have been even more elaborately discussed, leading to the final conclusion contained in paras 17 & 18 of this order as under: -
“17. SUMMARY/CONCLUSION
As per upshot of the discussion and analysis, as above, in our opinion, the Correct Legal Position which emerges is summarized as below:
(i)The law applicable to an assessment year is the law in force on the first day of that year – i.e. 1 April. A provision coming into force after that date, without express retrospective language, cannot be applied to assessments for that year.
(ii)Changes in law occurring after the commencement of a financial year cannot govern the tax liability for that year unless the amendment is expressly made retrospective.
(iii)The amendment to Section 115BBE came into force on 01.04.2017 i.e. the first day of financial year 2017-18. For FY 2016-17, the law in force on 01.04.2016, prescribing a rate of 30%, must govern. The enhanced rate of tax @60% came into force on 01.04.2017 and can apply only from that date, i.e. for FY 2017-18 onwards.
(iv)The Taxation Laws (Second Amendment) Act, 2016 contains no express language for it’s retrospective effect of Section 115BBE.
18.We thus hold that the Taxation Laws (Second Amendment) Act, 2016 is prospective in effect as specified therein (from 15.12.2016 except the amendment of Section 115BBE, which is effective from 01.04.2017). The question framed in para 8.1, in the preceding part, is answered accordingly.”
Considering the clear interpretation in these case laws there is no hesitation in holding that even if the provisions of Section 68 of the Act were applicable to the receipt under consideration, there could be no enhanced rate of taxation on the same for the present year.
In the result, the appeal is allowed.