2025 (1) TMI 1110 - AT - Income Tax

Higher tax rate un/s 115BBE for Addition u/s 68 - unexplained cash deposits - AO levied tax at 60% under Section 115BBE - HELD THAT - The rate of taxes as applied by the Assessing Officer is in accordance with the tax provisions of the Act and therefore we do not find any error in the orders passed by the AO or the LD.CIT(A). Even in the absence of decision of Hon ble High Court of Kerala in the case of Maruthi Babu Rao Jadav 2021 (1) TMI 481 - KERALA HIGH COURT the bare provision of the Act - 2(37A) read with other provisions of the Act i.e. Section 68 and Section 115BBE make it clear that the rate of taxes at which the deemed income of the assessee is required to be taxed would be taxed as notified by the Parliament in the Schedule of Income Tax Act for A.Y. 2017-18. In view of the above the objection of the ld.AR is devoid of any merit. It is also settled proposition that the charging provision cannot be applied retrospectively whereas the machinery / applicability of the rate of tax is charged in accordance with the Schedule of Income Taxes as declared by the Parliament on a year- to-year basis. Respectfully following the decision of Chandan Garments Private Limited 2023 (7) TMI 973 - ITAT INDORE no merit in the appeal of the assessee and we are inclined to hold that the higher rate of tax prescribed in Section 115BBE of the Act is applicable to the whole previous year 2016-17 relevant to A.Y. 2017-18 - Decided against assessee.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around two main issues:

Whether the addition of Rs. 1,30,50,000/- as unexplained cash deposits under Section 68 of the Income Tax Act, 1961, was justified.
Whether the application of a higher tax rate under Section 115BBE of the Income Tax Act, 1961, for the assessment year 2017-18 was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Addition under Section 68

Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The assessee is required to prove the identity, creditworthiness, and genuineness of the transactions. The onus is on the assessee to establish the source of the cash deposits.
Court's Interpretation and Reasoning: The court found that the assessee failed to provide satisfactory evidence to explain the source of the cash deposits. The court noted that the appellant's explanation of the cash being from sundry debtors was not substantiated with credible evidence.
Key Evidence and Findings: The appellant claimed the cash was from sundry debtors, but failed to provide confirmations from the parties involved. Two parties denied any cash transactions, and others did not respond.
Application of Law to Facts: The court applied Section 68, emphasizing the appellant's failure to discharge the onus of proving the genuineness of the cash deposits. The unexplained nature of the deposits led to their classification as income under Section 68.
Treatment of Competing Arguments: The appellant's reliance on previous judgments was dismissed as the facts did not align with those cases. The court highlighted the absence of confirmations and credible evidence.
Conclusions: The addition of Rs. 1,30,50,000/- as unexplained cash deposits under Section 68 was upheld.

Issue 2: Application of Higher Tax Rate under Section 115BBE

Relevant Legal Framework and Precedents: Section 115BBE prescribes a higher tax rate for income deemed under sections such as 68, 69A, etc. The amendment effective from 01.04.2017 increased the tax rate to 60% for such income.
Court's Interpretation and Reasoning: The court referred to precedents from various High Courts and ITAT benches, which support the application of the higher tax rate for the entire previous year 2016-17, relevant to the assessment year 2017-18.
Key Evidence and Findings: The court noted that the amendment to Section 115BBE was intended to apply to the entire assessment year, aligning with the legislative intent to curb tax evasion.
Application of Law to Facts: The court applied the amended Section 115BBE to the assessment year 2017-18, finding no merit in the appellant's argument against the higher tax rate.
Treatment of Competing Arguments: The appellant's argument for applying the previous lower tax rate was rejected, as the amendment was deemed applicable for the entire assessment year.
Conclusions: The higher tax rate under Section 115BBE was applicable, and the assessment by the Assessing Officer was upheld.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:
"The onus of proving credits in its book of accounts lies squarely on the assessee and such proof consists of proving the identity of the subscriber or creditor, capacity of such creditor or subscriber to make payment and also to prove the genuineness of the transaction."
"Section 115BBE is not a charging provision but merely provides the rate of tax at which the income earned by the assessee during the year 2016-17 is required to be taxed."
Core Principles Established:
- The burden of proof under Section 68 lies with the assessee to establish the genuineness of cash credits.
- The higher tax rate under Section 115BBE applies to the entire assessment year 2017-18, covering the previous financial year 2016-17.
Final Determinations on Each Issue:
- The addition of Rs. 1,30,50,000/- as unexplained cash deposits under Section 68 was justified.
- The application of the higher tax rate under Section 115BBE for the assessment year 2017-18 was appropriate.