2023 (2) TMI 33 - HC - Income Tax

Constitutional validity of Section 115 BBE - Deposits cash in bank account during the demonetization period - Section 115 BBE as substituted by the Taxation Laws (Second Amendment) Act 2016 w.e.f. 01.04.2017 pursuant to which the income determined by AO u/s 68 69 69A 69B 69C and 69D shall attract tax rate at 60% along with the application surcharge penalty - petitioner herein is saddled with the huge tax liability for the assessment year 2017-18 - action of the AO of issuing the notice for recovery of demand raised pursuant to the assessment under Section 143(3) of the Act. Assessee relied on the decision of Pragati Cooperative Bank Ltd 2005 (6) TMI 26 - GUJARAT HIGH COURT to urge that the addition cannot be made in the account of the assessee Bank which has already furnished the requisite KYC documents for the amount which has been deposited by the concerned account holder. HELD THAT - Issue Notice returnable on 31.01.2023. In the meantime interim relief in terms of prayer clause 23(d) is granted. Over and above the regular mode of service direct service through e-mode on official email address is also permitted.

Summary

Issues:
Constitutional validity of Section 115 BBE of the Income Tax Act, 1961; Application of tax rate at 60% on income determined under specific sections; Challenge to Assessing Officer's notice for recovery; Prayers sought in the petition; Compliance with KYC documents during demonetization period; Appeal pending before CIT (Appeals); Stay of demand for recovery; Interpretation of relevant legal precedents.

Analysis:
The judgment concerns the challenge to the constitutional validity of Section 115 BBE of the Income Tax Act, 1961, which imposes a tax rate of 60% on income determined under Sections 68, 69, 69A, 69B, 69C, and 69D of the Act. The petitioner faces a substantial tax liability for the assessment year 2017-18 and questions the Assessing Officer's issuance of a recovery notice on 15.12.2022, deeming it arbitrary. The prayers sought by the petitioner include a declaration of the amendment's ultra vires nature, prospective application of the amendment, and quashing of the recovery notice.

The petitioner's senior advocate highlighted that the Assessing Officer requested KYC documents from the petitioner, a bank, for customers who deposited cash during the demonetization period. Despite the submission of all necessary documents, the officer incorrectly added the deposited amount to the bank's income for assessment. The petitioner has an appeal pending before the CIT (Appeals) challenging this assessment. Citing the decision in Commissioner of Income-tax vs. Pragati Cooperative Bank Ltd., the advocate argued against the addition of the amount in the bank's account where KYC documents were already provided.

The Court acknowledged the pending matters related to the challenge in Special Civil Application NO.3652 of 2020 and granted interim relief in line with the petitioner's prayer clause 23(d) to stay the enforcement of the demand for recovery. Notice was issued for the case returnable on 31.01.2023, with permission for direct service through e-mode on the official email address. The judgment reflects a detailed consideration of the legal arguments presented, balancing the petitioner's concerns regarding tax liability and the Assessing Officer's actions with the need for a fair and just resolution pending further adjudication.