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TMI Blog2023 (2) TMI 457X X X X Extracts X X X X X X X X Extracts X X X X ..... 115BBE - Whether charging of tax as per provision of section 115BBE is in accordance with the law and principles of nature justice? - HELD THAT:- On cogent reading of the amendment in both the sections of 115BBE and 271AAB with that of the press release, it is evidently clear that the intention of legislature is to segregate the taxation of income declared in search with that of the other amount found and disclosed by assessee in other then search cases. The search in this case is before the Taxation Laws (Second Amendment) Act, 2016 and it is clear from the press note that 16.12.2016 that the rate of penalty and rate of tax both are separately discussed and the penalty in this case proposed to be levied u/s. 271AAB and the were also amended and discussed in that press release and the amendment made in the Act. Based on the above intention of the legislature clearly evident we are of the considered view that once the ld. AO has already decided based on the fact that this is the case of search addition and amount declared u/s. 132(4) accepted by the assessee and offered the same in the return of income filed the same will be in accordance with the penal provision of section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in confirming the action of the ld. AO, in making additions of Rs. 4,55,639 towards alleged unexplained investment in jewellery. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the entire such addition of Rs. 4,55,639/- made by the ld. AO and sustained by the ld. CIT(A). 2. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in confirming the action of the ld. AO, in invoking the provisions of Section 115BBE by applying the higher rate of tax i.e. 60% as introduced by the Taxation Laws ( Second Amendment) Act, 2016, on the income surrendered by the assessee, during the search conducted on 21.07.2016, at a time when such amended provisions of Section 115BBE were not in force. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the invocation of the amended provisions of Section 115BBE done by the ld. AO and confirmed by the ld. CIT(A). 3. In the facts and circumstances of the case and in law, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am is treated as unexplained. Found Treated as explained Remained unexplained value Gold 2947 gram 1450 gram 1497 gram Rs.3380226/- Stones Rs.1921250/- - Rs.19,21,250/- Rs. 19,21,250/- Silver 29500 gram 10000 gram 19500 gram Rs. 8,56,245/- Total Rs.61,57,721/- **Gold price as per valuation report is 2258 per gram. **Silver price as per valuation report is 43910 per kg. Less: Income surrendered and offered Rs. 56,05,480/- ------------------- Difference added Rs. 5,52,241/- 8. Being aggrieved from the order of the assessing officer, the assessee carried the matter in appeal before the ld. CIT(A). The relevant findings of the ld. CIT(A) on the issue before him are as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that during the course of assessment nor during the current appellate proceedings, the appellant has been able to furnish any evidence regarding the source of acquisition of the aforesaid jewellery. In fact, considering the status of the appellant, the AO has already considered silver items worth 10 Kg as explained. Further since the aforesaid circular of CBDT is silent on the issue of silver jewellery/utensils and valuable stones and in absence of any evidence for acquisition of the aforesaid silver items and colour stones and the fact that already 1450 gms of gold jewellery has been considered as reasonable possession in view of the CBDT Instruction No. 1916 dt. 11-05-1994, therefore I am of the opinion that the silver items at 17,300 gms valued at Rs. 7,59,643/-, gold jewellery weighing 1497 gms valued at Rs. 33,80,226/- and colour stones worth Rs. 19,21,250/-, are considered as unexplained, which totals to Rs. 60,61,119/- as against Rs. 61,57,721/- considered by the AO. Since the appellant has already surrendered and disclosed jewellery worth Rs. 56,05,480/- in his return of income, therefore the differential amount of Rs. 4,55,639/-(Rs. 60,61,119 Rs. 56,05,480) is treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round No. 2-3: Invoking provisions of Section 115BBE 1. ASSESSING OFFICER COMMISSIONER OF INCOME TAX (APPEALS) 1.1. During the course of search assessee, on his own, offered Rs. 89,05,480 for tax, for the year at hand.Subsequently, in the assessment proceedings,ld. AO added Rs. 5,52,241, in the hands of the assessee, as unexplained jewellery (Silver Items). Ld. AO for the purpose of calculating tax, on the amount surrenderedby the assessee of Rs. 89,05,480, and also the additions made by him in his order of Rs. 5,52,241,applied rate of 77.25%, as prescribed u/s 115BBE of the ITA. 1.2. Thereafter, during the first appellate proceedings, elaborate submissions were made before ld. CIT(A) that ld. AO had erred in invoking the provisions of Section 115BBE and applying higher rate of tax of 77.25% on the income surrendered by the assessee and also on the additions made by the ld.AO. Submissions made before ld. CIT(A), in this regard, have been reproduced by her, in her order, from pages 6 to 10. Ld. CIT(A) upheld invocation of Section 115BBE by the ld. AO. 2. SUBMISSIONS 2.1. Apropos invocation of Section 115BBE by the ld. AO and upheld by ld. CIT(A), as regards the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as we have noted above, the return of income so filed has been accepted by the Assessing officer without making any adjustment/variation to the income so offered by the assessee and the assessment has been completed u/s. 143(3) of the Act. Further, there is nothing on record which shows that the Assessing officer has called for any Explanation of the assessee regarding the nature and source of such investment during the course of assessment proceedings and any formation of opinion and recording of satisfaction by the Assessing officer which is required before invoking the provisions of section 69 of the Act. Though the Assessing officer has issued a show-cause as to why penalty proceedings u/s. 271(1)(c) may not be initiated in respect of such investment, however, he has not issued any show-cause for invoking provisions of section 69 of the Act or has called for any Explanation of the assessee regarding the nature and source of such investment. In fact, the assessment order so passed by the Assessing officer is silent about invoking the provisions of section 69 of the Act. Where the provisions of section 69 have not been invoked by the Assessing officer while passing the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted as it is by the AO. B.1. Furthermore, provisions of Section 68 to Section 69D can only be invoked in cases where an assessee is unable to explain the source of a particular receipt, money, investment, expenditure, etc or part thereof to the satisfaction of the Assessing Officer. These provisions have no application in case where an amount already disclosed by the assessee as his income, while filing the Return of Income on which no further addition has been made by the ld. AO, during the course of assessment proceedings. B.2. Sections 68 and 69A create certain deeming fictions, whereby certain amounts which are not considered as income by the assessee, are deemed to be income of the assessee. A deeming fiction of income cannot apply to an item which is already treated as income by the assessee himself. The question of deeming an item to be income can only arise if the item is not otherwise an income.Section 68 or Section 69 converts non-income into income and has no application where income is already offered for tax.Section 69 is reproduced below:- Where in the financial year immediately preceding the assessment year, the assessee has made investments which are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assent of the President of India only on 15.12.2016.Search on the assessee was carried out on 21.07.2016. C.3. Chronology of various events, as discussed hereinbefore, is as under :- Particulars Date 115BBE Introduced for the first time in the Income Tax Act. Rate of Tax 30% 01.04.2013 Search conducted on the assessee 21.07.2016 Amendment -115BBE introduced in Lok Sabha 28.11.2016 Amendment -115BBE passed by Lok Sabha 29.11.2016 Amendment -115BBE received President assent 15.12.2016 C.4. Thus, the law, applied by the ld. AO did not see the light of the day, when the search was conducted on him. The said law for the first time was introduced on 28.11.2016, i.e. after a gap of about 4 months of the taxing event having taken place. C.5. On comparison of the amended provision with the earlier provision, it is clear that the above-stated clause (a) of sub-section (1) of section 115BBE retains the essential features of the earlier provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax rate of 30% in case of block assessments; C.8.2. Proviso was introduced vide Finance Act, 2002, with effect from 1.06.2003. Thus, the law stoodenacted as on 1.04.2003 and, accordingly, as per normal principles should have applied on all searches carried out during Financial Year 2002-03 (AY 2003-04). C.8.3. Hon ble Apex Court was pleased to hold that amendment would apply prospectively and would be applicable on searches conducted after 1.06.2002. C.8.4. The facts of the issue involved in the present appeal are identical. Therefore the issue is squarely covered by the judgement of Hon ble Supreme Court in Vatika Township (P) Ltd (Supra). Accordingly, the amended provision of Section 115 BBE should apply on incomes accruing after the law having received assent of the President. C.9. In the case of Govind Das(1976) 1 SCC 906 (SC), following observation was made by the Hon ble Supreme Court while holding Section 171(6) of the Income Tax Act to be prospective and inapplicable for any assessment year prior to 1-4-1962, the date on which the Income Tax Act came into force:- 11. Now it is a well-settled Rule of interpretation hallowed by time and sanctified by judi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in its true nature one that expands the scope of the section it seeks to clarify, and resultantly introduces new principles, upon which liabilities might arise. Such amendments though framed as clarificatory, are in fact transformative substantive amendments, and incapable of being given retrospective effect. An important question, which arises in this context, is whether a clarificatory amendment remains true to its nature when it purports to annul, or has the undeniable effect of annulling, an interpretation given by the courts to the term sought to be clarified. In other words, does the rule against clarificatory amendments laying down new principles of law extend to situations where law had been judicially interpreted and the legislature seeks to overcome it by declaring that the law in question was never meant to have the import given to it by the Court? The general position of the courts in this regard is where the purpose of a special interpretive statute is to correct a judicial interpretation of a prior law, which the legislature considers inaccurate, the effect is prospective.Any other result would make the legislature a court of last resort. United States v. Gilmore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason of the constitutional restriction imposed by ARTICLE 20 of the CONSTITUTION OF INDIA. Therefore, if an Act creates a new offence, it will bring into its fold only those offenders who commit all ingredients of the office after the Act comes into operations. This rule of construction against retroactivity of penal laws is not restricted to criminal offences punished with imprisonment, but also applies to laws which provide for other penal consequences, such as fines and penalties. C.16. Attention is also drawn towards the decision of Full Bench of Hon ble Patna High Court in the case of Loknath Goenka [2019] 417 ITR 521 (Patna) (FB) C.16.1. Hon ble High Court held the tax is charged on the point of time of accrual of income; C.16.2. In the case before Hon ble High Court, the substantial question of law for decision was whetherlaw relating to clubbing of minor son s share of income under Section 64(1)(iii)which was introduced by Taxation Law (Amendment) Act, 1975,w.e.f 1.04.1976 would be applicable for previous years coming to an end on 10.08.1975 and on 31.12.1975 C.16.3. Those were the years where there was no law prescribing uniform previous year. In the case be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(4), on 21.07.2016, cannot be penalized with a higher rate of tax, of 77.25% as against 30%, by way of an amendment brought about in the Statute Book subsequently. D. Intention of the amendment to Section 115BBE was to cover cases of concealment of income, pursuant to demonetization, which was not the case of the assessee. D.1. The Taxation Law (Second Amendment) Act, 2016got the assent of the President on 15.12.2016, just after Demonetization on08.11.2016, wherein bank notes of existing series of denomination of the value of five hundred rupees and one thousand rupees then issued by the Reserve Bank of India ceased to be legal tender, from the said date. D.2. In the Statement of Objects and Reasons accompanying the Taxation Laws (Second Amendment) Bill, 2016, the Government stated as follows: Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, for invocation of Section 68 to 69D satisfaction has to be recorded by the Assessing Officer and in his opinion the said income should be added under such sections. However, in the present case, no such satisfaction, at all, has been recorded by the ld. AO. Ld. AO without discussing anything in the order and without invoking Section 68 to 69D has applied Section 115 BBE, which is incorrect as per the relevant scheme. 2.3. Ld. CIT(A) at Page 13 of her order has relied upon the decision of Hon ble ITAT, Jaipur Bench in the case of Sanjay Bairathi Gems Ltd, ITA No. 157/JP/2017, for the proposition that the amendment brought about in Section 115BBE is effective from 1.04.2017 and will accordingly apply to AY 2017-18 onwards. 2.3.i The decision as relied upon by ld. CIT(A) pertains to AY 2013-14, whereas, the relevant case at hand pertains to AY 2017-18. 2.3.ii Neither the issue of whether such amendment can be applied retrospectively, when having been introduced in December 2016, was argued before the Hon ble bench nor did the Hon ble bench adjudicate this precise question of law. 2.3.iii Ld. CIT(A) has cherry picked certain lines from the decision of the Hon ble Bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of search itself by the Departmental officers on the field. The same is evident from the SEIZURE MEMO (PB : 6) prepared, during the course of search by the Departmental Officers, which specifies the jewellery amounting to Rs. 56.05 lakhs seized from the residential premises of the assessee. Such seized jewellery doesn t contain the Silver Items, found during search. 1.5. However, the ld. AO disregarding the working of the Departmental Officers on the field, during search, considered Silver Items of 29.50 kgs to have been found, as against silver utensils of 27.30 kgs actually found. 1.6. Further, ld AO without any basis considered silver items of 19.50 kgs to be unexplained which was completely not in consonance with the working of Department at the time of search and on the basis of which surrender was made by the assessee, which was even accepted by the Departmental Officers on the field. Ld. AO only found 10 Kgs of Silver items to be explained. 1.7. Accordingly, ld. AO, for no cogent reason, considered 19,500 grms of Silver Items to be unexplained. As a result, ld. AO made addition of Rs. 5,52,241, in the hands of assessee. (AO Order page 9) 2. COMMISSIO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Court has accepted that owing to different circumstances Jewellery of even of higher quantity can be considered to have been explained. 3.3.iv Assessee, Shri Sandeep Sethi lived in his Residential premises with his mother, his wife and two children. (PB : 2) 3.3.v Assessee belonged to an affluent Jain family. He has been married since 14 years. Considering his mother to be of the age of 70 years the assessee can be expected to have higher amount of silver items, gifted on various social occasions, including birth of his two children. This was also stated by the assessee, during search, which was accepted by the Departmental Officers on the field. In view of the above, silver items against which additions have been made by the ld. AO and sustained by ld. CIT(A) should be considered as explained and additions Rs. 4,55,639 should be deleted. 10. The assessee also filed another written submissions in this regard which is reproduced as under:- 1. It is reiterated that, since search in the case of the assessee was carried out by the Income Tax Department on 21.01.2016, when the amended Section 115BBEwas not in force, accordingly, tax cannot be levied at a highe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstance of the Demonetization Scheme, 2016, brought out by the Government of India in November,2016, explains the urgency in bringing an amendment mid-year. Further, the tax rate being in respect of incomes which are imputed with reference to a transaction/s, it is possible to administer the same, another aspect of the matter that stands considered by us. That is, a tax rate for transactions made up to 14/12/2016, and another for those thereafter. Subsequent mention of the applicability of the amended provisions of ss.271AAB and 271AAC with reference to the date on which the Presidential assent to the Act is received, further corroborates this view, which is based on the clear language of the Amending Act, as well as the principle that a substantive amendment is to be generally prospective. We draw support from the decision in Vatika Township Pvt. Ltd.(supra), reiterating the settled law of the rule against retrospectively. The tax rate applicable to the impugned income would, therefore, be at 30%, i.e., the rate specified in sec. 115BBE as on 30/11/2016, the date of the surrender of income per statement u/s. 133A (PB-1, pgs. 35-44). This, it may be noted, is also consistent wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here in below: Charge of income-tax. 4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person : Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. The rate applied it should be one rate for whole year and there cannot be two rates for one previous year and based on that he submitted that the judgement relied upon by the ld. AR of the assessee is distinguished. The ld. DR also filed a detailed submission on the issue and the same is reiterated here in below: May it please your honours, Kindly refer to the heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 115 BBE was substituted with new sub-section (1) with effect from 1 day of April, 2017 and rate of 60% was introduced for some specific transactions. It is a settled law that substantive provisions of the Act comes into force from the first day of the assessment year, which is 01.04.2017 in the present case. Thus, the amended provisions are applicable from AY 2017-18 onwards. The Hon'ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd v State of Kerala in 60 ITR 262 had held relying upon its own judgement in the case of CIT v Isthmian Steamship Lines, 20 ITR 572 that though the subject of the charge is the income of the previous year, the law to be applied is that in the force in the assessment year, unless otherwise stated or implied (emphasis supplied). The copy of this judgement has already been submitted during the course of the arguments. 3. If the finding of the Hon'ble Co-ordinate Bench is accepted, then there will be two rates in force in AY 2017-18 for the similar nature of transaction. This will be only on the basis of date of surrender during the course of search/survey. The same is against the provisions of the Act. Further, surrender in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x at revised rates was resisted by certain planters. who contended that since the Amendment Act, 1987 became effective from 01.07.1987, the levy was really effective from the next financial year, i.e.. 01.04.1988. Dismissing the writ petition of the petitioners, the Hon'ble Kerala High Court held that: ........It is open to the Legislature to completely alter the tax liability by the imposition of a different tariff in the course of the year. The Finance Act of any year is to be applied for the assessment of that year. In the present case, the Finance Act relevant for the assessment year 1987-88 is the Finance Act, 1987 Substituting the Schedule as for the assessment year 1987-88, the tax liability is competently altered, as it is a case of 'imposition of a different tariff in the course of the year' [Emphasis supplied]. As noted earlier, that was what was clearly proclaimed as the intention of the Government. It is that intention that is specifically postulated in the preamble to the Act. There could, therefore, be no scope for doubt that the Schedule brought in by the Finance Act, 1987 should be employed for the computation of the plantation tax for the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the date of provision coming into force, the Hon'ble Tribunal is not the right forum to address such grievance when the Legislature has clearly mandated that provisions will be effective from AY 2017-18. If the appellant thinks that move of the Legislature anyway affected its rights, then he could have filed writ petition. The appellate proceedings before the Hon'ble Tribunal is not the right forum to address the issue raised by the appellant. 13. We have considered the rival contentions, perused the material available on record and also gone through the findings of the lower authorities recorded in their respective orders. We have also gone through the various judicial ruling placed before us by both the parties to drive home to their contentions. 13.1 As regards the addition of Rs. 4,55,639/- sustained by the ld. CIT(A) he has recorded his detailed finding and the same is reproduced here in below: (vi) Further, the contention of the appellant that the silver items were found to be explained during the course of search is not found to be acceptable in view of the fact that neither during the course of assessment nor during the current appellate proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the family status there is no separate disclosure by the assessee. Even the search team has considering the explanation of the has limited the question relating then jewellery and accepted the explanation of the assessee in question no. 15. The same is reiterated here in below: 13.5 Considering the fact that once the department officer during the search has considered this silver items as explained and the ld. AO without bringing any contrary finding merely based on the same fact that was before the search team cannot make a separate addition. We find force in the arguments of the ld. AR that once the search team has accepted that silver items were considered as explained and the same is explicitly evident from the question 15 ignoring that primary acceptance by the revenue at the time of search there is no reason by the ld. AO and ld. CIT(A) and in making and sustaining the addition and based on that primary finding the addition of Rs. 4,55,639/- sustained by the ld. CIT(A) is vacated and the ground no. 1 raised by the assessee is allowed. 14. The next issue before us raised by the assessee in ground no. 2 3 is invoking of provision of section 11BBE is while m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 132, does not admit the undisclosed income; and ( ii ) on or before the specified date- ( A ) declares such income in the return of income furnished for the specified previous year; and ( B ) pays the tax, together with interest, if any, in respect of the undisclosed income; 14.2 As it is evidence from the above provision of law that section 271AAB was in operation till the bill receives the assent of the president and the ld. AO knowingly invoked the provision of section 271AAB and not provision of section 115BBE. The levy of the tax without giving an opportunity to the assessee is against the principles of nature justice. Not only that once the ld. AO choose to levy the penalty he cannot go beyond what he has proposed in the order. Therefore, the levy of tax u/s. 115BBE beyond the scope of the order when the ld. AO has already initiated penalty u/s. 271AAB provision of section 11BBE is not applicable and that the same is also against the press release of the CBDT. The relevant press release issued by the CBDT is extracted here in below: New Delhi, 16th December, 2016 Press Release Sub: Notification of The Taxation Laws (Second Amendment) Act, 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxes are paid. Otherwise a penalty @60% of income shall be levied. The Scheme, Rules and Notifications are available on the official website of the Department www.incometaxindia.gov.in. Any queries/clarifications relating to the Scheme may be emailed at [email protected] [Meenakshi J. Goswami Commissioner of Income Tax [Media and Technical Policy] Official Spokesperson, CBDT. 14.3 We carefully considered the submission of the ld. AR and DR and at length arguments of both the parties and also gone through the press release issued by the CBDT dated 16.12.2016 explaining the purpose of increasing in rate the press release clearly isolates the case of non-declaration of undisclosed cash or deposit in accounts under the PMGKY2016. We have also gone through the amendment made in section 271AAB vide The Taxation Laws (Second Amendment) Act, 2016. The same is also extracted here in below: 14.4 On cogent reading of the amendment in both the sections of 115BBE and 271AAB with that of the press release, it is evidently clear that the intention of legislature is to segregate the taxation of income declared in search with that of the other amount found and disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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