Section 115BBE cannot be applied retrospectively to unexplained money found in search before amendment's effective date

The ITAT held that section 115BBE could not be applied retrospectively to unexplained money found during a search conducted on 16.08.2016. The amendment to section 115BBE came into effect on 01.04.2017 through the Taxation Laws (Second Amendment) Bill 2016, after demonetization. Since the search preceded the amendment, the assessing officer erred in invoking section 115BBE provisions. The assessee had already paid tax at 30% under prevailing provisions. The ITAT allowed the appeal, ruling that additions should be made under provisions existing at the time of search, not retrospectively applied amendments.

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Issues Involved:
1. Retrospective applicability of the amendment to Section 115BBE.
2. Levy of tax under Section 115BBE at the rate of 60%.

Summary:

Issue 1: Retrospective Applicability of the Amendment to Section 115BBE

The assessee contended that the amendment to Section 115BBE, effective from 01.04.2017, should not be applied retrospectively to their case as the search operation was conducted on 16.08.2016. The Learned Counsel for the assessee argued that the amendment was intended to address issues post-demonetization and should not apply to assets found before this period. The Counsel relied on judicial pronouncements, including Karimtharuvi Tea Estate Ltd. v. State of Kerala (1966) and CIT(Central)-I, New Delhi v. Vatika Township (P.) Ltd., to support their argument that the amendment should be applied prospectively.

The Revenue, however, argued that the amendment is applicable from AY 2017-18 and covers all sections from 68 to 69D of the Act, irrespective of whether the undisclosed assets were found before or after demonetization. The Revenue maintained that the amendment is not retrospective as it applies to the impugned assessment year AY 2017-18.

The Tribunal, after considering the submissions and judicial decisions, found that the issue of whether Section 115BBE would apply to tax unexplained money found during a search conducted before the amendment date has been addressed by various judicial forums. The Tribunal cited the ITAT Indore decision in ITA No.677/Ind/2019, which held that the amendment to Section 115BBE, effective from 01.04.2017, should not apply to searches conducted before this date. The Tribunal also referenced the ITAT Jabalpur decision in the case of Sandesh Kumar Jain, where it was held that the amendment should be applied prospectively and not retrospectively.

Issue 2: Levy of Tax Under Section 115BBE at the Rate of 60%

The Tribunal noted that the assessee's case was that the amendment to Section 115BBE came into force on 15.12.2016, while the search was conducted on 16.08.2016, and the assessee had paid tax at the rate of 30%. The Tribunal held that since the search was conducted before the amendment, the addition should be made according to the prevailing provisions at that time. The Tribunal found that the assessee's issue was covered by precedents, including the decisions of the ITAT Indore and ITAT Jabalpur, which supported the assessee's argument that the amendment should not be applied retrospectively.

In conclusion, the Tribunal allowed the appeal filed by the assessee, ruling that the addition made by the Assessing Officer invoking Section 115BBE, which came into force on 01.04.2017, was not sustainable. The Tribunal directed that the tax should be calculated at the normal rate applicable to the assessee.

Order pronounced on 08/05/2023 in the open court.

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