2020 (10) TMI 559 - AT - Income Tax

Tribunal overturns AO's tax decision, citing incorrect application of Section 115BBE

The tribunal held that the AO's application of Section 115BBE to tax surrendered income at a higher rate was incorrect as the specific income categories ... Rectification of mistake u/s 154 - tax rate on surrendered income u/s 115BBE - undisclosed income for the year under consideration - applicability of section 115BBE by default in search cases - as per amended provisions of section 115BBE as applicable in the instant case, the tax rate should have been charged @ 60% on the above surrendered amount - HELD THAT:- There is nothing stated in either the pre-amended or post-amended provisions of section 115BBE that where the assessee surrenders undisclosed income during the search action for the relevant year, the tax rate has to be charged as per provision of section 115BBE - without dwelling further on the applicability of the amended provisions of section 115BBE for the impugned assessment year, the reasoning so adopted by the Assessing officer in terms of applicability of section 115BBE by default in search cases cannot be accepted and in any case, the same is clearly not a mistake which is apparent from the plain reading of the provisions of section 115BBE Tax rate has been charged @ 30% on surrendered income u/s 115BBE of the Act and which is now sought to be rectified in terms of impugned order - Both the income so offered by the assessee as well as rate of taxation has been accepted by the AO and in fact, we find that there is a specific finding by the Assessing officer in the assessment order that the assessee has also paid all due tax with interest in respect of the undisclosed income. No finding that any of the aforesaid provisions so referred in section 115BBE have been invoked by AO during the assessment proceedings and therefore, we find that the contention of the Assessing officer that during the assessment proceedings, the tax rate has been charged @ 30% on surrendered income u/s 115BBE of the Act is not factual correct as not borne out of assessment records and thus, the action of the Assessing officer in rectifying and increasing the rate of taxation from 30% to 60% and surcharge and cess on such undisclosed income doesn’t come within the purview of section 154 of the Act. Appeal of the assessee is allowed. Issues Involved:1. Applicability of Section 115BBE on the surrendered income.2. Legality of invoking Section 154 for rectification.3. Retrospective application of the amended provisions of Section 115BBE.Issue-wise Detailed Analysis:1. Applicability of Section 115BBE on the Surrendered Income:The primary issue revolves around whether the surrendered income of Rs. 22,19,590/- during the search action should be taxed under Section 115BBE. The assessee declared this amount as 'current year’s business income offered to tax' in his return, which was accepted by the AO under normal tax rates. The AO later issued a notice under Section 154, claiming that the surrendered income should be taxed at 60% as per the amended provisions of Section 115BBE. However, the tribunal noted that both pre-amended and post-amended provisions of Section 115BBE specifically refer to income under Sections 68, 69, 69A, 69B, 69C, or 69D, which was not the case here. The tribunal concluded that the AO's reasoning for invoking Section 115BBE by default in search cases was incorrect and not apparent from the record.2. Legality of Invoking Section 154 for Rectification:The assessee argued that the mistake pointed out by the AO was not apparent from the record, making the invocation of Section 154 improper. The tribunal examined the return of income and the assessment order, finding no indication that the income was assessed under Sections 68, 69, 69A, 69B, 69C, or 69D, nor was the tax rate of 30% applied under Section 115BBE during the assessment. The tribunal determined that the AO's claim of a mistake in applying the tax rate was factually incorrect and beyond the scope of Section 154, which is meant for rectifying obvious and patent mistakes.3. Retrospective Application of the Amended Provisions of Section 115BBE:The assessee contended that the amendments to Section 115BBE, effective from 15.12.2016, should not apply retrospectively to the search conducted on 09.08.2016. The tribunal supported this view, referencing the Supreme Court decision in Karimtharuvi Tea Estate Ltd. vs. State of Kerala, which held that amendments are not retrospective unless explicitly stated. The tribunal concluded that the amended provisions of Section 115BBE were not applicable to the assessee's case, as the search occurred before the amendment date.Conclusion:The tribunal found that the AO's action in invoking Section 154 to apply the amended tax rate under Section 115BBE was not legally tenable. The tribunal set aside the AO's order, confirming that the surrendered income should be taxed at normal rates as originally assessed. The appeal of the assessee was allowed, and the order was pronounced in open court on 09/10/2020.