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 under the section were not met. The tribunal also found the use of Section 154 for rectification improper, stating it was not for correcting factual errors. Additionally, the retrospective application of amended Section 115BBE was rejected, confirming the original tax assessment. The appeal was allowed, and the AO's order was set aside, with the surrendered income to be taxed at normal rates.

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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.

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