Rectification and unexplained income under section 115BBE upheld, but enhanced 60% tax rate held prospective only.

Rectification under section 154 was upheld where the assessment order itself treated the surrendered bank deposit as unexplained income liable to tax under section 115BBE, but the computation sheet applied normal rates; the correction was treated as an apparent computational mistake, not a debatable fresh issue. The surrendered amount was also held to be unexplained income, as the survey statement referred to undisclosed sources and no reliable evidence supported the claim of regular business income. However, the enhanced 60% rate under the amended section 115BBE was held inapplicable to the relevant year, and the pre-amendment 30% rate was directed to apply.

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Issues: (i) whether the rectification made under section 154 of the Income-tax Act, 1961 to apply section 115BBE to the income surrendered during survey was within the scope of rectification; (ii) whether the surrendered amount was rightly treated as unexplained income liable to tax under section 115BBE; and (iii) whether the enhanced rate of 60% under the amended section 115BBE applied to the surrendered income for the relevant year.

Issue (i): Whether the rectification made under section 154 of the Income-tax Act, 1961 to apply section 115BBE to the income surrendered during survey was within the scope of rectification.

Analysis: The assessment order itself recorded that the surrendered amount was on account of unexplained bank deposit and that tax was payable under section 115BBE, but the computation sheet applied normal tax rates. The correction, therefore, related to a computational mistake already apparent from the record and did not involve introduction of a fresh debatable issue.

Conclusion: The rectification under section 154 was valid and was rightly upheld; this issue is against the Assessee.

Issue (ii): Whether the surrendered amount was rightly treated as unexplained income liable to tax under section 115BBE.

Analysis: The survey statement recorded surrender on account of bank deposit and acceptance of income from undisclosed sources, while no reliable material was produced to show that the amount represented business income from money lending. In the absence of supporting evidence, the explanation of regular business income remained unsubstantiated.

Conclusion: The amount was correctly treated as unexplained income attracting section 115BBE; this issue is against the Assessee.

Issue (iii): Whether the enhanced rate of 60% under the amended section 115BBE applied to the surrendered income for the relevant year.

Analysis: There was judicial divergence on the effective reach of the amendment enhancing the rate from 30% to 60%. In the absence of a binding jurisdictional view, the interpretation favourable to the taxpayer was adopted. The amendment enhancing the rate was treated as prospective for transactions prior to the cut-off date.

Conclusion: The enhanced 60% rate did not apply to the surrendered income and the pre-amendment 30% rate was directed to be applied; this issue is in favour of the Assessee.

Final Conclusion: The challenge to rectification and to characterization of the income failed, but the challenge to the enhanced rate of tax succeeded, resulting in relief only on the applicable rate of tax.

Ratio Decidendi: A rectification is permissible where the assessment order already contains the correct legal characterization but the computation sheet applies an inconsistent tax rate, and where an amendment enhancing tax rate is ambiguous as to temporal application, the interpretation favourable to the assessee prevails in the absence of binding contrary jurisdictional authority.

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