60% tax rate under Section 115BBE applies to unexplained cash deposits added under Section 68

ITAT Hyderabad upheld the application of 60% tax rate under Section 115BBE for unexplained cash deposits added under Section 68. The tribunal rejected the assessee's challenge to the higher tax rate, holding that the rate prescribed in Section 115BBE applies to the entire previous year 2016-17 relevant to A.Y. 2017-18. Following precedent from Chandan Garments case, the tribunal confirmed that machinery provisions regarding tax rates apply as per the Schedule declared by Parliament year-to-year, distinguishing this from retrospective application of charging provisions. The appeal was decided against the assessee.

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ISSUES:

• Whether the cash deposits made during the demonetisation period can be treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
• Whether the assessee discharged the onus to prove the identity, creditworthiness, and genuineness of the creditors for the cash deposits.
• Whether the higher rate of tax prescribed under Section 115BBE of the Income Tax Act, 1961 is applicable to the income assessed for Assessment Year 2017-18 (Previous Year 2016-17).
• Whether the amendment increasing the rate under Section 115BBE is retrospective or prospective in nature.
• Whether the revision order passed under Section 263 of the Income Tax Act is valid in the facts of the case.

RULINGS / HOLDINGS:

1. The Assessing Officer rightly treated the cash deposits of ? 1,30,50,000/- as unexplained cash credit under Section 68 since the assessee failed to provide satisfactory evidence regarding the source of the deposits, and two parties denied making any cash payments, while others did not respond, thus the credits remained unexplained.
2. The assessee did not discharge the onus to prove the identity, creditworthiness, and genuineness of the creditors as required under Section 68; mere furnishing of names without confirmations or ledger evidence is insufficient, and the onus remains on the assessee to provide "concrete evidences" which were not produced.
3. The higher rate of tax at 60% under Section 115BBE is applicable to the total income determined for Assessment Year 2017-18, including income referred to in Section 69A, as the amendment enhancing the rate took effect from 01.04.2017, the commencement of the assessment year, and applies to the whole previous year 2016-17.
4. The amendment to Section 115BBE increasing the tax rate is a machinery provision and does not create a new liability but merely enhances the rate applicable to the assessment year; hence, it is not retrospective but applies prospectively from the assessment year beginning 01.04.2017.
5. The revision order under Section 263 was valid and rightly held the assessment order erroneous and prejudicial to the interest of revenue, as the Assessing Officer had properly exercised jurisdiction in making the addition and applying the higher tax rate.

RATIONALE:

• The legal framework applied includes Section 68 (unexplained cash credits), Section 115BBE (tax on income referred to in Sections 68, 69, 69A, etc.), and Section 263 (revision of assessment orders) of the Income Tax Act, 1961.
• The Court relied on settled Supreme Court precedents such as CIT vs. Durga Prasad More and Sumati Dayal v. Commissioner of Income-tax, which establish that the onus is on the assessee to prove the genuineness of credits under Section 68, including identity, creditworthiness, and nature of transactions.
• The Court distinguished the present facts from cases where confirmations and proper evidences were produced; here, the failure of parties to confirm cash payments and the timing of deposits during demonetisation raised "serious doubts" about the genuineness of the transactions.
• The Court followed the decision of the Kerala High Court in Maruthi Babu Rao Jadav v. ACIT, which held that the amendment increasing the tax rate under Section 115BBE effective from 01.04.2017 applies to the entire previous year 2016-17 relevant to AY 2017-18, rejecting the contention that the amendment applies only prospectively from the date of assent or notification.
• The Court interpreted Section 2(37A) of the Income Tax Act, which defines "rate or rates in force" for an assessment year, to conclude that the tax rates specified in the Finance Act for the relevant assessment year apply to the entire previous year income assessed.
• The Court recognized that Section 115BBE is a machinery provision prescribing the rate of tax and does not impose a new charging provision; hence, the enhanced rate applies to assessments made in the relevant assessment year without violating principles against retrospective taxation of substantive liabilities.
• The Court noted the constitutional and legislative basis for surcharge being part of income tax under Article 271 of the Constitution and Finance Acts, supporting the application of enhanced surcharge rates as part of the tax rate for the assessment year.
• The Court upheld the validity of the revision under Section 263, finding no error in the Assessing Officer's approach and that the order was neither erroneous nor prejudicial to the revenue, thus affirming the correctness of the addition and tax rate applied.

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