Deemed non-made declaration makes undisclosed income taxable in year of declaration at pre-amendment tax rate.

Where a declaration under the Income Declaration Scheme, 2016 was not paid within the specified time, the declaration is deemed never made and the declared amount constitutes undisclosed income chargeable to tax in the previous year in which the declaration was made; accordingly the addition as unexplained investment for Financial Year 2016-17 (Assessment Year 2017-18) is sustained. Separately, the enhanced higher tax rate introduced later is not retrospective, so the undisclosed income chargeable for FY 2016-17 must be taxed at the pre-amendment rate rather than the later higher rate.

---

---

Issues: (i) Whether the Assessing Officer was justified in treating the amount declared under the Income Declaration Scheme, 2016 as unexplained investment and bringing it to tax in Assessment Year 2017-18; (ii) Whether the higher tax rate under Section 115BBE (60%) applies to the undisclosed income in the present case.

Issue (i): Whether the amount of Rs. 25,62,000 declared under the Income Declaration Scheme, 2016 can be treated as unexplained investment and taxed in Assessment Year 2017-18.

Analysis: The declaration under the Income Declaration Scheme, 2016 was not fully discharged by payment of tax, surcharge and penalty within the time specified. Section 187(3) of the Finance Act, 2016 deems a declaration not paid within the specified time to have never been made. Section 197(b) of the Finance Act, 2016 provides that where tax, surcharge and penalty are not paid within the time specified, the undisclosed income shall be chargeable to tax under the Income-tax Act in the previous year in which the declaration is made. The declaration was made during Financial Year 2016-17, and no satisfactory explanation for the source of the declared amount has been furnished, permitting the invocation of provisions relating to unexplained investment.

Conclusion: In favour of Respondent.

Issue (ii): Whether the 60% tax rate under Section 115BBE applies to the undisclosed income in this case.

Analysis: The relevant provision increasing the tax rate to 60% was not retrospective. The higher rate applies from 1 April 2017 (Assessment Year 2018-19) onwards; prior to that date the 30% rate applies. The undisclosed income is chargeable in Financial Year 2016-17 relevant to Assessment Year 2017-18 and therefore the higher 60% rate under Section 115BBE is not applicable to this case.

Conclusion: In favour of Assessee.

Final Conclusion: The addition of Rs. 25,62,000 as unexplained investment is upheld and taxable in Assessment Year 2017-18, but the tax rate applied to that addition must be computed at 30% rather than 60%; appeal is partly allowed.

Ratio Decidendi: Where a declaration under the Income Declaration Scheme, 2016 is not fully paid within the time specified, Section 187(3) of the Finance Act, 2016 deems the declaration never made and Section 197(b) of the Finance Act, 2016 renders the undisclosed income chargeable in the previous year of declaration; further, Section 115BBE's increased 60% tax rate is not retrospective and does not apply to income chargeable for Financial Year 2016-17.

---