Shri Manchala Satyanarayana Naidu Vs ITO (ITAT Hyderabad)
Demonetisation Cash Cannot Face a Later 60% Rate: ITAT Restricts Section 115BBE Tax to 30%
Summary:
Relevant Facts
The assessee was a 75-year-old agriculturist who had, for the first time, been subjected to income-tax proceedings. The assessment for AY 2017-18 was completed ex parte u/s 144 on 24 December 2019.
During the relevant financial year, the assessee had deposited cash aggregating to ₹11,86,500 in bank accounts maintained with Corporation Bank & A.P. Mahesh Co-operative Urban Bank Ltd. In the absence of an explanation accepted by the AO, the deposits were treated as unexplained money u/s 69A.
The assessee’s appeal before the CIT(A) was also dismissed for non-prosecution. The CIT(A) did not adjudicate the dispute on merits. When the assessee eventually approached the Tribunal, the appeal was delayed by 511 days.
Apart from challenging the addition & the ex parte disposal, the assessee raised an additional legal ground questioning whether the enhanced rate of 60% u/s 115BBE could be imposed in respect of transactions occurring before 1 April 2017, particularly deposits made during the demonetisation period.
The Tribunal admitted the additional ground because it involved a pure question of law that could be adjudicated from the existing record without investigating new facts. Reliance was placed upon National Thermal Power Co. Ltd. v. CIT, which permits consideration of such legal grounds at the appellate stage.
Condonation of 511-Day Delay
The assessee admitted that the delay was substantial. Through an affidavit dated 5 June 2026, he explained that he was a septuagenarian agriculturist, illiterate, unfamiliar with computers or email & entirely unaware of electronic income-tax procedures.
As the assessee had never previously faced income-tax proceedings, he remained oblivious to the notices sent electronically. He became aware of the case only when the Department initiated recovery proceedings. The delay was therefore attributed to lack of knowledge & technological unfamiliarity rather than any deliberate or lackadaisical conduct.
The Revenue opposed condonation, pointing out that the assessee had remained absent during assessment, allowed an ex parte order to be passed, failed to prosecute the first appeal & thereafter delayed approaching the Tribunal.
The Tribunal acknowledged that this sequence initially suggested a casual approach. However, considering the assessee’s advanced age, agricultural background, illiteracy, first-time exposure to taxation & lack of familiarity with electronic communication, it accepted that the default arose from bona fide reasons.
Following the Supreme Court’s decision in Vidya Shankar Jaiswal v. CIT, which advocated a justice-oriented & liberal approach towards condonation, the Tribunal condoned the entire 511-day delay.
Issue Involved
The substantive issue was whether the addition of ₹11.86 lakh u/s 69A for AY 2017-18 was taxable at the original rate of 30% or the enhanced rate of 60% introduced by the Taxation Laws (Second Amendment) Act, 2016.
The controversy arose because the amendment was enacted during FY 2016-17 but was expressly made effective from 1 April 2017. The question was whether it could nevertheless apply to transactions undertaken during FY 2016-17, merely because their taxability was determined in AY 2017-18.
Assessee’s Submissions
At the hearing, the assessee chose not to press his original grounds challenging the addition u/s 69A, dismissal for non-prosecution & other factual matters. Those grounds were accordingly dismissed as not pressed. His challenge was confined solely to the applicable rate u/s 115BBE.
The assessee relied principally upon the Rajasthan High Court’s decision in Deepak Maratha v. Union of India, dated 27 May 2026, which held that the enhanced 60% rate could not operate retrospectively for FY 2016-17. Reliance was also placed on the Madras High Court’s decision in S.M.I.L.E. Microfinance Ltd. v. ACIT, which had been followed in Deepak Maratha.
It was argued that the law applicable to the financial year was the law in force on its first day, namely 1 April 2016. On that date, section 115BBE prescribed tax at 30%. The later amendment contained no express language giving it retrospective effect. Therefore, the unexplained deposits could only be taxed at 30%.
Revenue’s Contentions
The Revenue relied upon the orders of the lower authorities & defended application of the 60% rate. It sought confirmation of the tax computation made with reference to the amended section 115BBE.
Tribunal’s Findings & Legal Reasoning
The Tribunal held that the issue was squarely covered by Deepak Maratha. The Rajasthan High Court had declared that the law applicable to a financial year is the law in force on the first day of that year. A provision introduced later cannot govern transactions of that year unless the Legislature expressly makes it retrospective.
The enhanced rate came into force on 1 April 2017, being the first day of FY 2017-18. It could therefore apply only from FY 2017-18 onwards. For FY 2016-17, the rate existing on 1 April 2016, namely 30%, continued to govern. The amending legislation contained no express retrospective language.
Accordingly, the Tribunal set aside the CIT(A)’s order to that extent & directed the AO to recompute the tax liability at 30% instead of 60%. The appeal was partly allowed.
Practical Implications
The ruling provides significant relief in demonetisation-period additions for AY 2017-18. Even where an addition u/s 68, 69, 69A, 69B, 69C or 69D survives, the enhanced 60% rate cannot automatically be applied to FY 2016-17 transactions. Taxpayers should distinguish carefully between sustaining the deemed-income addition & determining the legally applicable rate. This decision concerns only the rate; the assessee expressly abandoned his challenge to the underlying ₹11.86 lakh addition.
Cases Discussed
- National Thermal Power Co. Ltd. v. CIT — relied upon for consideration of an additional legal ground at the appellate stage.
- Vidya Shankar Jaiswal v. CIT — relied upon for a justice-oriented & liberal approach to condonation of delay.
- Deepak Maratha v. Union of India — followed on prospective applicability of the enhanced Section 115BBE rate.
- S.M.I.L.E. Microfinance Ltd. v. ACIT — relied upon for the applicability of the 30% rate before 1 April 2017.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (for short, “CIT(A)”), dated 08.06.2024 which in turn arises from the order passed by the Assessing Officer (for short, “AO”) under section 144 of the Income Tax Act, 1961 (“the Act”) fort the A.Y 2017-18.
2. The assessee has assailed the impugned order on the following grounds of appeal:
“1. In the facts and circumstances of the case, the order of the CIT(A) is not sustainable on facts or in law.
2. In the facts and circumstances of the case, the Ld. CIT(A) erred in dismissing the appeal ex-parte for non-prosecution, without adjudicating the grounds of appeal on merits, which is contrary to the provisions of section 250(6) of the Income-tax Act, 1961.
3. In the facts and circumstances of the case, the Ld. CIT(A) erred in treating the cash deposits of Rs. 11,86,500/- as unexplained money u/s 69A, without properly appreciating the fact that the assessee had sources for explaining the cash deposits.
4. The appellant may be permitted to add, delete, and amend any ground with leave of the Honourable Tribunal.”
The assessee has also raised an additional ground which reads as under:
“Whether on the facts and in the circumstances of the case, the revenue is empowered to impose 60% tax under section 115BBE of the Act for transactions before 1.4.2017, especially for transactions that took place before demonetization?”.
As the assessee-appellant has sought my indulgence to adjudicate a legal issue that does not require looking any further beyond the facts available on record, I have no hesitation in admitting the same. My aforesaid view is supported by the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd vs. CIT, reported in (1998) 229 ITR 383 (SC.
3. Shri S.K. Gupta, Learned A.R for the assessee at the threshold of the hearing, submitted that the present appeal involves a delay of 511 days. The Ld. AR submitted that, though the period of delay is admittedly inordinate, the reasons for the delay justify its condonation. Elaborating on his contention, the Ld. AR submitted that the assessee is a septuagenarian, a 75-year-old agriculturist not familiar with the use of computers and email, and that it is for the first time he has been subjected to income tax. The Ld. AR, to buttress his contention, has drawn my attention to the “affidavit” filed by the assessee dated 05.06.2026 wherein the aforesaid factual position has been deposed. The assessee-appellant in the above-mentioned “affidavit” has deposed that he is not conversant with the use of computers and emails and thus remained oblivious about the income tax proceedings initiated in his case. He further stated that he had only learned of the same when the Department initiated recovery proceedings against him. The Ld. AR submitted that as the delay in filing the appeal had crept in for bona fide reasons and not on account of any lackadaisical approach of the assessee appellant, the same, in all fairness and in the interest of justice, be condoned.
4. Per contra, the Learned Departmental Representative (“Ld. DR”) submitted that the inordinate delay in filing of the appeal should not be condoned.
5. We have given thoughtful consideration to the arguments put forth by both the Ld. ARs regarding the reasons leading to the delay in filing the present appeal.
6. We find that the assessee had not only delayed the filing of the present appeal but had also been subjected to an ex-parte assessment order under section 144 of the Act dated 24.12.2019. Apart from that, the appeal filed by the assessee before the Ld. CIT (A) has also been dismissed for non-prosecution. Although the aforementioned facts at first blush do not inspire any confidence regarding the claim of the Ld. AR that the delay in filing the present appeal has crept in for bonafide reasons, and, the same, prima facie, reveals a consistent lackadaisical approach adopted by the assessee regarding his income-tax proceedings, but on a cumulative perusal of the reasons leading to the delay in filing the appeal before the Tribunal i.e. the assessee being a septuagenarian and 75 years old agriculturist by profession, an illiterate person, and had for the very first time as stated by the Ld. AR has been subjected to income tax proceedings and was therefore absolutely oblivious to the tax proceedings and not conversant with modern electronic procedures; as a result, the notices issued by the Department went unattended. Although I am of the firm conviction that inordinate delay in filing an appeal should not be liberally looked into, but considering the totality of the facts and circumstances involved in the case of the present assessee, I am of the view that, as the same had crept in for bona fide reasons, the same thus merits to be condoned. My aforesaid view is supported by the recent judgment of the Hon’ble Supreme Court in the case of Vidya Shankar Jaiswal Vs. CIT (174 taxmann.com 21), wherein the Hon’ble Supreme Court held that a justice-oriented and liberal approach should be adopted while considering an application for condonation of delay filed by an appellant. Respectfully following the said principle, I condone the delay in filing the present appeal before the Tribunal.
7. Coming to the merits of the case, the Ld. AR submitted that, as per instructions, he seeks not to press the original grounds of appeal, i.e., ground nos. 1 to 4, and shall confine his contentions only regarding the “additional ground of appeal” wherein the rate of tax of 60% charged upon the assessee for quantifying his tax liability for the Assessment Year 2017-18 by triggering the provisions of section 115BBE of the Act, has been challenged. I, thus, in terms of the aforesaid concession of the Ld. AR dismiss the “Grounds of appeal Nos. 1 to 4” as not pressed.
8. Elaborating on his contention, the Ld. AR submitted that the aforesaid issue as of date, i.e., tax liability on the deemed income of an assessee as per Section 115BBE for the Assessment Year 2071-18 is no more res integra and is covered by the judgment of the Hon’ble High Court of Rajasthan in the case of Deepak Maratha Vs. Union of India, Writ Petition No.3625 of 2020, dated 27th May, 2026.
9. Apart from that, the Ld. AR has relied upon the judgment of the Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Ltd Vs. Assistant Commissioner of Income Tax (2025) 479 ITR 172(Mad), which had been followed by the Hon’ble High Court of Rajasthan in the case of Deepak Maratha Vs. Union of India (Supra). The Ld. AR based on his aforesaid contention submitted that the addition of Rs.11,86,500/- made by the A.O by treating the cash deposits made in the assessee’s bank accounts held with Corporation Bank and A.P Mahesh Cooperative Urban Bank Ltd. by treating the same as having been sourced out of the assessee’s unexplained income made under section 69A of the Act be subjected to tax under Section 115BBE of the Act as was applicable during the subject year, i.e., as per the normal rate of 30%.
10. Per contra, the Ld. DR relied upon the orders of the authorities below.
11. I have given thoughtful consideration to the facts, and find that the solitary issue involved in the present appeal, i.e., the quantification of the tax liability under Section 115BBE of the Act with respect to the addition made by the A.O under Section 69A of the Act for AY 2017-18, is covered by the judgment of the Hon’ble High Court of Rajasthan in the case of Deepak Maratha Vs. Union of India (Supra), wherein the Hon’ble High Court, in its order, had concluded at Para No.17, as under:
“17. SUMMARY/CONCLUSION As an upshot of the discussion and analysis, as above, in our opinion, the Correct Legal Position which emerges is summarized as below:-
(i) The law applicable to an assessment year is the law in force on the first day of that year — i.e., 01st April. A provision coming into force after that date, without express retrospective language, cannot be applied to assessments for that year.
(ii) Changes in law occurring after the commencement of a financial year cannot govern the tax liability for that year unless the amendment is expressly made retrospective.
(iii) The amendment to Section 115BBE came into force on 01.04.2017 i.e. the first day of financial year 2017-18.
For FY 2016-17, the law in force on 01.04.2016, prescribing a rate of 30%, must govern. The enhanced rate of tax @60% came into force on 01.04.2017 and can apply only from that date, i.e. for financial year 2017-18 onwards.
(iv) The Taxation Laws (Second Amendment) Act, 2016 contains no express language for it’s retrospective effect of section 115BBE.”
(emphasis supplied by me)
I, thus, respectfully follow the aforesaid judgment, and, to the said extent, set aside the order of the Ld. CIT (A) and direct the A.O to rework out the tax liability of the assessee in terms of the aforesaid observations.
12. In the result, the appeal of the assessee is partly allowed in terms of the aforesaid observations.
Order pronounced in the Open Court on the conclusion of hearing, i.e., on 27th August, 2026.
