Anshul Jain Vs ITO (ITAT Chandigarh)
Survey Surrender Before April 2017: ITAT Rejects Enhanced Section 115BBE Tax for AY 2017-18
Higher Tax Introduced Through Rectification Rejected
The Chandigarh Bench of the Income Tax Appellate Tribunal held that the AO was not justified in applying the enhanced rate under Section 115BBE to additional income surrendered during a survey conducted in September 2016.
Following the Rajasthan and Madras High Court decisions cited in its order, the Tribunal accepted that the enhanced rate operated prospectively in the manner explained by those authorities. It directed the AO to levy tax on the declared income at the normal applicable rates and allowed the assessee’s appeal.
The dispute arose from a rectification order, after the original scrutiny assessment had already accepted the returned income without further additions.
Survey Revealed Cash, Building Expenditure and Stock Differences
The assessee, a resident individual, carried on a proprietary business under the name M/s Navkar Furniture Palace.
A survey under Section 133A was conducted at the business premises on 14 September 2016. During the survey, the assessee offered additional income described in the order as approximately ₹61.19 lakh.
The surrender covered ₹5.10 lakh towards excess cash, ₹36 lakh towards expenditure on construction or improvement of a building, and ₹20 lakh towards stock discrepancy.
The assessee incorporated the surrendered income in his return. The AO completed the scrutiny assessment by accepting the returned income of approximately ₹72.52 lakh, without making any further addition.
Thus, the original assessment did not result in an increase over the income disclosed by the assessee.
AO Subsequently Invoked Section 154
The AO later initiated rectification proceedings under Section 154.
His position was that the surrendered additional income was covered by Section 68 read with Section 115BBE and should consequently suffer tax at the higher rate prescribed under that provision.
The rectification order was passed on 15 March 2021. The CIT(A), NFAC upheld the AO’s action by an order dated 13 January 2026.
Before the Tribunal, the assessee’s sole grievance concerned application of the higher rate under Section 115BBE. The Tribunal disposed of the appeal on that issue after hearing the parties and examining the record.
Rajasthan High Court Decision Supported the Assessee
The Tribunal found the issue covered in the assessee’s favour by Deepak Maratha v. Union of India, [2026] 187 taxmann.com 27 (Rajasthan).
As explained in the Tribunal’s order, the Rajasthan High Court held that the amendment increasing the Section 115BBE rate to 60% came into force from 1 April 2017.
The Tribunal recorded that, according to that decision, the law prevailing on 1 April 2016, prescribing a rate of 30%, governed Financial Year 2016-17, corresponding to Assessment Year 2017-18.
It further recorded the High Court’s conclusion that the enhanced rate applied prospectively from Financial Year 2017-18 onwards.
This interpretation supplied the principal basis for rejecting the enhanced tax imposed on the assessee’s September 2016 surrender.
Madras High Court Ruling Also Followed
The Tribunal also relied on S.M.I.L.E. Microfinance Ltd. v. ACIT, W.P.(MD) No. 2078 of 2020, dated 19 November 2024.
It noted that the Madras High Court had held that the impugned statutory provision would operate in relation to transactions undertaken on or after 1 April 2017.
The Bench observed that this view had been followed by various Tribunal Benches. Respectfully following the cited authorities, it held that the AO was not justified in applying the higher rate to the additional income involved in the appeal.
The order does not identify or discuss any contrary decision.
Operative Direction Was to Apply Normal Applicable Rates
The Tribunal’s final direction was that the AO should levy tax on the declared income at the normal applicable rates.
This wording deserves attention. While the discussion of Deepak Maratha refers to the earlier 30% rate under Section 115BBE, the operative direction does not expressly state that the surrendered income must be taxed at precisely 30%.
Accordingly, an accurate report of the decision should retain the Tribunal’s actual direction rather than substitute a different tax computation.
The appeal was allowed. The order does not separately examine whether the various components of the surrender were correctly classifiable under Section 68, nor does it independently decide whether the proposed change was permissible within the scope of Section 154.
Author’s Comments
The decision adds to the favourable Tribunal rulings resisting enhanced Section 115BBE taxation for Assessment Year 2017-18, particularly where the relevant surrender or transaction preceded 1 April 2017.
Its procedural setting is also significant: the returned income had already been accepted, and the higher tax was introduced subsequently through rectification. However, the Tribunal granted relief on the rate issue rather than expressly holding that Section 154 was unavailable.
Practitioners should therefore distinguish the timing of the enhanced rate, classification of surrendered income and permissibility of rectification. They are separate questions, and this short order does not adjudicate all three.
Equally, it should not be cited as holding that every survey surrender is business income. The decisive finding here was that the enhanced rate could not be applied; the operative relief was taxation at normal applicable rates.
Cases Discussed / Relied Upon
- Deepak Maratha v. Union of India, [2026] 187 taxmann.com 27 (Rajasthan) — Enhanced 60% rate under Section 115BBE held prospective.
- S.M.I.L.E. Microfinance Ltd. v. ACIT, W.P.(MD) No. 2078 of 2020, dated 19 November 2024 — Enhanced Section 115BBE rate not applicable to transactions before 1 April 2017.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
1. Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of an order of learned Commissioner of Income Tax (Appeals), NFAC [CIT(A)] dated 13-01-2026 in the matter of rectification order passed by Ld. AO u/s 154 r.w.s 143(3) of the Income Tax Act,1961 on 15.03.2021. The sole grievance of the assessee is application of higher rate of tax u/s 115BBE. Having heard rival submissions and upon perusal of case records, the appeal is disposed- off as under.
2. The assessee is resident individual carrying on a proprietary business under the name and style of M/s Navkar Furniture Palace. The business premises was subjected to survey u/s 133A on 14.09.2016 wherein the assessee offered additional income of Rs.61.19 Lacs which include Rs.5.10 Lacs for excess cash, Rs.36 Lacs for expenditure on construction / improvement of building and Rs.20 Lacs for stock discrepancy. The said surrender was incorporated in the return of income and Ld. AO accepted the returned income of Rs.72.52 Lacs without making any further additions.
3. However, Ld. AO initiated rectification u/s 154 on the ground that the additional income of Rs.61.10 Lacs was covered under the provisions of Sec.68 r.w.s. 115BBE and accordingly, the same would be taxable at higher rates as prescribed u/s 115BBE. The Ld. CIT(A) upheld the action of Ld. AO against which the assessee is in further appeal before us.
4. We find that this issue is covered in assessee’s favor by the decision of Hon’ble Rajasthan High Court in the case of Deepak Maratha vs. Union of India [2026] 187 taxmann.com 27 (Rajasthan). In the said decision, the Hon’ble High Court held that the amendment enhancing the rate of tax under section 115BBE to 60% came into force with effect from 01.04.2017. Consequently, for the Financial Year 2016-17 (A.Y. 2017-18), the law as it stood on 01.04.2016 (prescribing a rate of 30%) governs the assessment. The enhanced tax rate of 60% applies only prospectively from F.Y. 2017-18 onwards. Similar is the decision of Hon’ble High Court of Madras in the case of S.M.I.L.E. Microfinance Ltd. V. ACIT W.P.(MD) No. 2078 of 2020 dated 19-11-2024 (Madras) wherein the Hon’ble Court held that the impugned statutory provision would come into effect on the transaction done on or after 01-04-2017 only. The aforesaid view has consistently been followed across various Benches of the Tribunal. Respectfully, following the same, we would hold that Ld. AO was not justified in applying higher rate of tax to impugned additional income. We order so. The Ld. AO is directed to levy tax on the declared income at the normal applicable rates.
5. The appeal stands allowed.
Order pronounced on 06.10.2026
