Case Law Details
Yashudev Enterprises Vs DCIT (ITAT Chandigarh)
The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, delivered a significant ruling in the case of Yashudev Enterprises vs. Deputy Commissioner of Income Tax (DCIT) for the Assessment Year (AY) 2017-18, concerning the applicability of the enhanced tax rate under Section 115BBE of the Income Tax Act, 1961. The dispute centred on whether additional income surrendered by the assessee during a search operation was subject to the normal corporate tax rate or the much higher rate of 60% prescribed by a subsequent legislative amendment.
Factual Background and Lower Authority Holdings
The matter originated from a survey operation conducted under Section 133A of the Income Tax Act on the assessee, Yashudev Enterprises, on October 21, 2016. During the survey, the assessee conceded and offered an additional income of Rs. 33 Lacs to tax. This surrender was made to account for discrepancies noted in stock, cash, and unaccounted investment related to construction activities.
Crucially, the assessee treated this surrendered amount as income arising from normal business activities and, accordingly, credited it to the Profit & Loss Account in its return of income, applying the standard tax rate applicable to business income.
However, the Assessing Officer (AO), in framing the assessment under Section 143(3), rejected the assessee’s application of the normal rate. The AO insisted that the surrendered amount of Rs. 33 Lacs must be subjected to the higher tax rate of 60% as stipulated under Section 115BBE of the Act. The assessee challenged this application before the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi. The CIT(A) upheld the stance taken by the AO, confirming the levy of tax at the elevated 60% rate. This confirmation by the CIT(A) led the assessee to file a further appeal before the ITAT.
ITAT’s Key Findings and Rationale
The ITAT reviewed the rival submissions and the chronological facts of the case, concluding that the application of the 60% tax rate under Section 115BBE was unjustified. The Tribunal’s decision rested on two primary grounds, both based on a strict interpretation of the law’s applicability:
1. Chronology of Amendment: The Tribunal noted the critical timeline. The surrender of income by the assessee occurred on October 21, 2016, the date of the survey. The notification prescribing the higher rate of tax under Section 115BBE came into force later through the Taxation Laws (Second Amendment) Bill, 2016, notified on November 28, 2016. The ITAT’s view was that a statutory provision prescribing a higher penal tax rate cannot be applied retrospectively to an admission of income that took place prior to the provision’s effective date. The higher rate was non-existent on the date of the surrender.
2. Head of Income Acceptance: The Tribunal also observed that the AO, in the assessment order, had not challenged or disturbed the assessee’s classification of the surrendered amount under the head of income—namely, as “income arising out of normal business activities.” Since the department did not dispute the fundamental nature of the income, but only the rate of tax applied, and the income was credited to the Profit and Loss Account, it fortified the claim that the income was business-related and not concealed income requiring the stringent application of Section 115BBE, as amended.
Conclusion and Judicial Precedents
For these two reasons—the retrospective application of a penal provision and the unchallenged acceptance of the head of income—the ITAT allowed the assessee’s appeal. The Tribunal directed the Assessing Officer to accept the surrender of Rs. 33 Lacs as normal business income only.
The order did not explicitly cite any previous judicial precedents (other ITAT, High Court, or Supreme Court rulings) to support its finding, but the rationale aligns with the settled legal principle that taxing statutes, especially those imposing a greater burden, should not be applied retrospectively unless specifically provided for by the legislation.
The appeal was thus allowed in favour of Yashudev Enterprises.
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), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 20-05-2025 in the matter of an assessment framed by Ld. AssessingOfficer [AO] u/s. 143(3) of the Act on 06-11-2019. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
2. The assessee was subjected to survey u/s 133A on 21-10-2016 wherein the assessee offered additional income of Rs.33 Lacs. The assessee honored the surrender and offered additional income to tax in its return of income. The surrender was on account of discrepancy in stock / cash & unaccounted investment in construction. The assessee offered the surrendered income as income arising out of normal business activities and accordingly, credited the same to its Profit & Loss Account. The dispute arose on account of rate of taxation. The assessee applied normal rate of tax whereas Ld. AO held that the surrender of Rs.33 Lacs would be subjected to higher rate of tax of 60% u/s 115BBE. The Ld. CIT(A) confirmed the stand of Ld. AO against which the assessee is in further appeal before us.
3. It emerges that the survey has happened on the assessee on 21-102016 whereas notification prescribing higher rate of tax has come into force vide Taxation Laws (Second Amendment) Bill, 2016, notification dated 28-11-2016. In other words, the higher rate has been prescribed later on whereas the surrender has been made for income arising to the assessee prior to that date. Secondly, Ld. AO has not disturbed the head of income in the assessment order and there is no discussion in this respect. For both the reasons, the application of higher tax rate of 60% as prescribed u/s 115BBE could not be held to be justified. The Ld. AO is directed to accept the surrender as normal business income only.
4. The appeal stand allowed.
Order pronounced on 22-09-2025.
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