Case Law Details
Babu Ram Aggarwal Vs ITO (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT) Delhi, in the case of Babu Ram Aggarwal vs. ITO for Assessment Year 2012-13, has ruled that the higher tax rate prescribed under Section 115BBE of the Income Tax Act, 1961, cannot be applied to transactions undertaken before April 1, 2017. This decision aligns with a recent judgment from the Madras High Court.
The central issue in the appeal was the invocation of Section 115BBE by the Assessing Officer (AO) concerning an addition of Rs. 3,61,000/- made under Section 69C of the Act, which pertains to unexplained expenditure.
The ITAT, after hearing the Departmental Representative (DR) and reviewing the available records, concluded that the provisions of Section 115BBE were not applicable in this specific case. The Tribunal drew support for its conclusion from the Madras High Court’s judgment dated November 19, 2024, in the case of S.M.I.L.E Microfinance Ltd. (W.P. (MD) NO. 2078 Of 2020 & W.M.P (MD) NO. 1742 Of 2020).
In the S.M.I.L.E Microfinance Ltd. case, the Madras High Court addressed the applicability of Section 115BBE’s increased tax rate, from 30% to 60%, introduced through an amendment. The High Court analyzed the effective date of this amendment, which was April 1, 2017. The revenue in that case argued that the amendment, being effective from April 1, 2017, applied to the financial year 2016-17 and Assessment Year 2017-18, and was related to demonetization.
The Madras High Court, however, meticulously examined the “Objects and Reasons” of the Taxation Laws (Second Amendment) Bill, 2016, which introduced these changes. While acknowledging that the amendment aimed to curb black money and that concerns were raised about existing provisions being used to conceal black money in the wake of demonetization, the High Court found no explicit statement that the 60% tax rate was intended for unaccounted money generated due to demonetization or for transactions prior to April 1, 2017.
The Madras High Court particularly focused on the language in the “Objects and Reasons” stating, “instead of allowing people to find illegal ways of converting their black money into black again.” The Court interpreted the word “again” to clearly indicate an intention to apply the higher rate to future transactions, specifically from April 1, 2017. Consequently, the Madras High Court held that the revenue was empowered to impose the 60% tax rate only for transactions from April 1, 2017, onwards, and for transactions prior to that cutoff date, only the erstwhile 30% rate of tax was applicable.
Relying on this precedent, the ITAT Delhi noted that in the present case of Babu Ram Aggarwal, the transactions in question undisputedly occurred in the Financial Year 2016-17. Therefore, the Tribunal concluded that Section 115BBE could not have been invoked to levy the higher tax rate.
The ITAT Delhi has directed the Assessing Officer to recalculate the taxes on the addition made without applying the provisions of Section 115BBE of the Act. As a result, the assessee’s appeal was allowed for statistical purposes. The order was pronounced in open court on June 27, 2025.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal by Revenue is directed against the order of Commissioner of Income Tax (Appeals)-29, New Delhi [for short hereinafter referred to as the “(Ld. CIT(A)”] dated 30.06.2023 for Assessment Year 2012-13. The word Act hereinafter in this order shall mean the Income Tax Act, 1961.
2. The appellant Assessee was called absent in the case.
3. The ld DR informed that the only issue arising in the present appeal is regarding the invocation of Section 115BBE of the Act by the ld AO in this case in respect of addition of Rs. 3,61,000/- made u/s 69C of the Act. Reliance was placed upon the order of lower authorities.
4. We have heard the ld DR in the light of the materials available on the record. On the issue of invocation of Section 115BBE of the Act, we are of the considered opinion that provisions of section 115BBE would not be applicable in this case. In this regard we draw strength from decision of Hon’ble madras High Court from its judgement dated 19/11/2024 qua W.P (MD) NO. 2078 Of 2020 & W.M.P (MD) NO. 1742 Of 2020 I n the case of S.M.I.L.E Microfinance Ltd . , holding that:-
“……… 16. The next contention raised by the Learned Senior Counsel is that the under section 115BBE the rate of tax imposed is increased from 30% to 60% and the same is applicable with effect from 01.04.2017 onwards as per the amendment. Therefore, the same is applicable to any transaction from 01.04.2017 onwards and nor prior to any transactions prior to 01.04.2017. Since in the present case all alleged transactions are for the period from 08.11.2016 to 30.12.2016, hence the erstwhile rate of tax 30% only is applicable. But the contention of the revenue is that the amendment was with effect from 01.04.2017 and hence the same is applicable for the financial year 2016-2017 and the assessment year 2017-2018. Further the amendment to section 115BBE is directly 15 of 26 https://www.mhc.tn.gov.in/judis related to demonetization which would be evident from objects and reasons for such amendment. In order to consider the same, the objects and reasons of Taxation Laws (Second Amendment) Bill 2016 is extracted hereunder:
Press Information Bureau Government of India Ministry of Finance 28-November-2016 15:56 IST Taxation Laws (Second Amendment) Bill, 2016 introduced in Lok Sabha; A scheme namely, „Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016‟ (PMGKY) proposed in the Bill.
Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the value of Rs.500 and Rs. 1000 [Specified Bank Notes(SBN)] have been recently withdrawn the Reserve Bank of India.
Concerns have been raised that some of the existing provisions of the Income- tax Act, 1961 (the Act) can possibly be used for concealing black money. The Taxation Laws (Second Amendment) Bill, 2016 („the Bill‟) has been introduced in the Parliament to amend the provisions of the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision.
Further, in the wake of declaring specified bank notes “as not legal tender”, there have been suggestions from experts that instead of allowing people to find illegal ways of converting their black money into black again, the Government should give them an opportunity to pay taxes with heavy penalty and allow them to come clean so 16 of 26 https://www.mhc.tn.gov.in/judis that not only the Government gets additional revenue for undertaking activities for the welfare of the poor but also the remaining part of the declared income legitimately comes into the formal economy.
In this backdrop, an alternative Scheme namely, „Taxation and Investment Regime for Pradhan MantriGaribKalyanYojana, 2016‟ (PMGKY) has been proposed in the Bill. The declarant under this regime shall be required to pay tax @ 30% of the undisclosed income, and penalty @10% of the undisclosed income. Further, a surcharge to be called „Pradhan MantriGaribKalyan Cess‟ @33% of tax is also proposed to be levied. In addition to tax, surcharge and penalty (totaling to approximately 50%), the declarant shall have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the RBI under the „Pradhan MantriGaribKalyan Deposit Scheme, 2016‟. This amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality………………………………..
17. In the aforesaid objects and reasons nowhere it is stated that due to “demonetization” the unaccounted money ought to be charged 60% rate of tax. It only states that step had been taken to curb black money by withdrawing Specified Bank Notes of denomination of Rs.500 and Rs.1000. And also states the people may find illegal ways of converting their black money into black again, hence as per experts advice heavy penalty ought to be levied. From the language of the object “that instead of allowing people to find illegal ways of converting their black money into black again”, it is evident that the government is intended to impose the same for future transactions. Especially the use of word “again” in the object would clearly indicate it is for future transactions i.e. from 01.04.2017. Therefore this Court is of the considered opinion that the revenue is empowered to impose 60% rate of tax for the transactions from 01.04.2017 onwards and not prior to the said cut-off date. And for prior transaction the revenue is empowered to impose only 30% rate of tax….”.
5. Thus, Hon’ble high court has held that section115BBE would be applicable for transactions undertaken w.e.f. 1/4/2017 and not of earlier period. In the present case undisputedly transaction were undertaken in FY 2016-17 and hence section115BBE could not have been invoked in this case. Accordingly, we direct the ld AO to recalculate the taxes qua addition made by him without invoking the provisions of Section 115BBE of the Act.
6. In the result, the appeal of the Assessee is allowed for statistical purposes.
Order pronounced in the open court on 27/06/2025.
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