The Surat Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that the higher tax rate under Section 115BBE of the Income Tax Act, 1961, was not applicable to the assessee, for Assessment Year (AY)2017-18.
Dhirajlal Bhagwanbhai Talaviya,the appellant-assessee,filed his return of income for AY 2017-18 on March 14, 2018, declaring ₹5,40,630. His case was selected for scrutiny due to cash deposits of ₹10,50,000 during demonetization. The Assessing Officer (AO) issued a show-cause notice for the source of these deposits.
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During the assessment proceedings, the AO classified the entire cash deposit amount as unexplained money and taxed it under Section 115BBE. The assessee contended that since the income was derived from sources he had disclosed in his return, the application of Section 115BBE was unjustified. He emphasized that the addition of the cash deposits already constituted a substantial tax burden, and taxing it again under this provision would amount to double taxation.
Section 115BBE of the Income Tax Act, 1961 imposes a flat tax rate of 60% on unexplained income under sections 68 to 69D, with no deductions allowed, except for certain acquisition costs. It applies to individuals, Hindu Undivided Families(HUF)s, firms, and companies, requiring reporting in tax returns. If the source of the income is satisfactorily explained, tax may not apply. Losses cannot be set off or carried forward, aiming to deter tax evasion.
The assessee argued that he had regularly filed his income tax returns, reporting substantial income in previous years, and that the income from brokerage and rental activities had been accepted by the AO. He maintained that the application of Section 115BBE in this instance was unwarranted, especially since the addition had already increased his tax liability significantly.
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Upon reviewing the appeal, the Tribunal recognized the assessee’s argument regarding the inapplicability of Section 115BBE for AY 2017-18. Citing prior decisions from its Division Bench, including Samir Shantilal Mehta vs. ACIT, ITA No.42/SRT/2022 the tribunal confirmed that the provision did not apply in this case.
A Single member bench of Pawan Singh(Judicial Member) allowed the assessee’s ground of appeal regarding the taxation under Section 115BBE, providing relief by ruling that the addition should not be subjected to the higher tax rate.
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