KARTHICK NATARAJAN,MADURAI vs. DCIT, INTNL TAXN CIRCLE, MADURAI

आदेश /O R D E R

PER MAHAVIR SINGH, VP:

2 2. The first issue in this appeal of assessee is as regards to the order of CIT(A) confirming/restricting the addition at Rs.70,00,000/- out of the total addition made by AO at Rs.1,00,00,000/- claiming to be marriage gift and therefore exempt. For this, assessee has raised the following ground No.1 & 2:-

1. The learned CIT (Appeals) erred in confirming the addition to extent of Rs.70.00,000/- which was claimed as marriage gifts and therefore exempt.

3 deposit to the tune of Rs.2,00,000/- in his Account No.50116330673 maintained with Allahabad Bank, Madurai Anna Nagar Branch and Rs.1,05,00,000/- in his Account No. 601601515869 with ICICI Bank, Madurai K K Nagar Branch. The AO issued show cause notice dated 04.07.2019 calling for explanation for cash deposit in above stated two bank accounts.Either there is adjournment request or no response and finally vide show cause notice dated 25.09.2019, the AO proposed to complete the assessment adding Rs.1.07 crores. The assessee explained that this cash deposit of Rs.7 lakhs was cash given to his mother Smt. Malliga during his visits to India which was deposited and balance of Rs. 1 crore was gift received during marriage. The assessee claimed before AO that the gift of Rs.1 crore received in connection with his marriage celebrated on 07.12.2015, was deposited in his bank accounts, as mentioned above and claimed the same as exempt being gifts received during marriage under the proviso to section 56(1)(vii)(c) of the Act. The AO noted, that, in the instant case, assessee has not furnished any material evidence to substantiate that he has received gift of Rs.1,00,00,000/- during his wedding in December, 2015. The assessee has not produced any material evidence other than the wedding invitation card to prove the genuineness of his claim. The AO accordingly made addition of Rs.1,00,00,000/-, being cash

4 deposit in assessee’s bank accounts with Allahabad Bank, Madurai Anna Nagar Branch and ICICI Bank, Madurai K K Nagar Branch deposited during demonetisation period in financial year 2016-17 relevant to assessment year 2017-18, as unexplained money as per the provisions of section 69A of the Act. Aggrieved, assessee preferred appeal before CIT(A).

By way of two acts i.e. (a) Deposit of cash into his own bank accounts (b) Transferring the same for purchase of a property from M/s. Sobha Ltd, the appellant has clearly proved that he is the owner of the money. Thus, the 1st condition which requires satisfaction for application of section 69A stands satisfied.

The second condition says that it should not be recorded in books of account, which is also satisfied, partly.

5.3 The Third and most important condition is, the "nature and source of the said money or valuable article" should remain unexplained. Here, the Ground gets dicey. The claim of the appellant that the cash is sourced out of his marriage gifts remains unproved in view of no demonstable evidence. The case of the A.O is also not strengthened by any evidence. In other words, both the claims remain unsubstantiated.

5 5.4 As mentioned above, the application of Section 69A to any case should be primarily on facts and not on law. As no direct evidence is available in substantiation of both the claims, I am placing reliance on "Theory of preponderance of possibilities." To ask any person to prove gifts received on the occasion of marriage etc., is nearly impossible. No, economic transaction an be divorced from the underlying socio-cultural factors. As widely known, demonetization is a clear accelerant for all cash deposits in certain specified currency notes. The fact that the appellant is an NRI is one of the factors which need to be considered. Nonetheless, it is also one of the factors made use of by many of the non-residents to accommodate entries in their names.

5.5 Considering the above factors, I direct the A.O. to delete a further amount of Rs. 30, 00,000/- out of Rs. 1,00,00,000/- added as unexplained money u/s 69A. Thus Rs. 70,00,000/- stand sustained as unexplained money u/s 69A.

Aggrieved, now assessee is in appeal before us.

6 accept the arguments of the assessee that the cash deposits made in the accounts of the assessee are not income of the assessee for the simple reason that he himself made deposit in bank accounts during demonetization period and hence, the deeming provisions of section 69A of the Act is clearly applicable to the facts of the case.

7 gifts in marriage. Hence, we further want to estimate by looking into the fact that assessee might not have received cash gift of Rs.1,00,00,000/- and CIT(A) has already allowed relief of Rs.30,00,000/-, we want to make a further estimate and delete the amount of Rs.20,00,000/- further. Thereby, the total deletion is i.e., deleted by CIT(A) of Rs.30,00,000/- plus deletion now by the Tribunal of Rs.20,00,000/-, aggregate comes to Rs.50,00,000/-. Hence, we sustain the balance of Rs.50,00,000/- as unexplained money u/s.69A of the Act. In term of the above, the first two grounds raised by the assessee are partly allowed as indicated above.

3. The learned CIT (Appeals) erred in confirming the action of the Assessing officer in levying tax under the amended provisions of section 115BBE @60 and surcharge of 25% without noticing that the amendment is applicable only from AY 2018-19.

8 (ii) Hon’ble Madras High Court in the case of Mercantile Credit Corporation Ltd., vs. CIT, [2000] 245 ITR 245 (iii) ITAT, Indore Bench in the case of DCIT vs. Punjab Retail Pvt. Ltd., in dated 08.10.2021 8.1 The ld.counsel for the assessee argued that these deposits i.e., cash deposits were made by assessee in November and December, 2016 and the amendment in Section 115BBE of the Act was brought in amending the finance Act, 2016 by the Taxation Laws (Second Amendment) Act, 2016, w.e.f.01.04.2017. He argued that the amendment in section 115BBE of the Act came into force only on 15.12.2016, when this provision was amended, whereas deposits were made in November and December, 2016 during demonetization. The ld.counsel relied on the decision of the Co- ordinate Bench of Indore Tribunal in the case of DCIT vs. Punjab Retail Pvt. Ltd., in and drew our attention to the following findings:- “Since the search in the case of the appellant was carried out before the amendment the addition ought to have been made in terms of the prevailing provision and therefore, the addition made by the AO invoking Section 115BBE provision of which came into force only on 01.04.2017 is not sustainable. Therefore, the order passed by the Ld. CIT(A) deleting the addition made on that premise is according to us just and proper so as to warrant interference. Hence, the appeal preferred by the Revenue found to be devoid of any merit and is dismissed.”

According to ld.counsel, the addition made u/s.69A of the Act by the AO should have been charged on normal rate of tax and special rate of tax u/s.115BBE of the Act has come into force w.e.f. 01.04.2017.

(a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of—

(i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).

The reliance placed by the ld.counsel for the assessee on the decision of Hon’ble Supreme Court in the case of Karimtharuvi Tea Estates, supra was as regards to imposition of surcharge on the ground that the law applicable to assessment for 1957-58 under the provisions of agricultural income-tax was the law enforced on 01.04.1957 and as the Surcharge Act having come into force on 1st September, 1957 did not have any retrospective effect, the surcharge could not be levied for that year. The Hon’ble Supreme Court has finally held as under:- The Surcharge Act having come into force on September 1, 1957, and the said Act not being retrospective in operation, it could not be regarded as law in force at the commencement of the year of assessment 1957-58. Since the Surcharge Act was not the law in force on April 1, 1957, no surcharge could be levied- under the said Act against the appellant in the assessment Year 1957-58. Hence, the decision of Hon’ble supreme court does not apply to the facts of the present case. 10.1 We also noted the case law relied on by the ld.Senior DR, the Hon’ble Kerala High Court in the case of Maruthi Babu Rao Jadav, supra, and the Hon’ble Kerala High Court has held as under:-

12. The assessee contends that the seizures were made prior to the amendment. The affidavits admitting the ownership of amounts seized were also submitted prior to the amendment. The assessee was not aware of the enhanced tax liability when the admissions were made before the authorities. The assessee has also made an attempt to relate the amendments to the demonetization of the specified currencies announced on 08.11.2016

11 which contention we reject at the outset. The subject amendments which are relevant for our consideration have no direct link with the demonetization introduced or the taxation and investment regime of Pradhaan Mantri Garib Kalyan Yojana 2016 brought in under Chapter IX A of the 2nd amendment Act. The 2nd amendment Act as is clear from the Statements of Objects and Reasons, was to curb, evasion of tax and black money as also plug loopholes in the IT Act and to ensure that defaulting assessees are subjected to higher tax and stringent penalty provision. Both the measures spoken of herein were to further the said objects and there cannot be any nexus assumed nor is it discernible.

10.2 We noted from the taxation law, Second Amendment Act, 2016 that the Income-tax payable shall be the aggregate of the amount of income-tax calculated on the income referred to clause (a) and clause (b) of section 115BBE(1) of the Act at the rate of 60% w.e.f. 01.04.2017 that means from assessment year 2017-18 relevant to financial year 2016-17 rate of tax will be at sixty percent. In our view and as held by Hon’ble Kerala High Court, there was no new liability created and the rate of tax merely stood enhanced which is applicable to the assessment year 2017-18. The enhanced rate applies from the commencement of the assessment

12 year 2017-18, which relates to previous financial year 2016-17 as the case in the present assessee and not on the date of commencement of the amendment. The reasoning for the same is that the date of amendment on which an amendment comes into force is the date of the commencement of the amendment. It is read as amended from that date. Under the ordinary circumstances, and Act does not have retrospective operation on substantial rights which have become fixed before the date of the commencement of the Act. But, this rule is not unalterable. The legislature may affect substantial rights by enacting laws which are expressly retrospective or by using language which has that necessary result. And this language may give an enactment more retrospectivity than what the commencement clause gives to any of its provisions. When this happens the provisions thus made retrospective, expressly or by necessary intendment, operates from a date earlier than the date of commencement and affect rights which, but for such operation, would have continued undisturbed. This view has been held by Hon’ble Supreme court in the case of Ahmadabad Manufacturing and Calico Printing Co. Ltd. Vs. SG Mehta ITO [1963] 48 ITR 154 (SC).

13 10.3 Even Hon’ble Kerala High Court in the case of Cf. Bhagavathy Tea Estates Ltd. Vs. State of Kerala [1989] 179 ITR 508 (Ker.) held that the rate or rates prescribed by a Finance Act is or, subsequently, changed by passing a finance (amendment) Act having retrospective effect from the date from which the original Finance Act was passed or enforced. In such circumstances, the changed rate or rates of tax is or to be applied for the relevant Assessment Year.

10.4 As regard to another argument made by Ld. Counsel for the assessee by referring to the provisions of Section 294 of the Act, we after going through the provision noted that it provided that if on the first date of April in any assessment year provision has not been made by a Central Act for the charging of income tax for that assessment year, this act shall nevertheless have effect until such provision is so made as if the provision in force in the preceding assessment year or the provision proposed in the bill then before the Parliament, whichever is more favourable to the assessee, were actually in force. The scope of provision of Section 294 is that the tax is factually imposed not under the Income tax Act but by the annual Finance Act, each year. The Income Tax Act provides a 14 vehicle to give effect to the provisions of the Finance Act and Section 294 provides that - - if, in any assessment year, - the Finance Act charging income-tax is not enacted by 1st April of that year, then, this Income-tax Act shall nevertheless have effect until the Finance Act is passed, - As if the Finance Act of the immediately preceding year was in force for that assessment year or - as if the provision in the Finance Bill for that year was duly passed into an Act, Whichever of these two provisions is more advantageous to the assessee. 10.5 It means that the provisions of Section 294 of the Act are valid only upto the time of finance bill proposed for the assessment year is duly enacted into law. Hence the argument of Ld. Counsel invoking the provisions of Section 294 of the Act in the present case is without any logic.

Order pronounced in the open court on 11th July, 2023 at Chennai.