ARUR MADHESWARAN VIDHYAA,DHARMAPURI vs. ITO, WARD-1,, DHARMAPURI

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as “the Ld.CIT(A)”), Delhi, dated 17.04.2024 for the Assessment Year (hereinafter referred to as "AY”) 2017-18.

ITA No.1566/Chny/2024(AY 2017-18) Arur Madheswaran Vidhyaa :: 2 :: name & style of M/s. Vidhyaa Traders. The assessee didn’t file her return of income (RoI) u/s.139(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act”) but filed her return for AY 2017-18 on 01.04.2018, pursuant to the notice u/s.142(1) of the Act, declaring ₹19,71,620/-. The AO noted that the case was selected for scrutiny under CASS to verify “substantial increase in the capital in a year”. The AO noted that the assessee is operating wholesale-cum-retail trading in oil & its allied products and noted from the RoI filed by the assessee for AY 2017-18 that assessee has shown proprietor’s capital at ₹4,33,78,018/- whereas ITR filed for earlier AY 2016-17, reflects as ₹1,76,01,288/-. Hence, the AO noted that there was substantial increase of ₹2,57,76,730/- in capital during the relevant AY 2017-18. The AO asked the assessee to explain the reason as well as the source for the increase in capital. According to the AO, the assessee inter alia replied that due to over-sight, some mistakes crept in to the financials of the Proprietorship, viz while uploading the balance-sheet, the statement of accounts got merged, consequently the erroneous value was shown as current assets in its balance-sheet. However, the AO was not satisfied with the ibid explanation and treated the increase in capital account to the tune of ₹2,57,76,730/- as unexplained money u/s.69A r.w.s.115BBE of the Act and accordingly, taxed the same at 60% vide assessment order dated 31.12.2019. Aggrieved, the assessee preferred an appeal before

ITA No.1566/Chny/2024(AY 2017-18) Arur Madheswaran Vidhyaa :: 3 :: the Ld.CIT(A), wherein the assessee reiterated her stand about the inadvertent mistake which crept into the financials of the proprietary concern and pleaded for rectifying the same. However, the Ld.CIT(A) is noted to have made a comparative study of the financials from AY 2016- 17 to AY 2019-20 and drew a chart which is reproduced at Page Nos.10 & 11 of the impugned order and found that “perusal of the above comparative figures shows that the substantial increase in the capital for FY 2016-17 was continued in the subsequent financial years and no decrease in capital by way of adjustment of wrong figures taken in FY 2016-17 has been made. This itself shows that the version of the assessee about clerical mistake in filling up the figures in ITR for AY 2017- 18 is incorrect". And assessee failed to furnish the audited financial statement of the proprietary concern to substantiate her claim that the proprietor’s capital was only Rs 1,91,89,009/- for FY 2016-17 instead of ₹4,33,78,018/-. Therefore, the Ld CIT(A) finding no proof, in respect of nature & source of increase in capital account, confirmed the addition of ₹2,57,76,730/-. Aggrieved, the assessee is in appeal before this Tribunal.

ITA No.1566/Chny/2024(AY 2017-18) Arur Madheswaran Vidhyaa :: 4 :: by relying on the decision of the Hon’ble jurisdictional High Court in the case of SMILE Microfinance Ltd. v. ACIT order dated 19.11.2024 [WP (MD) No.2078 of 2020 & WMP (MD) No.1742 of 2020], wherein it has been held that the amendment brought in by Legislature, by applying harsher rate of taxation while introducing section 115BBE is prospective in operation and not applicable for Assessment Year 2017-18. So, the Hon’ble High Court held that income assessed for Assessment Year 2017- 18 under sections 68 to 69D cannot be subjected to the amended rigors of section 115BBE, including the enhanced rate of tax and the disallowance of deductions. Per contra, the Ld.DR couldn’t controvert the ibid prayer of the assessee in the light of the decision of the SMILE supra. In this regard, we note that the Hon’ble Madras High Court in the case of SMILE supra held that the Revenue is empowered to impose 60% rate of tax only for the transactions from 01.04.2017 onwards and not prior to the said cut-off date; and clarified that for prior transaction, the Revenue is empowered to impose only 30% rate of tax, by observing as under:-

ITA No.1566/Chny/2024(AY 2017-18) Arur Madheswaran Vidhyaa :: 5 :: 4. In light of the aforesaid binding decision of the Hon’ble Madras High Court in the case of SMILE supra, which was a case pertaining to AY 2017-18 wherein addition was made u/s 69 of the Act, their Lordships held that Revenue to invoke 60% rate of tax for transaction from 01.04.2017 onwards and not prior to the cut-off date. The Hon’ble Madras High Court clarified that for prior transaction, the Revenue is empowered only 30% rate of tax for addition made u/s.115BBE of the Act. Since the relevant year under consideration i.e. AY 2017-18, the transaction in question falls in FY 2016-17, viz., between 01.04.2016 to 31.03.2017, hence, the impugned rate of tax imposed by AO for addition made u/s 69 can’t be 60%, rather it can only be 30% rate of tax. Hence, we direct the AO to impose only 30% rate of tax as held by the Hon’ble Madras High Court in the case of SMILE supra. 5. In the result, appeal filed by the assessee is partly allowed.

Order pronounced on the 15th day of May, 2026, in Chennai. Sd/- Sd/- (इंटूरी रामा राव) (एबी टी. वर्की) (INTURI RAMA RAO) (ABY T. VARKEY) न्यानयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER चेन्नई/Chennai, ददनांक/Dated: 15th May, 2026. KB आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकरआयुक्त/CIT, Chennai / Madurai / Salem / Coimbatore. 4. ववभागीयप्रविविवि/DR 5. गार्डफाईल/GF Digitally signed K BABU by K BABU Date: 2026.05.21 10:36:58 +05'30'