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Facts
The assessee filed a declaration under the Income Declaration Scheme, 2016 (IDS) declaring undisclosed income and dues for tax, surcharge, and penalty. However, the assessee failed to pay these amounts. The Assessing Officer (AO) issued a notice under section 148 of the Income Tax Act, treating the declared income as assessable for AY 2017-18. This led to an assessment order, which was appealed against after a significant delay.
Held
The Tribunal held that the notice issued under section 148 was invalid due to improper sanction. Additionally, the court found that the non-payment of taxes under IDS did not automatically trigger section 197(b) of the Finance Act 2016 due to non-service of Form 2. Consequently, the addition made under section 69A was quashed. The penalty under section 271AAC was also deleted as it was consequential to the bad reassessment.
Key Issues
1. Whether the notice under Section 148 of the Income Tax Act was validly issued? 2. Whether the non-payment of tax under the Income Declaration Scheme triggers penalty provisions? 3. Whether the enhanced tax rate under Section 115BBE is applicable for the Assessment Year 2017-18?
Sections Cited
147, 144, 271AAC, 183, 197(b), 69A, 115BBE, 148, 148A, 151, 184, 185, 187, 192
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA
& 1566/Chny/2025 आदेश /O R D E R PER S.R.RAGHUNATHA, AM :
These two appeals arise from the orders dated 17.04.2025 passed by the National Faceless Appeal Centre (NFAC) in respect of the appeals filed by the appellant against the orders of the Assessing Officer passed u/s.147 r.w.s. 144 and u/s.271AAC. of 2025 against the order u/s.147 r.w.s. 144
The brief facts leading to the appeal are that the assessee filed a declaration in Form 1 before the Designated Authority in terms of section 183 of the Finance Act, 2016 for the assessment years 2008-09 to 2016-17, the details of which are as follows: Sl. Assessment Amount of No. Year Undisclosed Income declared 1. 2008-09 40,50,000 2. 2009-10 2,17,00,000 3. 2010-11 36,00,000 4. 2011-12 45,00,000 5. 2012-13 60,00,000 6. 2013-14 8,43,46,400 7 2014-15 68,69,000 8. 2015-16 70,00,000 9. 2016-17 75,00,000 Total 14,55,65,400
The assessee for all the years in aggregate made a declaration for a total undisclosed income of Rs.14,55,65,400/-. The said declaration in Form 1 came to be filed on 30.09.2016. The said declaration also showed that the tax payable, the surcharge payable and the penalty payable as a result of the declaration to be as follows: & 1566/Chny/2025
Total amount of declaration of undisclosed income Rs.14,55,65,400 Tax payable thereon (30% of Rs.14,55,65,400) Rs.4,36,69,620 Surcharge payable thereon (25% of Rs.4,36,69,620) Rs.1,09,17,405 Penalty payable thereon (25% of Rs.4,36,69,620) Rs.1,09,17,405
The assessee however had not paid the tax, surcharge and penalty reflected as payable in Form 1 within the time allowed under the Finance Act, 2016. Since the tax, surcharge and penalty payable in terms of the provisions of Finance Act, 2016 pursuant to the declaration in Form 1 filed u/s.183 of the Finance Act, 2016 were not paid, the AO as per the provisions of section 197(b) of the Finance Act, 2016 was of the view that income so reflected in the Form 1 was assessable in the assessment year (A.Y.) 2017-18.
Consequent to the same, the AO issued a notice u/s.148 of the Income Tax Act, 1961 (in short “the Act”). The said notice came to be issued on 23.04.2021. Pursuant to the decision of the Supreme Court in UOI v Ashish Agarwal [2022] 444 ITR 1 (SC) the same was treated as a show cause notice u/s.148A(b) and further opportunity u/s.148A(b) of the Act was given to the assessee. As no response was received from the assessee in respect of the show cause notice issued u/s.148A(b), a notice u/s.148 was issued on 27.07.2022. The DIN for the notice u/s.148 was intimated through a separate letter on the same date i.e. on 27.07.2022.
The assessment order was passed on 22.04.2023 treating the entire sum of Rs.14,55,65,400/- as an addition to the returned income for the A.Y.2017-18. The said income of Rs.14,55,65,400/- was assessed u/s.69A of the Act, thus taxing the income at the rates provided for in section 115BBE of the Act. The reason for taxing the income u/s.69A was that a survey u/s.133A had been carried out in the assessee’s case on 23.05.2018. The assessee in his statement recorded during the course of survey had failed to give any credit worthy details regarding the source for the acquisition of the property and had :-4-:
& 1566/Chny/2025 admitted that the said properties were acquired through borrowings from various sources but failed to give credit worthy details regarding the source for acquisition of the properties.
Aggrieved by the said order of the AO an appeal was preferred before the ld.CIT(A), NFAC. The said appeal was however filed with a delay of 677 days. The appeal was accompanied by a petition to condone the delay in the form of an affidavit from the assessee, filed before the ld.CIT(A).
The main reason given for the delay in filing the appeal before the the ld.CIT(A) were as follows: “4. I was dependent on my Chartered Accountant for all my tax compliances and he was accessing my tax notices through the tax portal using my login credentials 5. I have duly informed my Chartered Accountant about the impugned assessment order but he was of the opinion that there was no chance of getting any relief from the appellate authorities and asked me to pay the demand. 6. As the assets of the appellant were already attached for the tax dues by the income tax department on 26.06.2018 and the appellant was not having enough source to discharge his huge tax liability, I was forced to look out for alternatives 7. Accordingly, I discussed the assessment order with some other tax consultants having expertise in the field and they informed me that there were bright chances of getting relief from the appellate authorities. Accordingly, I have decided to file the appeal belatedly with the petition for condonation of delay 8. In view of the above, the delay in filing this appeal is on account of wrong advice given by the Chartered Accountant, who was representing my case earlier.”
The ld.CIT(A), disposed of the appeal vide order dated 17.04.2025 refusing to condone the delay in filing the appeal on the basis that no sufficient cause had been provided by the assessee for the delay and in the absence of sufficient cause, the delay could not be condoned. & 1566/Chny/2025
Aggrieved by the order of the ld.CIT(A), the assessee preferred this appeal before us.
Before proceeding to adjudicate any issues arising in the present appeal, it is necessary for us to decide whether there was sufficient cause for the delay in presenting the appeal before the ld.CIT(A). The assessee before the ld.CIT(A) has taken a plea that the delay in filing the appeal has occasioned as a result of a wrong advice received from his Chartered Accountant that there was no chance of getting any relief from the appellate authorities and further, since the assessee did not have the resource to pay the huge demand, he had to look out for and seek advice of other professionals having expertise in the field and only when they informed him that there were bright chances of getting relief from the appellate authorities, he filed an appeal before the ld.CIT(A), NFAC with a petition to condone the delay.
In substance, the reason for the delay in filing the appeal before the ld.CIT(A) was on account of wrong advice given to the assessee by his Chartered Accountant. At this stage one may notice the decision of the Hon’ble Supreme Court in Collector, Land Acquisition v MST Katiji 1987 167 ITR 471 (SC). The Hon’ble Supreme Court in this case laid down the following 6 tests to determine whether a delay is to be condoned or not:
1. 1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.
2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner.
4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side :-6-:
& 1566/Chny/2025 cannot claim to have vested right in injustice being done because of a non- deliberate delay.
5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.
6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
The assessee also relied on the decision of the Hon’ble Jurisdictional High Court in Areva T and D India Ltd v JCIT [2006] 287 ITR 555 (Mad) where the Hon’ble Madras HC held that where the delay was on account of advice alleged to be given by his counsel even where the assessee could not get an affidavit from his counsel, the delay was to be condoned.
The Hon’ble HC in this case also held as follows: It is a well-settled law that in exercising discretion under section 5 of the Limitation Act the courts should adopt a pragmatic approach. A distinction must be made between a case where the delay is inordinate and a case where the delay is of a few days. Whereas in the former case the consideration of prejudice to the other side will be a relevant factor so the case calls for a more cautious approach in the latter case no such consideration may arise and such a case deserves a liberal approach. No hard and fast rule can be laid down in this regard. The court has to exercise the discretion on the facts of each case keeping in mind that in construing the expression "sufficient cause", the principle of advancing substantial justice is of prime importance. 14.1 The Hon’ble HC in this case referred to its own judgement in Sreenivas Charitable Trust v DCIT [2006] 280 ITR 357 where it was held that there was no hard and fast rule that can be laid down in the matter of condonation of delay and the Court should adopt a pragmatic approach and that the court should exercise the discretion on the facts of each case, keeping in mind that in construing the expression “sufficient cause” the principle of advancing substantial justice is of prime importance and that the term “sufficient cause” should receive a liberal construction.
& 1566/Chny/2025 14.2 The assessee further relied on the decision of the Hon’ble Madras HC in United Christmas Celebration Committee Charitable Trust v ITO [2017] 83 taxmann.com 293 where the Hon’ble Madras HC after referring to the decision of the Hon’ble SC in Motilal Padampat Sugar Mills v State of UP AIR 1979 SC 621 held that where the delay was attributable to the mistake of the counsel the delay ought to be condoned.
14.3 The assessee also relied on the decision of the Chennai Bench of the Income Tax Appellate Tribunal in Saravana Stocks Investments (P) Ltd v DCIT 2023 107 ITR (Trib) 37 – Chennai ITAT where it has been held as 3.5 The sum and substance of ratio laid down by various Courts is that no appeal should be thrown out of judicial scrutiny on technical reasons, and further, if there is a genuine reason for not filing appeals in time, the Courts and Tribunals should condone the delay and decide the appeals on merits. Therefore, we are of the considered view that the appeals filed by the assessee with a delay of 1526 days deserved to be condoned and thus, we condone the delay in filing of the appeals and admit appeals filed by the assessee for adjudication.
14.4 A reading of the above decisions clearly show that the term sufficient cause is to be liberally interpreted and that substantial justice when pitted against technical considerations, it is substantial justice which is to be preferred since the other side cannot claim to have a vested right in injustice being done because of a non-deliberate delay.
14.5 The Hon’ble SC in Collector, Land Acquisition v MST Katiji 1987 167 ITR 471 (SC) has further held as follows: Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is con-doned the highest that can happen is that a cause would be decided on merits after hearing the parties. 14.6 The Hon’ble SC has also observed that a litigant does not ordinarily benefit by lodging an appeal late.
& 1566/Chny/2025 15. The Ld. DR on the other hand, on the issue of condonation of delay has urged before us, that the delay in filing the appeal before the Ld.CIT(A) does not deserve to be condoned and relied on the decision of the Hon’ble Madras High Court in Royal Stitches (P) Ltd v DCIT 2023 156 taxmann.com 361 (Mad).
In this case the Hon’ble Madras High Court has refused to condone the delay of 1072 days in filing the appeal, referring to the decision of the Hon’ble Supreme Court in Pundik Jalam Patil v Executive Engineer, Jalgaon Medium Projec [(2008) 17 SCC 448] where the Hon’ble Supreme Court has observed that the Court would help only those who are vigilant and not those who slumber over their rights.
It can be noted that this decision of the Hon’ble Madras High Court was rendered in the case where the assessee was a company which would have been supported by various Chartered Accountants and Advocates in the organization while the assessee before us is an individual and is one who failed to file the appeal on the basis of a wrong advice from his Chartered Accountant. Further the facts of the case referred to by the Ld. DR in Royal Stitches (supra) are distinguishable.
We also notice the decision of the Hon’ble Supreme Court in Vidya Shankar Jaiswal v ITO 2025 305 Taxman 83 (SC) where the Hon’ble Supreme Court has held that the Tribunal and the High Court ought to have adopted a justice oriented and liberal approach by condoning the delay of 166 days.
The assessee in the present case has lodged the appeal with a delay of 677 days before the ld.CIT(A), since the assessee had received a wrong advice from his Chartered Accountant which claim of the assessee is supported by his affidavit filed before the ld.CIT(A)
& 1566/Chny/2025 20. We find that on the basis of the above decisions taking a pragmatic approach and further taking into account that the assessee does not benefit from lodging the appeal late, we hold that it is a fit case for condoning the delay in filing the appeal belatedly before the Ld.CIT(A).
Now coming to the other issues in the case, the assessee has raised the following:
1. 1. That no fresh tangible material was available before the AO for issue of notice u/s.148 of the Act.
2. That the notice issued u/s.148 of the Act by the Jurisdictional Assessing Officer (JAO) is liable to be quashed.
3. That the approval obtained from PCIT is not valid approval as per the provisions of section 151(ii) of the Act.
4. That the addition made u/s.69A of the Act is untenable in law.
5. That the levy of tax u/s.115BBE of the Act at higher rates is not applicable for AY 2017-18.
6. That the declaration filed by the assessee was made invalid by not issuing Form 2 and it would not be fair to treat the declaration as void.
Adverting to the merits of the case the following were the arguments of either parties and our decision on the various aspects.
At the outset the Ld.AR contended that there was no fresh tangible material which lead to the reopening of the assessment for the impugned assessment year. The Ld.DR on the other hand stated that the filing of Form 1 under the Income Disclosure Scheme, 2016 [IDS] and the non payment of tax / surcharge / penalty thereafter would constitute fresh tangible material since the Form 1 under the IDS 2016, clearly stated that the assessee had income which had not been disclosed.
The Ld.DR also stated that in the event of non payment of taxes under the IDS 2016, section 197(b) of the Finance Act 2016 would deem the amount of incomes stated in the Form 1 as income assessable in A.Y.2017-18 as per section 197(b) of the Finance Act 2016. & 1566/Chny/2025
The Ld.DR therefore, contended that it was a clear case where the Form 1 itself constituted fresh tangible material which lead to the reopening of assessment.
We have perused the records and considered the arguments of both sides. It can be seen from the records that the assessee, in fact, has filed Form 1 under the IDS 2016 on 30.09.2016. The said Form 1 contains the income that the assessee wished to declare under the IDS 2016.
We also notice that section 197(b) of the Finance Act 2016 treats income which has been disclosed under IDS and on which tax / surcharge / penalty has not been paid within the time stipulated u/s.187 of the Finance Act 2016 to be assessed as income of the A.Y. 2017-18 u/s.197(b) of the Finance Act 2016
A combined reading of section 197(b) along with the facts clearly demonstrate that the Form 1 itself would constitute fresh tangible material in relation to A.Y.2017-18 and we therefore find no merit in the contention of the Ld.AR of the assessee that there is no fresh tangible material leading to the reopening of the assessment by the issuance of notice u/s.148 of the Act in relation to A.Y.2017-18.
We hold accordingly.
Next on the issue of notice u/s.148 of the Act by the Jurisdictional Assessing Officer (JAO), in the instant case it is an admitted fact that the notice u/s.148 dated 27.07.2022 was issued by the Deputy Commissioner of Income Tax, Non Corporate Circle – 11, Chennai i.e. the JAO. The Ld.AR relying on the decision of the Hon’ble Jurisdictional High Court in TVS Credit Services dated 24.06.2025 which followed the decision of the Hon’ble Bombay High Court in the case of Hexaware Technologies Ltd v ACIT [2024] 464 ITR 430 (Bom), & 1566/Chny/2025 argued that the notice u/s.148 of the Act issued by the Jurisdictional Assessing Officer (JAO) and not by the Faceless Assessing Officer (FAO) is invalid and liable to be quashed.
We have noted with reverence the decision of the Hon’ble Madras High Court in TVS Credit Services dated 24.06.2025 in WP No.22402 cited by the Ld.AR. In the impugned decision the Hon’ble High Court has held as under:- “…..2. Learned Single Judge in order dated 20.12.2024 in WP Nos.25223 of 2024 held that it does not matter if the Jurisdictional Assessing Officer (JAO) issues the notice and it is not mandatory that it should be issued by the Faceless Assessment Officer (FAO). Another learned Single Judge in order dated 21.04.2025 in WP No.22402 of 2024 and batch cases, followed what was held by the Bombay High Court in Hexaware Technologies Ltd vs. Assistant Commissioner of Income Tax1; and opined that it was mandatory for the FAO to issue notice and issuance of notice by JAO would make the notice invalid. 3. Learned Single Judge thereafter directed the matter to be placed before the Chief Justice for constituting a Division Bench to consider the divergent views. It is, therefore, all these matters were listed before us today. 4. We follow the law as laid down in Hexaware Technologies Ltd (supra), the said judgment was authored by one of us (Chief Justice) that it is mandatory for the FAO to issue the concerned notices and issuance thereof by the JAO would make the notice invalid. 5. Counsels for assessees are ad idem that the law as laid down in Hexaware Technologies Ltd (supra) will apply. Learned Additional Solicitor-General, however, submits that the Revenue does not accept the law as laid down in Hexaware Technologies Ltd (supra); and that there is a special leave petition filed against the order and judgment in Hexaware Technologies Ltd (supra) and the same is expected to be taken up after the Supreme Court reopens. 6. Admittedly, learned Additional Solicitor-General, in fairness, states that there is no stay. Therefore, the law as laid down by Hexaware Technologies Ltd (supra) applies. 7. It is clarified that if the Apex Court reverses the judgment of Hexaware Technologies Ltd (supra), parties will be governed by the decision of the Apex Court. 8. Keeping open all rights and contentions of parties, including liberty to apply to this Court, in case the Revenue succeeds before the Apex Court, for revival of these petitions, the notices issued in these petitions are quashed and set aside…..” & 1566/Chny/2025
Further it is noticed that the Co-ordinate Bench of this Tribunal in the case of Kumaresan Bhagavathiperumal Pillai v ITO in / Chny / 2025 has held as follows:
Therefore, respectfully following the decision of the Hon’ble jurisdictional High Court, we set aside the impugned notice u/s.148 of the Act and consequential orders thereof. However, in the light of the Para No.8 of the judgment of the jurisdictional High Court, we also keep open of rights and contentions of parties including liberty to approach this bench, in case, the Revenue succeeds before the Apex Court for revival of this appeal. 33. Respectfully following the above decisions, we hold that the notice in the instant case issued by the JAO u/s.148 of the Act dated 27.07.2022 is invalid and consequently the assessment completed based on such invalid notice is hereby quashed. However, as ruled by the Hon’ble Madras High Court in TVS Credit Services (supra) it may be noted that this order is also subject to the decision of the Hon’ble Apex Court in response to revenue’s appeal in the case of Hexaware Technologies Ltd (supra).
The next issue raised by the Ld.AR is with regard to the validity of the approval obtained from the ld.PCIT for issue of notice u/s.148 of the Act. The Ld.AR contended that as on the date of issue of notice u/s.148 of the Act i.e. on 27.07.2002 for the A.Y. 2017-18, the three years period has elapsed and hence the provisions of section 151(ii) of the Act has to be applied. Accordingly, the approval has to be obtained either from the ld.Principal Chief Commissioner of Income Tax or the ld.Principal Director General of Income Tax.
From the facts of the case it is noted that the AO in the instant case has issued a notice u/s.148 of the Act on 23.04.2021. Pursuant to the decision of the Supreme Court in UOI v Ashish Agarwal [2022] 444 ITR 1 (SC) the said notice issued u/s.148 on 23.04.2021 was treated as a show cause notice u/s.148A(b) and further an opportunity u/s.148A(b) of the Income Tax Act was :-13-:
& 1566/Chny/2025 given to the assessee. Thereafter since no response was received from the assessee in respect of the show cause notice issued u/s.148A(b), a notice u/s.148 was issued on 27.07.2022. From the notice issued u/s.148 it could be seen that the AO has obtained approval from the Principal Commissioner of Income Tax vide Ref No.: C No.882 / PCIT – 8 / 2002-23 dated 22.07.2022.
After a careful reading of the decision of the Hon’ble Supreme Court in Ashish Agarwal (supra) and in UOI v Rajeev Bansal [2024] 469 ITR 46 (SC) we note that in the present case the 3 year time limit for A.Y.2017-18 ended on 31.03.2021 which falls during the time between 20.03.2020 and 31.03.2021 as contemplated by section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). Since the 3 year period lapsed only on 31.03.2021 for the A.Y. 2017-18 and since it fell during the TOLA period, the authorities empowered u/s.151(1) of the old regime i.e. the PCIT could have granted sanction to reopen the assessment till the extended period upto 30.06.2021. However in case where the sanction has to be given after 30.06.2021, then the provisions of section 151 of the new regime would apply and that the sanction ought to have been obtained from the authorities empowered u/s.151(ii) of the Act of the new regime i.e. Principal Chief Commissioner or Principal Director General or Chief Commissioner of Director General of Income Tax.
In the instant case, admittedly the AO for issue of notice u/s.148 of the Act dated 27.07.2022, beyond the period of 3 years, has obtained approval from the PCIT who is not the specified authority u/s.151(ii) of the Act.
Since the AO has not obtained sanction from the specified authority u/s.151(ii) of the Act for issuing the notice u/s.148 of the Act, we therefore are of the view that the assumption of jurisdiction by the AO to issue notice u/s.148 of the Act is bad in law. & 1566/Chny/2025
This view has been upheld in the case of ACIT v Surya Ferrous Alloys (P) Ltd.[2024] 169 taxmann.com 736 (Mumbai - Trib) and Keshri Rice Industries v DCIT [2025] 170 taxmann.com 425 (Raipur - Trib)
Although we have held that the reopening is bad in law and the reassessment order is liable to be quashed, we proceed further to decide the issue on the merits of the case.
As far as the issue of invocation of the provisions of section 197(b) of the Finance Act, 2016 to make addition of the undisclosed income declared in Form 1 under IDS, 2016, as income in the assessment year 2017-18 u/s.69A of the Act, since the tax / surcharge / penalty on the income declared in Form 1 was not paid within the specified due date and charging the same to tax at higher rates as per the provisions of section 115BBE of the Act, one has to see, whether in the facts and circumstances the non payment of tax / surcharge / penalty pursuant to filing of Form 1 under IDS, would be a good reason for invocation of section 197(b) of the Finance Act 2016.
The facts leading to this are that the assessee filed a declaration in Form 1 under IDS on 30.09.2016. In the said form the assessee declared an aggregate income of Rs.14,55,65,400/- for A.Ys.2008-09 to 2016-17. It is an admitted fact that the assessee has not paid the tax / surcharge / penalty that are payable under the IDS as contemplated under sections 184 and 185 of the Finance Act 2016. The Finance Act 2016 in section 186 prescribes the manner of declaration and section 187 provides for the time for payment of tax / surcharge / penalty. Section 187(3) clearly provides that if the declarant fails to pay tax / surcharge / penalty in respect of the declaration made u/s.187 on or before the date specified under sub section (1) the declaration shall be deemed never to have been made under the IDS, 2016. & 1566/Chny/2025
Section 197(b) provides that where a declaration is made u/s.183 and tax / surcharge / penalty referred to in sections 184 and 185 of the Finance Act 2016 are not paid within the time specified in section 187, the undisclosed income shall be chargeable to tax under the Income Tax Act in the previous year in which the declaration is made. The declaration in the instant case has been filed on 30.09.2016 i.e. in the previous year relevant to A.Y.2017-18.
In the light of these facts, the Ld.AR submitted that while the taxes have not been paid within the dates specified u/s.187(1), the provisions of section 192 of the Finance Act 2016 specifically provides that the declaration is not admissible in evidence against the declarant and that therefore the declaration cannot be used to reopen the assessment or to make any addition on the basis of such declaration.
The Ld.AR further contended that the Form 2 as contemplated by Rule 4(3) of the Income Declaration Scheme Rules, 2016 [IDS Rules], has not been served on the assessee and that therefore the question of payment of tax / surcharge / penalty does not arise. This being so, there was no scope for invocation of section 197(b) of the Finance Act 2016, the Ld.AR submitted.
The Ld.DR on the other hand submitted that the assessee was well aware of the amount of taxes to be paid and invited the attention of the Bench to the statement of facts filed before the ld.CIT(A) where the assessee has stated as follows:
“The applicant filed a declaration in Form 1 under “The Income Declaration Scheme Rules, 2016 on 30.09.2016 on the last date specified for filing the declaration but was unable to pay the necessary taxes within the time stipulated under the scheme.” & 1566/Chny/2025
The Ld.DR further submitted that the assessee having admitted that he is aware of the quantum of tax / surcharge / penalty to be paid, but which he was unable to pay before the time stipulated in the scheme has now claimed that the Form 2 was not issued by the department quantifying the taxes to be paid.
The Ld.DR therefore submitted that the issue is a mixed question of law and facts and cannot be raised for the first time at the stage of ITAT. Without prejudice the Ld.DR, as directed by the Bench produced the records subsequent to the assessee filing the Form 1 as contemplated by section 183 of Finance Act 2016 and also the Form 2 issued by the ld.PCIT being the Designated Authority.
We have perused the records and considered the arguments of both sides. At the outset the preliminary issue raised is with regard to the admission of grounds raised on the non-service of Form 2 by the Designated Authority, for the first time before the ITAT. The main plank of the argument is that the issue is a mixed question of law and facts which involves examination of the records and that therefore these grounds are not deserved to be adjudicated at this stage. In this connection the Hon’ble SC in National Thermal Power Co. Ltd. v CIT [1998] 229 ITR 383 (SC) has held that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee.
In rendering this decision the Hon’ble Supreme Court has observed as follows: 5. Under section 254 of the Income-tax Act, 1961, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is, thus, expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a :-17-:
& 1566/Chny/2025 result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross- objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.
Further the Hon’ble Madras HC in CIT v Indian Bank 2015 55 taxmann.com 372 (Madras) has held that the assessee has the right to raise additional grounds and if the same is beneficial to the assessee, the same should be considered by the Tribunal
We find that the grounds which are raised are purely based on material already available on record before the department and do not involve any fresh material or facts being admitted. Therefore, relying on the decisions of the Hon’ble Supreme Court and Madras High Court (supra) we deem it fit to admit these grounds.
As already stated the Ld.DR has furnished before us the Form 2 issued by the ld.PCIT being the Designated Authority under the IDS, 2016. There is however no proof that the said Form 2 has been served on the assessee. In this background one has to be examine as to whether the non service of Form 2 would be an impediment on the invocation of the provisions of section 197(b) of the Finance Act 2016.
Before proceeding to discuss this aspect, we find that the Ld.AR has urged before us that since the Tax / Surcharge / Penalty as contemplated in section 184 / 185 of the FA 2016 have not been paid, by virtue of section 187(3) the declaration is deemed never to have been made and that therefore such :-18-:
& 1566/Chny/2025 declaration cannot be admitted in evidence against the assessee. We do not find any force in the argument of the Ld.AR since section 187(3) provides that where the tax / surcharge / penalty in respect of a declaration made u/s.183 is not paid within the specified date, the same shall be deemed never to have been made.
Section 192 provides that a declaration cannot be admitted in evidence. Once it is admitted that the declaration is deemed never to have been made, the said Form 1 will constitute material that is admissible in evidence against the declarant, since the said Form 1 is no longer a declaration as contemplated u/s.183 of the FA 2016. Any other view of the matter would render section 197(b) of the Act nugatory and would mean that in no case where the tax / surcharge / penalty are not paid within the date specified under the scheme the amounts shown under the IDS, 2016 can be treated as income chargeable to tax of the previous year in which the declaration is made. We, therefore, hold that the declaration filed in Form 1 and pursuant to which taxes have not been paid can be used and is admissible in evidence against a declarant.
Now turning to there being no service of Form 2 given that proof has not been furnished before us, we turn to Rule 4 of the IDS, Rules which reads as follows: 4. (1) A declaration of income or income in the form of investment in any asset under section 183shall be made in Form-1. (2) The declaration shall be furnished:—(a) electronically under digital signature; or(b) through transmission of data in the form electronically under electronic verification code; or(c) in print form, to the concerned Principal Commissioner or the Commissioner who has the jurisdiction over the declarant. (3) The Principal Commissioner or the Commissioner shall issue an acknowledgement in Form-2to the declarant within fifteen days from the end of the month in which the declaration under section 183 has been furnished. (4) The proof of payment of tax, surcharge and penalty made pursuant to the acknowledgement issued by the Principal Commissioner or the Commissioner :-19-:
& 1566/Chny/2025 shall be furnished by the declarant to the such Principal Commissioner or Commissioner in Form 3. (5) The Principal Commissioner or the Commissioner shall grant a certificate in Form-4 to the declarant within fifteen days of the submission of proof of full and final payment of tax, surcharge along with penalty by the declarant under section 187 of the Act in respect of the income so declared. (6) The Principal Director-General of Income-tax (Systems) or Director-General of Income-tax (Systems) shall specify the procedures, formats and standards for ensuring secure capture and transmission of data and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to furnishing the form in the manner specified in sub-rule (2). Explanation.—For the purposes of this rule "electronic verification code" means a code generated for the purpose of electronic verification of the person furnishing the return of income as per the data structure and standards specified by Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems).
Rule 4(3) specifically provides that the ld.PCIT / CIT shall issue acknowledgement in Form 2 to the declarant within 15 days from the end of the month in which the declaration u/s.183 is furnished. It is beyond doubt that Rule 4(3) has been complied with in as much as the declaration in the instant case has been made on 30.09.2016 and Form 2 has been issued on 06.10.2016 which is within the time contemplated under Rule 4(3) of the IDS Rules. We however notice that sub rule (4) of Rule 4 of the IDS Rules provides that proof of payment of tax / surcharge / penalty made pursuant to the acknowledgment issued by the ld.PCIT / CIT. The question that therefore needs to be answered is whether it would suffice if the Form 2 is issued or whether the From 2 has to be served on a declarant for the time to start ticking for the payment of tax / surcharge / penalty and where the non-payment of the same within the time specified in the scheme would render the declaration never to have been made, thereby triggering the application of section 197(b) of the FA 2016.
In this connection as already mentioned the intimation of payment u/s.187(1) of the Finance Act 2016 in respect of the IDS, 2016 is to be in Form 3. The relevant portion of the Form 3 reads as follows:
& 1566/Chny/2025 To, The Principal Commissioner / Commissioner ………………………………. Sir / Madam, 1. Pursuant to the acknowledgement received from you in Form 2 vide Certificate F.No.-------------- dated --------------, the detail of payments made are as under:
A plain reading of the Form 3 clearly shows that the payment of the tax / surcharge / penalty are made pursuant to an acknowledgement received by a declarant in Form 2 from the ld.PCIT / CIT. Therefore, it is clear that if an acknowledgement in Form 2 is not received by a declarant the question of filing Form 3 and the payment of tax / surcharge / penalty pursuant to the declaration in Form 1 u/s.183 of the FA 2016 does not and cannot arise. This being so, one will have to conclude that where the Form 2 is not served on the declarant the question of payment of tax / surcharge / penalty as contemplated by Sections 184 & 185 of IDS 2016 does not arise.
In the instant case there is no doubt that the Form 2 has been issued. Can in the circumstance there be a presumption that the Form 2 has been served on the assessee. In this connection one may notice the provisions of section 292BB of the Income Tax Act. Section 292BB of the Act specifically provides that where an assessee has appeared in any proceeding or co- operated in any enquiry under the Income Tax Act relating to an assessment or reassessment, such assessee shall be precluded from taking any objection in any proceedings or inquiry under the Income Tax Act that the notice was not served upon him or not served upon him in time or served upon him in an improper manner, unless he has raised such objection before completion of such assessment or reassessment. It can be seen that section 292BB is only applicable to the Income Tax Act and cannot be extended to the Finance Act, 2016. Therefore, the benefit of section 292BB of the Act will not be available & 1566/Chny/2025 while interpreting the service or otherwise of acknowledgement in Form 2 as contemplated by the Finance Act 2016 read with the Rules framed thereunder.
Therefore in the absence of any provisions corresponding to section 292BB of the Income Tax Act in the Finance Act 2016, it would lead to the irresistible conclusion that the burden of having served the notice in the present case having not been discharged by the revenue, there can be no valid service and consequently the provisions of section 197(b) cannot be triggered for an addition to be made in the A.Y. relevant to the previous year in which the declaration under IDS was made on the basis of a failure to make payment of tax / surcharge / penalty as contemplated by sections 184 & 185 of the Finance Act 2016
Having observed so, we have to necessarily conclude that in the facts and circumstances of the case the Form 2 having not been served on the assessee, section 187(3) and 197(b) have no application. Since section 197(b) has no application, we hold that the addition of a sum of Rs.14,55,65,400/- u/s.69A of the Act made in the assessment framed u/s.147 r.w.s 144 of the Act could not have been made by invoking the provisions of section 197(b) of the Finance Act 2016.
We therefore direct the AO to delete the addition of Rs.14,55,65,400/- as income u/s.69A of the Act by allowing the grounds of appeal raised by the assessee.
64. Though we have decided that the income is not chargeable to tax under the provisions of section 69A of the Income Tax Act, it would not be out of place to mention that even if an addition is made u/s.69A of the Act, the provisions of section 115BBE of the Act for charging higher rates of tax cannot be invoked for the assessment year 2017-18.
& 1566/Chny/2025 65. On this issue, the Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Limited v ACIT 2024 SCC OnLine Mad 8416 has held as under:
“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 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: ………… 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.”
The same view has also been taken by the Co-ordinate Bench of Tribunal in Kandasamy Kuppusamy v ITO 2025 (5) TMI 210 - ITAT Chennai by relying on the aforesaid decision of the Hon’ble Madras High Court.
We therefore hold that the enhanced rate of 60% prescribed in section 115BBE of the Act is applicable only for transactions that have taken place on or after 01.04.2017 i.e., from assessment year 2018-19 onwards and not for transactions that have taken place in the previous year relevant to AY 2017-18 & 1566/Chny/2025
In the result the appeal of the assessee in of 2025 is partly allowed. of 2025 against the order u/s.271AAC
The brief facts of the case are that the AO passed an order u/s.271AAC of the Act dated 01.11.2023 levying a penalty of Rs.1,14,16,871/-.
69.1 Aggrieved by the said order of the AO an appeal was preferred before the ld.CIT(A), NFAC. The said appeal was however filed with a delay of 484 days. The assessee has given the same reasons which were given for filing the appeal with a delay before the ld.CIT(A), NFAC against the assessment order.
69.2 The ld.CIT(A), disposed of the appeal vide order dated 17.04.2025 refusing to condone the delay in filing the appeal on the basis that no sufficient cause had been provided by the assessee for the delay and in the absence of sufficient cause, the delay could not be condoned.
69.3 Aggrieved by the order of the ld.CIT(A), the assessee has preferred this appeal before us.
69.4 Since we have already decided in the appeal in filed against the order u/s.147 r.w.s. 144 of the Act, that it is a fit case for condoning the delay in filing the appeal belatedly before the ld.CIT(A), we hold similarly and condone the delay in filing the appeal against the penalty order u/s.271AAC of the Act, before the ld.CIT(A).
69.5 Further as we have already decided that the reassessment is bad in law for the reasons that the notice u/s.148 of the Act issued by the JAO is not a valid notice and that no proper sanction was obtained for issuance of the notice & 1566/Chny/2025 u/s.148 of the Act and that we have also deleted the addition made u/s.69A of the Act, we hold that the consequent penalty order passed u/s.271AAC of the Act is also bad in law and that the penalty levied u/s.271AAC of the Act is hereby deleted by allowing the grounds of appeal raised by the assessee.
Order pronounced in the court on 30th December, 2025 at Chennai.