SHANMUGA SUNDARAM GOVINDARAJ,CHENNAI vs. DCIT, NON CORPORATE CIRCLE-19(1), CHENNAI

Aggrieved by the said order, the assessee preferred an appeal before the ld.CIT(A), who dismissed the appeal and confirmed the addition made by the Assessing Officer.

Aggrieved by the order of the CIT(A), the assessee is now in appeal before the Tribunal.

The ld. AR further submitted that the AO incorrectly relied upon the provisions of Section 197 of the Finance Act, 2016 while treating the declared income as taxable in Assessment Year 2017-18. It was argued that the said provision would apply only in cases where no tax, surcharge and penalty have been paid under the scheme. In the present case, the assessee had already paid two instalments of the tax liability and therefore the said provision would not apply.

The ld. Departmental Representative (DR), on the other hand, supported the orders of the lower authorities. It was submitted that A.Y. 2017-18 :- 4 -: under the provisions of the Income Declaration Scheme, 2016, the declarant was required to pay tax, surcharge and penalty within the time prescribed under the scheme. In the present case, the assessee failed to discharge the entire tax liability. The ld. DR submitted that as per the provisions of Section 187 of the Finance Act, 2016, if the declarant fails to pay the tax, surcharge and penalty within the time prescribed, the declaration made under the scheme shall be deemed never to have been made. Further reliance was placed on Section 197(b) of the Finance Act, 2016, which provides that where a declaration has been made under the scheme but no tax, surcharge and penalty have been paid within the time specified, the undisclosed income shall be chargeable to tax under the Income-tax Act in the previous year in which the declaration is made. It was therefore contended that the Assessing Officer was justified in bringing the income to tax in Financial Year 2016-17 relevant to Assessment Year 2017-18. The ld. DR also relied upon the decision of the Tribunal in the case of M/s Nandu Atmaram Vajekar v. ITO (ITAT Pune), wherein similar principles were applied.

We have heard the rival submissions and perused the material available on record. The issue that arises for consideration is whether the AO was justified in taxing the amount of Rs.25,62,000/- declared under the Income Declaration Scheme, 2016 as unexplained investment u/s. 69 of the Income-tax Act, 1961 in Assessment Year 2017-18.

We have carefully considered the rival submissions and the material placed on record. It is an undisputed fact that the assessee had filed a declaration under the Income Declaration Scheme, 2016 declaring undisclosed income of Rs.25,62,000. It is also not in dispute that the assessee had failed to pay the entire tax liability under the A.Y. 2017-18 :- 5 -: scheme within the prescribed time. As per the provisions of Section 187(3) of the Finance Act, 2016, where the declarant fails to pay the tax, surcharge and penalty within the specified time, the declaration made under the scheme shall be deemed never to have been made.

Further, Section 197(b) of the Finance Act, 2016 provides that where a declaration has been made but the tax, surcharge and penalty have not been paid within the time specified, the undisclosed income shall be chargeable to tax under the provisions of the Income-tax Act in the previous year in which the declaration is made.

In the present case, the declaration under the scheme was made during the Financial Year 2016-17. Therefore, in view of the above statutory provisions, the undisclosed income becomes chargeable to tax in Financial Year 2016-17 relevant to Assessment Year 2017-18. The contention of the assessee that the undisclosed income relates to Assessment Year 2006-07 cannot be accepted in view of the specific provisions contained in the Finance Act governing the consequences of non-payment under the scheme. Further, once the declaration under the scheme is rendered invalid due to non-payment of taxes, the assessee is required to explain the source of the investment. In the present facts and circumstances of the case, the assessee has failed to furnish any satisfactory explanation regarding the source of the investment of Rs.25,62,000/-. Accordingly, we find no infirmity in the action of the AO in invoking the provisions of Section 69 of the Income Tax Act hence, order of the ld.CIT(A) confirming the addition of Rs.25,62,000 is upheld. However, bringing the said amount to higher tax of 60% u/s.115BBE of the Income-tax Act, 1961 is not justifiable. The jurisdictional High Court in S.M.I.L.E. Microfinance Ltd. vs. ACIT (2024) ruled that the 60% tax rate on unexplained income under A.Y. 2017-18 :- 6 -: Section 115BBE (amended via Taxation Laws Second Amendment Act, 2016) is not retrospective. This means the higher 60% rate (plus surcharge) only applies from April 1, 2017 (AY 2018-19), while a 30% rate applies prior to this date.

In view of the foregoing discussion, we direct the AO to compute the rate of tax @30% in the light of the case referred supra. In the result, the appeal of the assessee is partly allowed in terms above order.