MUTHURAMALINGAM SOMASUNDARAM,TRICHY vs. DCIT, CIRCLE-1(1), TRICHY

Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of the order of learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 03-10-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 31-12-2019. The sole issue that arises for our consideration is to determine the nature of additional income as offered by the assessee in his return of income.

The registry has noted delay of 254 days in the appeal, the condonation of which has been sought by the assessee. In the petition, it has been stated that the impugned order was handed over to Chartered Accountant for preferring further appeal. However, due to ill-health of Chartered Accountant, he could not attend to the office and file of the appellant was misplaced in the office leading to delay in filing of the appeal. The same is accompanied by an affidavit of the assessee. Accepting the same, we condone the delay and proceed for adjudication of appeal on merits.

The sole issue that arises for our consideration is to determine the nature of additional income of Rs.320 Lacs as declared by the assessee on account of cash deposits in the bank accounts. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Proceedings before lower authorities 4.1 The assessee being resident individual admitted income of Rs.443.95 Lacs which include gifts for Rs.320 Lacs as offered by the assessee as ‘Income from other sources’ u/s 56 in the return of income. The assessee acted as Managing Director of an entity namely Shri Aman Try Steels Pvt. Ltd. It transpired that the assessee deposited cash of Rs.400 Lacs in bank account from 11-11-2016 to 23-11-2016 i.e., during demonetization period. The same was stated to be sourced as under: - No. Nature of Source of Deposits Amount (Rs.) 1. Declaration under IDS Scheme Rs.100 Lacs 2. Gifts u/s 56 from employees and laborers Rs.320 Lacs 3. Received from Shri Amman Steel & Allied Rs.200 Lacs Ind. Pvt. Ltd. Total Rs.620 Lacs 4.2 The subject matter of dispute before us is the income offered by the assessee u/s 56 which are stated to be gifts received from employees on the occasion of anniversary function on 31-05-2016. The Ld. AO disputed that same on the ground that the assessee did not furnish the name and address of the donors, creditworthiness of the donor, denominations, date and amount of gifts etc. The Ld. AO further observed that as on 11-10-2016, the assessee had cash balance of Rs.407.34 Lacs which was not deposited till 11-11-2016. The assessee also did not furnish any proof of conducting such anniversary function. Therefore, the amount of Rs.320 Lacs was added u/s 68 which would be taxed at higher rates u/s 115BBE. The Ld. AO also disputed agricultural income of Rs.2.67 Lacs since the assessee failed to submit any documentary proof thereof. The same was similarly added u/s 68 r.w.s. 115BBE. The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us. 4.3 The source of Rs.200 Lacs was also not accepted since no such credit was found in the cash ledger. The assessee, in the Income Tax return, mentioned that it deposited cash of Rs.585 Lacs. However, as per books of accounts, it deposited cash of Rs.400 Lacs and accordingly, the balance of Rs.185 Lacs was also added by Ld. AO as unexplained money u/s 69A. However, Ld. CIT(A) deleted the same and the same is not the subject matter of dispute before us. Our findings and Adjudication 5. Upon perusal of computation of income as placed on record, it could be seen that the assessee has earned salary income of Rs.60 Lacs from M/s Amman Try Steels Pvt. Ltd. The assessee has acted Managing Director of this entity which is stated to be having substantial number of employees. The assessee is stated to have received gifts from these employees on the occasion of marriage anniversary and the same has been offered as ‘Income from Other Sources’ u/s 56.

The first and foremost argument of Ld. AR was that the amendment to Sec.115BBE proposing higher rates of tax received presidential assent only on 15-12-2016 whereas the receipts of gifts have happened much earlier on 31-05-2016. Therefore, the applicable rate of tax, in any case, would be 30% and not 60% as applied by Ld. AO. To controvert the same, Ld. CIT-DR, has referred to the decision of Hon’ble High Court of Kerala in the case of Maruthi Babu Rao Jadav vs. ACIT (WA No.984 of 2019 dated 23-09-2020) holding that the substitution by the Taxation Laws (Second Amendment), Act, 2017 w.e.f. 01-04-2017 has been made applicable for and from AY 2017-18 and therefore, the assessee’s case would squarely fall under the amended provisions. However, we find that this issue has been adjudicated in assessee’s favor by jurisdiction High Court of Madras (Madura Bench) in S.M.I.L.E. Microfinance Ltd. vs. ACIT (WP (MD) No.2078 of 2020 dated 19-11- 2024) 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: