SHERNICKRAJ,CHENNAI vs. ITO, NON CORP WARD 6(1), CHENNAI, CHENNAI

This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Addl/JCIT(A)-3, Delhi dated 21.08.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.

Aggrieved by the assessment completed, assessee filed appeal before the First Appellate Authority (FAA). The FAA partly- allowed the appeal of the assessee. The FAA took note of the assessee’s business of accepting money from persons and making 3 -: payments on behalf of them for electricity bills, booking train & bus tickets, etc. The FAA held that only 50% of Rs.8,50,000/- need to be added as unexplained income. The relevant finding of the FAA for granting relief of 50% of the total addition made by the AO reads as follows:- “Further, since the nature of business of the appellant is like that it has received cash on regular basis, it can’t be denied that out of cash deposited during demontization period i.e.8,50,000/- there isno cash balance in the hands of assessee days before 09-11-2016 (i.e. date of start of demonetization period).

Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The assessee has raised nine grounds. The Ld.AR for the assessee has submitted that the FAA has erred in sustaining the addition of Rs.4,25,000/- as unexplained u/s.69 of the Act. The Ld.AR further submitted that for the relevant assessment year namely 2017-18, tax ought to be calculated at the rate of 30% instead of 60% u/s.115BBE of the Act. In support of his contention that tax ought to be calculated at the rate of 30% instead of 60%, the Ld.AR relied on 4 -: the judgment of the Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Limited vs. ACIT in W.P(MD) No.2078 of 2020 and W.M.P.(MD) No.1742 of 2020 (judgment dated 19.11.2024).

The Ld.DR supported the orders of the AO and the FAA.

We have heard rival submissions and perused the material on record. It is an admitted fact that assessee is running a small business whereby, he was doing support services by collecting cash from public and doing online transactions on their behalf such as payment of electricity bills, making transfer to other accounts, booking online tickets and so on. This fact has also been accepted by the FAA. Taking into account the totality of facts, we are of the view that further reduction of 50% should be granted as regards the explanation of source of cash deposit. Accordingly, a sum of Rs.2,12,500/- is deleted and balance sum is sustained u/s.69 of the Act.

As regards the Ld.AR’s contention that tax ought to be calculated at the rate of 30% instead of 60% u/s.115BBE of the Act, we are of the view that it is well settled that Income-tax Act 5 -: as it stands amended on the first day of April of any financial year must apply to the assessment for that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. In this context, we rely on the judgment of the Hon’ble Apex Court in the case of Karimtharuvi Tea Estate Ltd., vs. State of Kerala reported in 60 ITR 262 (SC).

The Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Ltd., supra had categorically held that higher rate of tax at 60% u/s.115BBE of the Act will apply only to transactions from 01.04.2017 onwards and not prior to the said cutoff date. It was further held by the Hon’ble Jurisdictional High Court that for the prior transaction the Revenue is empowered to impose tax only 30% rate of tax. The relevant finding of the Hon’ble Madras High Court in the case of S.M.I.L.E Microfinance Ltd., supra reads as follows:- 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 6 -: 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.

In light of the aforesaid judgment of the Hon’ble High Court, we direct the AO to calculate tax at the rate of 30% on the amount sustained by us i.e., Rs.2,12,500/-. It is ordered accordingly.

In the result, the appeal filed by the assessee is partly-allowed.