Deepak Maratha v. UOI

Case snapshot

Sections / provisions: 115BBE; 271AAC; 4; 68

Questions before the Court / Tribunal

• Prospective application of enhanced section 115BBE rate: The reported High Court judgment concerns the 2016 amendment increasing the section 115BBE tax rate and introducing related penalty consequences. It reports that the higher substantive burden could not be applied retrospectively to FY 2016-17 income without express retrospective language.

Material facts and background

2. FACTS OF THE CASE/PETITION 2.1. By a Notification dated 8th November 2016, the Government of India demonetized currency notes of Rs. 500/- and Rs. 1000/denominations i.e. specified bank notes- SBN for short. Members of the public were to deposit old currency (SBN) in their bank accounts on or before 30th December 2016. 2.2. During the financial year 2016-17, stating it to be cash proceeds in course of his routine business (jewellery and bullion), a cash sum of Rs.66,17,500/- (including SBN) was deposited by the petitioner in his bank accounts during November/December,2016 i.e. demonetization period. 2.3. The Taxation Laws (Second Amendment) Act, 2016 (Act No. 48 of 2016), was notified on 15.12.2016. By virtue of this, Section 115BBE of the Income Tax Act, 1961 was amended w.e.f. 01.04.2017, enhancing the rate of tax on income falling under Sections 68 to 69D from 30% to 60%, with an additional surcharge of 25% on such tax, resulting in an effective rate of 75% plus 10% of tax as penalty with cess, and thus an aggregate liability of 83.25% (inclusive of cess). 2.4. Petitioner herein is engaged in the business of jewellery and bullion. He filed his return of income under Section...

2.5. After he filed the return, petitioner’s case was selected for scrutiny

Pursuant thereto, a notice dated 13.08.2018 under Section 143(2) of the Act was issued. During the course of assessment proceedings, notices under Section 142(1) and query letters were issued by the Assessing Officer. Same were duly responded by the petitioner. 2.6. Subsequently, vide the assessment order dated 21.12.2019, it was held that the petitioner/assessee’s books of account were not true and correct. Being dissatisfied with their correctness, the books were rejected under Section 145(3) of the Act. 2.7.

Consequently, vide impugned assessment order, it was held that

the assessee/petitioner failed to explain/substantiate the cash deposit of Rs.66,17,500/- in the bank account during the demonetization period. Accordingly, the said amount was treated as unexplained money and added to the total income under Section 68 of the Income Tax Act, 1961. The total income was assessed at ₹74,10,360/- (i.e. 7,92,860/- + 66,17,500/-) under Section 144 of the Act. 2.8. It

Rs.66,17,500 (unexplained income) shall be computed in accordance with amended Section 115BBE of the Act. Demand notice and challan were issued. Interest was charged under Sections 234A, 234B, and 234C of the Act. A separate penalty notice under newly inserted Section 271AAC of the Act was also issued in respect of the income determined under Section 68 (unexplained income). 2.9.

Prior to the amendment, such unexplained income falling within

Appellant / assessee submissions

Mr. Sandeep Bhandawat, learned counsel for the petitioner

the penalty and applicable surcharge, results in an effective tax liability of 83.25%. The retrospective invocation of Section 115BBE has accordingly been challenged on the ground that its retrospective application is unreasonable, arbitrary and violative of the settled principles of taxation law, as well as the constitutional guarantee against arbitrary State action. 4.5. On merits of the impugned Assessment Order, he would argue that it is wholly arbitrary, illegal, and contrary to settled law, and is liable to be quashed and set aside on the following grounds: (i) The assessing officer has gravely erred in law in failing to appreciate that the cash deposits made by the petitioner were duly explained and supported by adequate material. The assessing officer could not, in law, treat such deposits as unexplained under section 68 of the Act. (ii) Even assuming, arguendo, that such deposits were liable to be treated as unexplained cash credits, the assessing officer could not have levied tax at the enhanced rate of 60% in respect of transactions/deposits made prior to 01.04.2017 i.e. the date on

would argue that the legislature is fully competent to enact fresh legislation with retrospective effect, or to alter the character of an earlier statute. Parliament is the sovereign legislative authority in respect of subjects enumerated in List I of the Seventh Schedule to the Constitution of India, and in exercise of that sovereign authority, Parliament is competent to enact legislation with retrospective effect. The amendment to Section 115BBE falls squarely within that legislative competence and cannot be impeached on the ground of retrospectivity alone. 5.2. Learned counsel for the respondents would thus urge that the Parliament

Revenue / respondent submissions

would argue that the legislature is fully competent to enact fresh legislation with retrospective effect, or to alter the character of an earlier statute. Parliament is the sovereign legislative authority in respect of subjects enumerated in List I of the Seventh Schedule to the Constitution of India, and in exercise of that sovereign authority, Parliament is competent to enact legislation with retrospective effect. The amendment to Section 115BBE falls squarely within that legislative competence and cannot be impeached on the ground of retrospectivity alone. 5.2. Learned counsel for the respondents would thus urge that the Parliament

implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by outweighing factors.” 7.4. Maruthi Babu Rao vs. ACIT6 (2019-Kerala High Court - Division Bench) “10. x-x-x-x The well established position as argued by the learned Standing Counsel, as is clearly discernible from the precedents too; is that the rate prescribed by a Finance Act brought into effect from the 1st of April of an year would apply to the assessments made in that year relating to the previous year. The precedents would also indicate that there cannot be disturbance caused to accrued rights or obligations imposed, unless the legislative intent clearly indicates a retrospective effect as has been declared by another Constitution Bench in Vatika Township Pvt. Ltd.This is the legal aspect on which the facts in the present case has to be applied. Before we look at the amendments carried out, on facts, there were two seizures of cash made on 02.08.2016 and 03.11.2016 respectively of Rs.1,05,03,500/- and Rs.1,24,68,750/- both in the F.Y 2016-2017. The persons from whom the cash was seized as also the appellant herein admitted that it belonged to the appellant who carries on...

Court / Tribunal analysis and reasoning

introduced in Lok Sabha by late Shri Arun Jaitley, Minister of Finance and Corporate Affairs, on 28.11.2016, and passed by Lok Sabha on the same day. The Statement of Objects and Reasons of the Bill reads as under: "Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the value of Rs. 500 and Rs. 1000 [Specified Bank Notes (SBN)] have been recently withdrawn by the Reserve Bank of India. Concerns have been raised that some of the existing provisions of the Income-tax Act, 1961 (the Act) can possibly be used for concealing black money. Accordingly, the Government proposes to amend the provisions of the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision. The existing provisions of section 115BBE of the Act provide for levy of tax at the rate of thirty per cent. on certain incomes determined under sections...

of 1999 was to be applied or the subsequent amendment inserted in Section 113 by the Finance Act, 2002. Dealing with the situation, Apex Court observed as under: “28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought...

the reason why a decision was made to impose greater tax burden. The rate of tax was increased by a subsequent amendment to 60%. 16. Sub-section (2) of Section 115BBE starts with a non-obstante clause. It will have precedence over any other provision contained in the Act, while dealing with a deduction in respect of any expenditure or allowance or set off of any loss. In other words, no such deduction would be allowed under any provision of the Act in computing an assessee's income under subsection (1). An amendment has been introduced by Finance Act, 2016 with the inclusion of 'set off of any loss' being not allowable. Sub-section (2) once again does not speak about loss but the fact that it makes a reference to 'set off of any loss' would reiterate the view taken earlier, while considering the scope and ambit of Section 37 of the Act, that such a loss has to be read into expenditure, at least while applying the test for the purpose of deduction. To make the position clear one has to understand that the amendment merely speaks about the right of the assessee to set off the loss which presupposes that the loss has to be treated as a facet of expenditure. x-x-x-x-x-x 27. In view of...

notification/Presidential assent to the amending Act, or only from 01.04.2017, being the effective date expressly specified in the amending provision itself ? 8.2. The amendment assumes particular significance in the context of Section 4 of the Income Tax Act. Under Section 4, income earned during a previous year is assessed to tax in the immediately following assessment year, at the rates prescribed for that (previous) year. The amendment to Section 115BBE is expressly stated to take effect from 01.04.2017, it thus directly bears upon income earned during FY 201718 which falls for assessment in AY 2018-19. Thus, in ordinary course, rate of tax applicable to the income of FY 2016-17 is therefore the rate prescribed for AY 2017-18 by the Finance Act of 2016. 8.3. To resolve the question, i.e., can the amended rate of 60% be applied for the assessment year 2017-18, and to find answers, it is necessary to examine the intent of the legislature. The legislative chronology set out below provides the essential context within which that intent falls:Date

Operative decision and relief

20. The petition stands disposed of in the aforesaid terms.

Authorities and precedents appearing in the judgment

• Tea Estate Ltd. v. State of Kerala1 (Three Judges Bench)
• Govinddas v. Income Tax Officer4
• CIT vs. Vatika Township.5
• Phillips v. Eyre
• Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co
• In Govt. of India v. Indian Tobacco Assn. 8
• Vijay v. State of Maharashtra. It was
• Maruthi Babu Rao vs. ACIT6
• CIT vs. Prakash Chand Lunia7
• S.M.I.L.E. Microfinance vs. ACIT8
• Supreme Court in CIT v. Vatika Township Pvt. Ltd
• Karimtharuvi Tea Estate Ltd. v. State of Kerala (supra) the Supreme Court laid down the following

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Prospective application of enhanced section 115BBE rate. The operative result is classified as Disposed. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Prospective application of enhanced section 115BBE rate. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Build a transaction-level evidence file: confirmations, bank trail, invoices, ledger, tax/GST records and counter-party material rather than relying on a generic explanation.
• Where the addition depends on a third-party statement or investigation report, record the request for the relied material and cross-examination at the earliest stage.
• Check the exact penalty charge in the show-cause notice, the assessment finding and the final penalty order; ambiguity or a changed statutory limb can be material.
• Keep registration, audit-report, Form 10/10B/10BB and filing timestamps together; many exemption disputes are procedural and depend on when the form existed versus when it was uploaded.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

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