A Brahmastra with Assessing Officer

Section 115 BBE & Section 68 

 A Brahmastra with Assessing Officer

 The Assessing Officers (AO) seem to have been given a powerful weapon by the Income Tax Act which they can use at their behest in cases where they are of the view that the explanation provided by the assessee is not satisfactory. Section 115BBE comes into effect when income is treated as unexplained u/s 68-69D of Act in opinion of Assesing officer (AO).

Interestingly, the flat rate was enhanced to deplorable tax rate of 60% from the acceptable tax rate of 30% in the very post-demonetisation period i.e. December 2016 and was made retrospective from 1st April 2016.

It implies that, if any assessee declares the income or who has agreed to surrender income under the aforesaid sections in survey taken place prior to 15-12-2016 on the premise and belief that the tax rate is 30% would end up paying 60% (+ 25% surcharge + cess) as a result of the subsequent amendment, which operated in a retroactive manner.

Many times retrospective amendment in the tax laws which was prejudicial to the interest of tax payer and same was challenged before the appellate authorities.The Hon’ble Apex Court in the case of Karimtharuvi Tea Estate Ltd. Vs State of Kerala as reported in [1966] 60 ITR 262 (SC) held as under :

"Now, it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of 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."

Also ruling in case of CIT Vs.Walfort Shares & Stock Brokers (P.) Ltd (supra) in which apex court opined that

"Retrospective operation of law should not be given so as to effect, alter or destroy an existing right and to create new liability or obligation. New liability cannot be created by a subsequent amendment in respect of a transaction when such law was not in the Statute book. "

In view of the various judicial pronouncement, it is apparent that provisions of section 115BBE will not apply to assessment for FY 2016-17, even if the assessment is actually made after the amendment have come into force. However, no specific judgment is available which proves retrospective amendment in the provisions of section 115BBE(1) is invalid. The debate on retrospective and prospective application of amendment is endless.

Moving ahead, one of the preconditions for treating income as unexplained u/s 68 is that the assessee should have recorded the amount in the books of accounts.

So, when the assessee has already recorded the amount in books and paid the tax on the same & AO at the time of assessment request the assessee to explain source of such income credited or any investment made therein etc. Generally, the problem with the AO is that while assessing the income, AO does it by assuming in the first place that the assessee is a tax evader. And thus every explanation given by the assessee, whether its genuine or not, is firstly noted as if it's not.

And in some cases AO is not satisfied in first go (as they say) and demand for more and more explanations to prove the of receipt or to get satisfied. 

Does this mean that the Assessing Officer is vested with unfettered powers to reject any explanation, being not to his satisfaction ?

In case, Cit vs Nova Promoters & Finlease Pvt. Ltd... it was observed that the assessee had adduced documentary evidence in an attempt to prove the genuineness of transaction and the evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. And it is concluded that Assessing Officer ‘cannot sit back with folded hands’ till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him.

Also, In case of Cit vs Gangeshwari Metal, it was held that, there was a clear lack of inquiry on the part of the AO once the assessee had furnished all the material relating to the case and no addition can be made under section 68 of the Act.

Well, let me remind you that section 115BBE was introduced only to curb the practice of laundering of unaccounted money by taking advantage of the basic exemption limit. Accordingly, it is a machinery provision to levy tax on income and it should not enlarge the ambit of Section 68 of the Act to create a deeming fiction to tax any sum already credited / offered as income. 

Agreed, that the onus of proving that such receipts are from an activity other than disclosed business activities is not upon the AO. However, after the Assessee has provided the explanation for such receipts, the onus is then shifted upon the AO to thoroughly go through each and every explanation and documents as provided in support of the same.  

AO has to come out with proper explanations as to why such income is treated as unexplained u/s 68 - 69D and then effect the provisions of section 115BBE. AO cannot just charge the assessee with double the normal taxation rate (plus surcharge plus cess and on gross basis) just because he thinks that the explanations given are not satisfactory or he assumes that the assessee is a tax evader and has framed the transaction and thus the explanations are not acceptable.

The Assessing Officer is bound under law to act reasonable and just while framing any satisfactory opinion surrounding the explanation offered by the taxpayer.

 Its important to note that, this article highlights one scenario of the assessment proceedings. This is not the case in every assessment. There are cases in which AO acts diligently and takes into consideration every explanation provided by assessee so as to arrive at the conclusion and thus passes a fair and reasonable order.

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