ANATOLE SOLUTIONS PRIVATE LIMITED ,JAIPUR V. ACIT CIRCLE 2, JAIPUR

ITA 1082/JPR/2024

AI Insights

The case involves M/s. Anatole Solutions Pvt Ltd, which appealed against the orders of the CIT(A) confirming the additions made by the Assessing Officer (AO) under Section 56(2)(viib) of the Income Tax Act, 1961, for the assessment year 2017-18. The AO had added Rs. 29,84,733 to the assessee's income as income from other sources, alleging that the share premium received was excessive and not substantiated by the company's financial performance or business activities. The CIT(A) upheld this addition, leading to the appeal. The Tribunal found that the valuation method used by the assessee was appropriate and that the additions made were not justified. Furthermore, the Tribunal addressed the application of Section 115BBE, which imposes a higher tax rate on unexplained income, and ruled that it should not apply retrospectively to the income in question.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312316 (ITAT-JAIPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Other Referred Cases: Ginni Global (P.) Ltd v ACIT, KGK Enterprises v ACIT, Vatika Township (P) Ltd v ACIT, New Skies Satellite BV v ACIT, Pilani Investments and Industries Corpn. Ltd. v ACIT, Govind Das v ACIT, Niharika Jain v ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR
• Assessee Lawyers: ASHOK KUMAR GUPTA; OBSERVING
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Question of law; Unexplained cash credit; Fair market value; Principle of natural justice; Valuation report; Block assessment; Share purchase agreement
• Section: 68; 56(2); 69C; 92B

Judgement Text

" vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, ‘’A” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh xxu Xkks;y ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI GAGAN GOYAL, AM vk;dj vihy la-@ITA No.1082/JP/2024 fu/kZkj.k o\"kZ@Assessment Year : 2017-18 M/s. Anatole Solutions Pvt Ltd. A-704, Mansarovar Lane Patrakar Colony, Jaipur- 303 020 cuke Vs. The ACIT Circle-2 Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAKCA 1958 Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Ashok Kumar Gupta, Advocate jktLo dh vksj ls@ Revenue by: Shri Manoj Kumar, JCIT-DR lquokbZ dh rkjh[k@ Date of Hearing : 06/02/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: 28 /04/2025 vkns'k@ ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against the order of the ld. CIT(A) dated 19-06-2024, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2017-18 raising therein following grounds appeal. ‘’1. The Ld. NFAC/CIT(A) has grossly erred in law and facts in confirming the order of Ld. AO being illegal, bad in law, without jurisdiction, barred by limitation and various other reasons (grounds), against the provisions and procedure as per 2 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR law and further contrary to the real facts of the case hence complete assessment order including proceedings liable to be quashed. 2. The Id. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the addition of Rs. 29,84,733/- made by the Ld. AO on account of alleged Un-explained credit U/s 56(2)(viib)/68 of the act, due to lack of creditworthiness of the investors from whom the Share capital and share premium amount have been received also erred without bringing any cogent/corroborative material in support of his contention and without considering the materials and explanations. available on records in their true perspective and sense. Hence same should be deleted in toto being contrary to the provisions of the law and facts of the case, 3. The Ld. AO as well Ld. CIT(A)/NFAC have grossly erred in law and facts in making the additions and confirming the same without providing specific and proper Show Cause Notice led to violation of Natural Justice therefore complete addition should be deleted. 4. The Ld. AO as well as Ld. CIT(A)/NFAC have grossly erred in law and facts in invoking section 115BBE and confirming the same being illegal and contrary to the provision of law. 5. The Id. AO as well as Ld. CIT(A)/NFAC have grossly erred in law as well as on the facts of the case in charging the interest u/s 234A, B and C. The interest so charged is being totally contrary to the provision of law and on facts of the case and hence same may kindly be deleted in full.’’ 3 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR 2.1 Apropos Ground of appeal of the assessee bearing Serial No. 1 to 4, it is noticed that the ld. CIT(A) has dismissed the appeal of the assessee by observing as under:- ‘’4.3 I have gone through the assessment order and record available. In the instant case, Anatole Solutions Private Limited filed its return of income on 01.11.2017, declaring a total income of Rs. 24,17,420/-. The case was selected for scrutiny, and various notices were issued to the assessee for furnishing required information. The assessee issued 4,337 shares at a premium of Rs. 2,179.49 per share, raising a share premium amounting to Rs. 59,41,180. The assessee provided a valuation report based on the Discounted Cash Flow (DCF) method to justify the premium. The Assessing Officer (AO) found that the valuation was not in accordance with the financial results of the company and rejected the valuation report. The AO determined the Fair Market Value (FMV) of the shares to be Rs. 11.15 per share under Rule 11UA, resulting in an addition of Rs. 29,84,733 to the total income as income from other sources. The assessee claimed that two investors, Ms. Neha Joshi and Ms. Rashmi Verma, were NRIs and submitted few details. These details were found to be in order, and the share premium received from them was allowed. For other investors, no proof of creditworthiness or non-resident status was provided. The company was incorporated on 31.01.2012 but carried out no business activities until 31.03.2015. The AO questioned the rationale behind issuing shares at such a high premium given the lack of substantial business activity. The company's financial records did not support the high share premium valuation. The lack of business activities until 2015 raised questions about the prudence of investors purchasing shares at such a high premium. The AO concluded that the issue of shares at a high premium was not justified based on the company's financial performance and business activities. This case underscores that issuing shares at a high premium without substantial business activity does not seem justifiable. 4 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR 4.4 Further, in the instant case, the company was incorporated in 31.01.2012, and there was no noticeable business activity during the year in question or in previous years This raises question about the rationale behind issuing shares at a high premium. Typically, share premiums are justified by strong business prospects, profitability, or significant growth potential in the absence of any business activity, these justifications are missing. Issuing shares at a high premium means that the company is selling its shares for a price significantly above their nominal value. When a company with no business activity does this, it suggests that the purpose might not be genuine capital raising for business purposes but potentially for questionable motives. The investors who subscribe to these high-premium shares need to be credible and financially sound. Their creditworthiness should be established through income tax returns, financial statements, or other relevant documents. In this case, the assessee failed to prove the creditworthiness of the investors by not submitting the income tax returns or income sources of the three investor as said above. Without proof of the investors' financial capability, it becomes suspicious how they could afford to invest in high- premium shares of a non-operational company. In my view, filling income tax returns is a way to show transparency and compliance with tax regulations especially in case of residents. In this scenario, the assessee failed to provide satisfactory explanations for the high premiums received and the creditworthiness of the investors. Presently, the assessee could not substantiate the high premium on shares with genuine business reasons, credible investors, or legitimate financial records. The lack of business activity, combined with the inability to prove the source and credibility of the invested funds, leads to the conclusion that the transactions were not genuine. Hence, the action of the AO is confirmed and addition of Rs. 29,84,733 under Section 56(2)(vib) is sustained. 5. As a result, the appeal of the assessee is dismissed.’’ 5 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR 2.2 During the course of hearing, the ld. AR of the assessee has reiterated the same arguments as made before the ld. CIT(A) and submitted that the ld. CIT(A) is not justified in confirming the action of the AO. To support of his submission, the ld ARof the assessee has filed following documents. S.N. Particulars Page No. 1. Copy of Audit Report and audited accounts 1-22 2. Copy of letter to AO dated 2-12-2019 and 11- 12-2019 23-29 3. Copy of valuation report of share premium and share certificate 30-70 4. Copy of Bank Statement 71-72 5. Copy of Security Premium 73 6. Copies of notices and E-note sheet 74-85 7. Copy of written submissions to CIT(A) 86-103 2.3 On the other hand, the ld. DR supported the orders of the lower authorities. 2.4 We have heard both the parties and perused the materials available on record. Brief facts of the case are that the assessee filed its return of income for AY 2017-18 on 01.11.2017, declaring a total income of Rs. 24,17,420/-. The case was selected for scrutiny under the Computer Aided Scrutiny Selection (CASS) system. Notice under section 143(2) was issued on 13.08.2018 and duly served through the e-filing portal. Jurisdiction was reassigned to a different office by the Pr. CIT-2, Jaipur, on 06.11.2018. The assessee company was engaged in the business of solar power and consultancy. During the year under consideration, the company issued shares at a premium, increasing its share capital from Rs. 6 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR 10,58,820/- to Rs. 12,32,960/-Specifically, 4,337 shares were issued at a premium of Rs. 2,179.49 per share, resulting in fresh share capital of Rs. 9,50,000/- and share premium of Rs. 59,41,180/-. The valuation of shares was based on the Discounted Cash Flow (DCF) method. No business activities were carried out by the company until 31.03.2015. The issuance of shares at a high premium was questioned as it did not align with the financial results of the company. The company provided details for Ms. Neha Joshi and Ms. Rashmi Verma (NRIs), which were found satisfactory. No details were provided for other investors to justify their creditworthiness. The company valued its shares at Rs. 2,179.49 per share, compared to Rs. 1,010.06 in the previous year. The valuation report submitted was not accepted as it did not adequately support the high valuation. According to Rule 11UA, the Fair Market Value (FMV) of shares was calculated to be Rs. 11.15 per share. Based on this calculation, the excess share premium amounting to Rs. 29,84,733/- was considered as income from other sources and added to the total income. The excess premium received from resident investors (Anna Lungany, Prafull Marwah, and Krishna Behari Lal Katiyar) was added as income from other sources. Due to lack of details on the creditworthiness of resident investors, the entire amount of share capital and share premium received from them (Rs. 30,00,000/-) was added by the AO under section 68 and taxed at 7 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR 60% under section 115BBE which has been confirmed by the ld .CIT(A) in para 4.4 of his order as under:- ‘’4.4 Further…. In my view, filling income tax returns is a way to show transparency and compliance with tax regulations especially in case of residents. In this scenario, the assessee failed to provide satisfactory explanations for the high premiums received and the creditworthiness of the investors. Presently, the assessee could not substantiate the high premium on shares with genuine business reasons, credible investors, or legitimate financial records. The lack of business activity, combined with the inability to prove the source and credibility of the invested funds, leads to the conclusion that the transactions were not genuine. Hence, the action of the AO is confirmed and addition of Rs. 29,84,733 under Section 56(2)(vib) is sustained. 5. As a result, the appeal of the assessee is dismissed.’’ It is noticed from the records that ssessee company issued 4,337 CCPS, at premium, to different individuals having Face Value of Rs. 10/- whose details are as under:- Name of Share Holder No. of Shares Face Value (Rs.) Issue Price (Rs.) Premium per share (Rs.) Total premium received (Rs.) Total Consideration (Rs.) Neha Joshi 2,512 10 2,189.49 2,179.49 54,74,880 55,00,000 Anna Lungany 456 10 2,192.98 2,182.98 9,95,440 10,00,000 Prafull Marwah 228 10 2,192.98 2,182.98 4,97,720 5,00,000 Krishna 685 10 2,189.78 2,179.78 14,93,150 15,00,000 8 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR Behari Lal Katiyar Rashmi Verma 456 10 2,192.98 2,182.98 9,95,440 10,00,000 Total 4,337 94,56,630 95,00,000 The entire share application money was received, by the assessee company, through Banking Channel and the details, consisting of PAN and complete address of the individuals, making investment in the assessee company, during the year under consideration, was also submitted to the AO, is set out hereunder:- Name of Investor Address PAN Mode of payment Neha Joshi 6 GA 8 Jawahar Nagar, Sector No 6GA, Ward No 30 Jaipur 302004 Rajasthan India AKSPJ5200 D Bank Anna Lungany P3B-154, Princeton State, DLF-V, Gurgaon, Haryana India 122002 ABVPL5502 E Bank Prafull Marwah Flat No. 151, Naval Technical Officer Appt , Plot No. 3a, Sector-22, Dwarka, New Delhi AHFPM8620 E Bank Krishna Behari Lal Katiyar F- 307 Sarthak Apartment, Satyadeo Nagar, Gandhi Road, Gwalior, Madhya Pradesh 474011 India AYDPK7351 F Bank Rashmi Verma Vijay Nagar, Paisar Dehat Bara Banki, Uttar Pradesh 225001 India AKFPV6522 K Bank 9 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR It is noted that out of all the investors, two investors namely Neha Joshi and Rashmi Verma were non-Investors. Accordingly, no additions were made by the AO of the amount received from such Non-Resident investors u/s 56(2)(viib) of the Act. However. AO, during the course of assessment proceedings, disr egarded the Valuation Report for valuation of its CCPS, as obtained from a firm of Chartered Accountants, submitted before him and the AO determined the Fair Market Value (“FMV”) of the shares by applying Net Asset Value (“NAV”) method and disregarded the DCF method as originally adopted by the assessee company as per law and allowable. The AO calculated the value per share at Rs. 11.15, considering the NAV method. Accordingly, the AO was of the view that the amount as received by the assessee company from resident investors over and above the NAV of Rs. 11.15 as calculated by him during the course of assessment proceedings should be added to the income of the assessee company under section 56(2)(viib). Resultantly, the. AO made addition of Rs. 29,84,733 under Section 56(2)(viib). Working in this regard is as under: Name of Share Holder No. of shares FMV of share determined by AO (Rs.) Issue Price (Rs.) Difference (Rs.) Alleged Excess Premium (Rs.) Anna Lungany 456 11.15 2,192.98 2,181.83 9,94,914 Prafull Marwah 228 11.15 2,192.98 2,181.83 4,97,457 10 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR Krishna Behari Lal Katiyar 685 11.15 2,189.78 2,178.63 14,92,362 Total 29,84,733 It is noted that Clause (viib) of Section 56(2) of ITA provides that when a closely held company receives from a Resident Person, in any previous year, any consideration by way of issue of shares and if such consideration exceeds the Face Value as well as the FMV, then the difference between the actual consideration and FMV shall be considered as income from othersourcesfor such company. The proviso to this clause provides for certain exceptions. Further, the Explanation to this clause gives the meaning of the term ‘FMV’. Explanation (a) to section 56(2)(viib) provides that the FMV shall be the higher of (i) the value determined under prescribed rules, or (ii) value which may be substantiated to the satisfaction of the tax officer by the closely held company on the basis of value of assets (including intangible assets). For the purpose of 56(2)(viib), FMV of Shares has to be determined. As per clause (a) of the Explanation to clause (viib) of section 56(2), FMV of shares will be higher of the following: (i) Value as per prescribed method i.e., in accordance with Rule 11UA OR (ii) Value determined by assessee using any method considering the value of assets of the company and Assessing Officer must be satisfied by such valuation. 11 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR Rule 11UA, inter alia, prescribes the methods for determination of FMV of shares and securities. Rule 11UA(1)(c) deals with the FMV of unquoted shares securities. Clause (b) of Rule 11UA(1)(c) provides for determination of FMV of unquoted equity shares. Determination of FMV of preference shares is governed by Rule 11UA(1)(c)(c). As per Rule 11UA(1)(c)(c), the FMV of unq uoted shares other than equityshares, such as preference shares, shall be estima ted to be price it would fetch if sold in the open market on the valuation date and the assessee ‘may’ obtain a report from a Merchant Banker or an Accountant in respect of such valuation. Thus, Rule 11 UA(1)(c)(c) does not prescribe any specific method for the valuation of Preference Shares. Even Hon'ble Jurisdictional ITAT (Jaipur), recently, in the case of Ginni Global (P.) Ltd v ACIT [2019] 106 taxmann. com 270 (Jaipur - Trib.) held that the valuation of the Preference Shares, the valuation should be determined as per Rule 11UA(1)(c) which required the assessee to obtain a report from a Merchant Banker or a Chartered Accountant to determine the price which preference shares would fetch if sold in the open market on the valuation date. The NAV method under Rule 11UA(2) is applicable for determination of FMV of unquoted equity shares and not preference shares. In the absence of a specific mandate, FMV of the preference shares can be determined on the basis of 12 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR DCF method. Assessee company as per Rule 11UA(1)(c)(c) had the option of determining the fair market value of the shares on the basis of either NAV method or the DCF method. However, out of the two methods the assessee company chose to value its shares based on the DCF method.. That It is a trite law that the method once chosen by the assessee company, for the purpose of valuation of its shares could not be disregarded by the Income Tax authorities, without any basis. Accordingly, both the lower authorities were completely incorrect in law in disregarding the method of valuation adopted by the assessee company and the reafter applying the NAV method and making addition of the differential amount of Rs. 29,84,733 under section 56(2)(viib). When the lower authorities nowhere stated the law does not permit this method. It is pertinent to mention that even as per CBDT, additions u/s 56(2)(viib), in case of genuine issue of shares by Tech Based companies, is not in accordance with the correct interpretation of the law. Therefore, CBDT has indirectly hinted the field officers of its contrary view, by observing as under: “3. In view of the above, it has been decided that in case of ’start up‘ companies which fall within the definition given in notification of DIPP, Min. of commerce & industry, in G.S.R. 501(E) dated 23.05. 2017,if additions have been made by the Assessing Officer under section 56(2)(viib) of the Act after modifying/rejecting the valuation so furnished under Rule 11UA(2), no coercive measure to recover the outstanding demand would be taken. Further, in all such case which are pending with the commissioner (Appeals), necessary 13 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR administrative steps should be taken for expeditious disposal of appeals, preferably by 31st march 2018.” Further it is also contradictory approach of the lower authorities that in the case of NRI same share premium price accepted and in the case of resident the same has not accepted. Hence in case of resident investors also the same should be accepted. In view of the above, additions made by the AO and confirmed by the ld. CIT(A) under Section 56(2)(viib) deserves to be deleted into to-to. 2.5 As regards invocation of Section 115BBE of the Act, it is noted that during the course of assessment proceedings, AO added Rs. 30,00,000/- in the hands of the assessee company, as unexplained credits. The AO for the purpose of calculating tax, on the additions made by him in his order of Rs. 30,00,000/- applied rate of 60%, as prescribed u/s 115BBE of the ITA. To this effect, the ld. AR of the assessee made following submissions ‘’A. At the time of receipt of share capital by the assessee company, the amended provisions wre not in place. The amendment to Section 115BBE, being onerous on the assessee company, should not be given a retroactive effect. B. Intention of the amendment to Section 115BBE was to cover cases of concealment of income, pursuant to demonetization, which was not the case of the assessee company. Each of the aforementioned contentions are elaborated hereunder. 1. At the time of receipt of share capital by the assessee company, the amended provisions were not in place. The amendment to Section 115BBE, being onerous on the assessee company, should not be given a retroactive effect. A.1 The provisions of Section 115BBE were inserted in the ITA by finance Act, 2012, with effect from 01.04.2013. Section 115BBE taxed the unexplained credits, money, investment, expenditure, etc., which were deemed as income under Section 68, Section 69, Section 69A, 14 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR Section 69B, Section 69C or Section 69D, at the rate of 30% (plus surcharge and cess), without allowing any deduction for any expenditure or allowance. A.2 Thereafter, the provisions of sub-section (1) of Section 115BBE were substituted by Taxation Laws (Second Amendment) Act, 2016, w.e.f. 01.04.2017 i.e. A.Y. 2017- 18(“Amendment-115BBE”). Although, Taxation Laws (Second Amendment) Act, 2016 received the assent of the President of India only on 15.12.2016. Share capital was received by the assessee company as per the table given below, on which Section 115BBE was invoked by the ld AO.:- Name of Share Holder Total Consideration (Rs.) Date of receipt of capital in the Bank Account of Assessee Company Anna Lungany 10,00,000/- 17.10.2016-Rs. 10,00,000/- Prafull Marwah 5,00,000/- 24.10.2016-Rs.5,00,000/- Krishna Behari lal Katiyar 15,00,000/- 24.10.2016-Rs.15,00,000/- Total 30,00,000/- A.3 Chronology of various events, as discussed hereinbefore, is as under :- Particular Date 115BBE Introduced for the first time in the Income Tax Act. Rate of Tax – 30% 01.04.2013 Share capital, on which Section 115BBE invoked, received by the assessee company Refer table given above in Para A.2 Amendment – 115BBE introduced in Lok Sabha 28.11.2016 Amendment – 115BBE passed by Lok Sabha 28.11.2016 Amendment – 115BBE received President’s assent 15.12.2016 A.4 Thus, the law, applied by the ld AO did not see the light of the day, when the share capital was received by the assessee company. The said law for the first time was introduced on 28.11.2016, i.e. after a gap of about 1 month of the taxing event having taken place. A.5 On comparison of the amende3d provision with the earlier provision, it is clear that the above-stated clause(a) of sub-section (1) of section 115BBE retains the essential features of the earlier provision with the difference that the rate of tax is ENHANCED from 30% to 60%. Simultaneously, Section 2(9) of Chapter II of the Finance Act, 2016 was amended by inserting the Seventh proviso to provide for a levy of surcharge at the rate of 25% of tax u/s 115BBE. Thus, the rate of tax after the amendment to Section 115BBE was 77.25% [60% + 25% Surcharge + 3% Cess], as against 30%. 15 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR A.6 As per the settled Principles of interpretation, where the legislature makes an amendment validating any provision, which might have been found to be defective, the legislature seeks to enforce its intention which was already there by removing the defect or lacuna. However, withdrawal or modification of provision with retrospective effect, depriving the assessee of the vested statutory right or which has the effect of imposing a levy with retrospective effect for the PERIOD for which there was no such levy, unless there be strong and exceptional circumstances justifying such modification, cannot be held to be reasonable or rational. A.7 The amendment, to Section 115BBE, cannot, in any way, be considered to be introduced to overcome any defects of the law, previously in place, nor it can be considered to be clarificatory in nature, explaining the intention of the law already in place. Per contra, such amendment has resulted into increase in tax burden on the assesses. A.8 Hon’ble Supreme Court in the case of Vatika Township (P) Ltd. [2014] 367 ITR 466 (SC) observed that 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, which is based on the principle of law known as lex prospicit: law looks forward not backward. Thus, legislation which modify accrued rights, or which imposes obligation or impose new duties or attach a new disability have to be treated as prospective, unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. A.8.1 Hon’ble Apex Court, in the said case was considering the time period, (within the relevant previous year) of applicability of the new inserted proviso to Section 113 levying surcharge over and above tax rate of 30% in case of block assessments; A.8.2 Proviso was introduced vide Finance Act, 2002, with effect from 01.06.2003. Thus, the law stood enacted as on 01.04.2003 and, accordingly, as per normal principles should have applied on all searches carried out during Financial Year 2002-03 (A.Y. 2003-04). A.8.3 Hon’ble Apex Court was pleased to hold that amendment would apply prospectively and would be applicable on searches conducted after 01.06.2002. A.8.4 The facts of the issue involved in the present appeal are identical. Therefore, the issue is squarely covered by the judgment of Hon’ble Supreme Court in Vatika Township (P) Ltd. (Supra). Accordingly, the amended provision of Section 115BBE should apply on incomes accruing after the law having received assent of the President. A.9 In the case of Govind Das (1976) 1 SEC 906 (SC), following observation was made by the Hon’ble Supreme Court while holding Section 171(6) of the Income Tax Act to be prospective and inapplicable for any assessment year prior to 01.04.1962, the date on which the income Tax Act came into force:- “… 11. Now it is a well-settled Rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective should not be given to a statue so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. 16 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR The general Rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English Court is that ‘all statues other than those which are merely declaratory of which relate only to matters of procedure or of evidence are prima facie prospective and retrospective operation should not be given to a statute so as to affect, alter or destroy and existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only…….”[Emphasis Supplied] A.10 Hon’ble Delhi High Court in case of New Skies Satellite BV [TS-64-HC-DEL (2016)] held that amendments though originally notified as clarificatory may turn out to be substantive in fact and such a substantive amendment is incapable of being given retrospective effect. Relevant extracts of the said order is reproduced hereunder for the sake of ready reference:- “… Undoubtedly, the legislature is competent to amend a provision that operates retrospectively or prospectively or prospectively. Nonetheless, when disputes as to their applicability arise in court, it is the actual substance of the amendment that determines its ultimate operation and not the bare language in which such amendment is couched. A Clarificatory amendment presu mes the existence of a provision the language of which is obscure, ambiguous, may have made an obvious omission, or is capable of more than one meaning. In such case, a subsequent provision dealing with the same subject may throw light upon it. Yet, it is not every time that the legislature characterizes an amendment as retrospective that the Court will give such effect to it. This is not in derogation of the express words of the law in question, (which as a matter of course must be the first to be given effect to), but because the law which was intended to be given retrospective effect to as a clarificatory amendment, is in its true nature one that expands the scope of the section it seeks to clarify, and resultantly introduces new principles, upon which liabilities might arise. Such amendments though framed as claùficatory, are in fact transformative substantive amendments, and incapable of being given retrospective effect. An important question, which arises in this content, is whether a ”clarificatory” amendment remains true to its nature when it purports to annul, or has the undeniable effect of annulling, an interpretation given by the courts to the term sought to be clarified. In other words, does the rule against clarificatory amendments laying down new principles of law extend to situations where law had been judicially interpreted and the legislature seeks to overcome it by declaring that the law in question was never meant to have the import given to it by the Court? The general position of the courts in this regard is where the purpose of a special interpretive statute is to correct a judicial interpretation of a prior law, which the legislature considers inaccurate, the effect is prospective. Any other result would make the legislature a court of last resort. United States v. Gilmore 8 Wall [(75US) 33019LEd396 (1869)) Peony Park v. O'Malley [223F2d668 (8th Cir 1955) lt does not mean that the legislature does not have the power to override judicial decisions which in its opinion it 17 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR deems as incorrect, however to respect the separation of legal powers and to avoid making a legislature a court of last resort, the amendments can be made prospective only[ Ref County of Sacramento v State (134 Cal App 3d 428) and In re Marriage of Davies (105 III App 3d 66)]…” A.11. Section 92B of the ITA setting out the meaning of International Transaction was introduced by Finance Act, 2001 w.e.f. 01.04.2002. Subsequently, an explanation was added to section 92B, increasing the scope of “InternationaI Transaction” by Finance Act, 2012 with retrospective effect from 01.04.2002. As such Explanation increased the scope of section 92B, it was considered, in the below mentioned judgments, to have a prospective effect even though introduced with a view to give a retrospective effect:- A.11.1. Rusabh Diamonds (2016) 158 ITD 0564 (Mumbai) A.11.2. Hiraco Jewellery (India) Pvt. Ltd., I.T.A. No.7297/Mum/2014 (Mumbai) A.11.3. Gitanjali Exports Corporation Limited (2016) 178 TTJ 529 (Mumbai) A.11.4. Siro Clinpharm Private Limited (2016) 177 TTJ 609 (Mumbai) A.12. Hon'ble ITAT, Jaipur Bench, in the case of KGK Enterprises [2017] 88 taxmann.com 264 (Jaipur - Trib.) accepted the above proposition and held that Explanation to section 92B enhancing its scope to be applicable from A.Y. 2013-14 onwards. A.13. It is submitted that when the assessee company received the share capital, the amended provisions of section 115BBE were not in existence. A.14. Where an amendment, as under 92B, although was introduced having a retrospective effect, was held, by the courts, to have a prospective effect, by the same analogy, an amendment to Section 115BBE, putting additional burden on the assessee, introduced on 15.12.2016, w.e.f 01.04.2017(A.Y 201 7-18), should not be made applicable on any act committed between 01.04.2016 to 14.12.2016. A.15. The amendment to Section 115BBE is penal in nature, which aims to penalize the assessee, if additions referred to in Section 68 to 69A are made. Penal statutes which create offences or which have the effect of increasing penalties for existing offences will only be prospective by reason of the constitutional restriction imposed by ARTICLE 20 of the CONSTITUTION OF INDIA. Therefore, if an Act creates a new offence, it will bring into its fold only those offenders who commit all ingredients of the office after the Act comes into operations. This rule of construction against retroactivity of penal laws is not restricted to criminal offences punished with imprisonment, but also applies to laws which provide for other penal consequences, such as fines and penalties. A.16. Attention is also drawn towards the decision of Full Bench of Hon'ble Patna High Court in the case of Loknath Goenka [2019] 417 ITR 521 (Patna) (FB) 18 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR A.16.1. Hon'ble High Court held the tax is charged on the point of time of accrual of income; A.16.2. In the case before Hon'ble High Court, the substantial question of law for decision was whether law relating to clubbing of minor son's share of income under Section 64(1)(iii)which was introduced by Taxation Law (Amendment) Act, 1975,w.e.f 1.04.1976 would be applicable for previous years coming to an end on 10.08.1975 and on 31.12.1975. A.16.3. Those were the years where there was no law prescribing uniform previous year. In the case before the Hon'ble High Court, the issue was related to Assessment Year 1976- 77. The precise issue was whether newly introduced law, although applicable for the relevant assessment year, could be made applicable on the previous years relevant to the same assessment year, but ending well before the introduction of law. A.16.4. Hon'ble High Court was pleased to decide at Para 17 of the order:- \" . Under the new provision, i.e. Section 64(1)(iii) a new liability has been prescribed and not the rate for ascertaining the liability. Such new liability under the Income Tax Act, 1961 cannot be given a retrospective effect...” A.16.5. Hon'ble High Court held that tax rate existing as on the point of time of accrual of income would be relevant for charging the tax on such accrued income. A.17. Hon'ble Rajasthan High Court in the case of Niharika Jain [2019] 107 taxmann.com272(Rajasthan) held that Benami Transactions (Prohibition) Amendment Act, 2016, amending provisions of Benami Property Transactions Act, 1988, enacted with effect from 1.11.2016 cannot have retrospective effect. Apropos retrospectively and prospectively of any amendment it was held by the Hon'ble High Court that :- A.17.1. It is well settled law that unless a contrary intention is reflected, legislation is presumed and intended to be prospective. For in the normal course of human behavior, one is entitled to arrange his affairs keeping in view the laws for the time being in force and such arrangement of affairs should not be dislodged by retrospective application of law. A.17.2. The principle of law known as lex prospicit non prospicit (law looks forward not backward), is a well known and accepted principle. The retrospective legislation is contrary to general principle for legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts Ought not to change the character of past transactions carried out in the faith of the then existing law. A.17.3. Thus, the principle against retrospectivity is the principle of 'fairplay' and unless there is a clear and unambiguous intendment for retrospective effect to the legislation which affects accrued rights or imposes obligations or castes new duties or attaches a new disability is to 19 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR be treated as prospective. Thus, act of the assessee company, of receiving share capital, cannot be penalized with a higher rate of tax, of 77.25% as against 30%, by way of an amendment brought about in the Statute Book subsequently. B.Intention of the amendment to Section 115BBE was to cover cases of concealment of income, pursuant to demonetization, which was not the case of the assessee. B.1. The Taxation Law (Second Amendment) Act, 2016got the assent of the President on 15.12.2016, just after Demonetization on08.11.2016, wherein bank notes of existing series of denomination of the value of five hundred rupees and one thousand rupees then issued by the Reserve Bank of India ceased to be legal tender, from the said date. B.2. In the Statement of Objects and Reasons accompanying the Taxation Laws (Second Amendment) Bill, 2016, the Government stated as follows: “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 five hundred rupees and one thousand rupees (hereinafter referred to as specified bank notes) issued by the Reserve Bank of India have been ceased to be legal tender with effect from the 9th November, 2016. Concerns have been raised that some of the existing provisions of the Income-tax Act, 1961 could possibly be used for concealing black money. It is, therefore, important that the Government amends the Act to plug these loopholes as early as possible so as to prevent misuse of the provisions. The Taxation Laws (Second Amendment) Bill, 2016, proposes to make some changes in the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision. ‘[Emphasis supplied] B.3. Thus, the entire aim of the Government was to prevent people depositing money in the Bank Accounts, pursuant to demonetization, to come clean only by paying tax rate at the rate of 30% as per the earlier provisions of Section 115BBE. B.4. The intention of the law makers was never to take within the fold of the said amendment even those incomes which were surrendered, in search or otherwise, prior to demonetization. B.5. The aim of the said amendment was to prevent “concealment” on the part of the assessee of the income in the process of depositing cash in their bank accounts, pursuant to demonetization. However, in the case at hand, the assessee has made disclosure in his Return of Income and has not tried to “conceal” any particulars of income. This even finds force from the fact that no further additions were made by the Id. AO during the course of assessment proceedings. B.6. Having made the disclosure, the assessee clearly doesn't fall in the category, the prevention of which, was the reason for which said amendment was made u/s 115BBE. 20 ITA NO. 1082/JP/2024 ANATOLE SOLUTIONS PVT LTD VS ACIT, CIRCLE-2, JAIPUR B.7. Hon'ble Calcutta High Court in the case of Pilani Investments and Industries Corpn. Ltd. [2016] 383 ITR 635/238 Taxman 384/67 Taxman.com 60 held that disclosure and concealment cannot co-exist. However the ld. CIT(A) has not spoken a single word on these submissions and legal position of law.’’ After hearing both the parties and perusing the materials available on record, the Bench noticed that there is merit in the submissions of the assessee and the Bench does not concur with the findings of the lower authorities. In this situation, the appeal of the assessee is allowed. 3.0 In the result, the appeal of the assessee is allowed . Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board. Sd/- Sd/- ¼xxu Xkks;y ½ ¼lanhi xkslkbZ½ (Gagan Goyal) (Sandeep Gosain) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 28/04/2025 *Mishra vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant-M/s. Anatole Solutions Pvt Ltd. , Jaipur 2. izR;FkhZ@ The Respondent- The ACIT, Circle-2, Ajmer 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 1082/JP/2024) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asstt. Registrar "