SHAILESH KALWADIA HUF,UJJAIN V. DCIT/ACIT 1 (1), UJN, UJJAIN

ITA 903/IND/2024

AI Insights

The case involves Shailesh Kalwadia (HUF), who appealed against the rectification order passed by the AO under section 154 of the Income-tax Act, 1961, which applied a higher tax rate on income declared during a survey. The income, amounting to Rs. 10,00,500/-, was initially accepted as part of regular business income and taxed at normal rates. However, following a rectification order, the income was taxed at a higher rate of 60% under section 115BBE, applicable to unexplained income. The CIT(A) upheld the AO's decision, leading to the appeal before the ITAT. The ITAT, referencing decisions from the Madras High Court and other precedents, ruled that the higher tax rate applied only to income declared post-amendment date (01.04.2017) and not to the income declared prior to this date, thus allowing the appeal in part.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 668936 (ITAT-INDORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Other Referred Cases: CIT, Ludhiana Vs. M/s Hero Cycle Pvt. Ltd., ACIT Vs. Shri Sudesh Kumar Gupta, Maruthi Babu Rao Jadav Vs. The Assistant Commissioner of Income-tax, Central, Circle, Kozhikode, Narendra Kumar Shantilal Jain HUF Vs. PCIT, Gaurav Ajmera Vs. DCIT, Central Circle, Indore, S.M.I.L.E. Microfinance Ltd Vs. ACIT, Madurai
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FORREVENUE; THEREVISEDFORMNO.ISADMITTED; FORASSESSEESUBMITTEDTHATTHEASSESSEEHUFWASEARNING; FORREVENUEDEFENDEDTHERECTIFICATIONDONEBYAO; FORREVENUEBEFOREUS.THECASEOFHEROCYCLES SUPRA; FORTHEAPPELLANTWOULD; SHRIASHISHPORWAL
• Assessee Lawyers: RUCHIRANERKAR
• Keywords: Business income; Rectification of order
• Section: 143(3); 154; 68; 69C; 139; 133A

Judgement Text

"Page 1 of 16 आयकरअपीलीयअिधकरण,इंदौरɊायपीठ,इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI B.M. BIYANI, ACCOUNTANT MEMBER AND SHRI PARESH M. JOSHI, JUDICIAL MEMBER ITA No.903/Ind/2024 Assessment Year:2017-18 Shailesh Kalwadia (HUF) MIG-8, Gauri Shankar Bhawan, Arvind Nagar, Ujjain बनाम/ Vs. DCIT/ACIT 1(1) Ujjain (Assessee/Appellant) (Revenue/Respondent) PAN: AATHS4241J Assessee by Ms. Ruchira Nerkar, AR Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing 19.06.2025 Date of Pronouncement 25.06.2025 आदेश/O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by order of first appeal dated 25.10.2024 passed by learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi [“CIT(A)”] which in turn arises out of rectification-order dated 11.02.2020 passed by learned DCIT/ACIT-1(1), Ujjain [“AO”] u/s 154 of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2017-18, the assessee has filed this appeal. Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 2 of 16 2. The background facts leading to present appeal are such that the assessee-HUF filed its return of income of AY 2017-18 u/s 139 declaring a total income of Rs. 15,98,090/- (inclusive of additional income of Rs. 10,00,500/- relatable to unexplained deposit made in a bank a/c, surrendered by Karta of assessee during a survey conducted by department u/s 133A on 28.09.2016). The case of assessee was selected under compulsory scrutiny and notices u/s 143(2)/142(1) were issued which were complied by assessee. Finally, the AO completed assessment vide assessment-order dated 20.12.2019 after making a disallowance of Rs. 44,108/- and determining total income at Rs. 16,42,198/- and tax liability at Rs. 2,99,656/- as per normal tax rates. 2.1 Subsequently, the AO being of the view that the assessment-order suffered from an apparent mistake in as much the normal tax rate has been wrongly applied to the surrendered income of Rs. 10,00,500/- instead of higher rate prescribed u/s 115BBE, issued a show-cause notice dated 29.01.2020 to assessee proposing for rectification of assessment-order. Ultimately, finding no response from assessee, the AO passed rectification- order dated 11.02.2020 whereby the working of tax is made at a higher rate of 60% (plus Surcharge and Cess as applicable) u/s 115BBE. Aggrieved, the assessee filed first-appeal to CIT(A) but did not get any success. Now, the assessee has come in next appeal before us. Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 3 of 16 3. Originally, the assessee-HUF filed Form No. 36 in wrong name of “Shailesh Kalwadia”. Subsequently, the assessee filed revised Form No. 36 in correct name of “Shailesh Kalwadia (HUF)” and also revising grounds. With the consent of Ld. DR for revenue, the revised Form No. 36 is admitted and is being considered for adjudication. The Grounds raised by assessee in Revised Form No. 36 are as under: “1. The Ld. CIT(A) erred in confirming that the action of AO in initiating proceedings u/s 154 r.w.s 143(3). 2. The Ld. CIT(A) erred in confirming that the action of A.O. in treating income declared under survey as unexplained income and applying special rate of tax u/s 115BBE on the income of Rs. 10,00,500/- accepted and declared by the assessee on account of bank deposit out of business income, found during the course of survey conducted u/s 133A of Income Tax Act on the business premises, which is wrong and baseless and not based on the facts and circumstances of the case. 3. The Ld. CIT(A) erred in confirming the applicability of the higher tax rate of 60% under section 115BBE on the income declared prior to 15.12.2016. The enhanced rate being prospective in nature, the income, if taxable under section 115BBE at all, ought to be taxed at the pre-amended rate of 30%.” Ground No. 1: 4. This is a legal ground in which the assessee is challenging the legality of rectification-order passed by AO by claiming that the action taken by AO for rectification u/s 154 itself was bad. 5. Ld. AR for assessee submitted that the assessee-HUF was earning income from money lending and the surrendered income of Rs. 10,00,500/- was also referrable to same activity. She submitted that the assessee offered this income in her return as part of regular business income and paid Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 4 of 16 normal tax which the AO accepted in assessment-order. She submitted that the AO did not raise any objection qua the nature of income during assessment proceeding. She submitted that the section 154 has a limited scope in as much as it allows rectification of ‘apparent mistake’ only whereas in present case, the AO has, by rectification-order, excluded the impugned income from regular business income and taxed it as special income u/s 68 to 69D so as to charge higher rate of tax u/s 115BBE; thus the AO has dealt a debatable issue which is outside the scope of rectification. She insisted that in present case when the AO has neither raised any objection qua the nature of income during scrutiny proceeding nor mentioned sections 68 to 69D in assessment-order, the AO is very much wrong in adopting the route of rectification for applying section 115BBE. Relying upon following two decisions, she submitted that the rectification is not possible in such a situation as held by Hon’ble Courts: (a) CIT, Ludhiana Vs. M/s Hero Cycle Pvt. Ltd. (1997) 228 ITR 463 (Supreme Court) (b) ACIT Vs. Shri Sudesh Kumar Gupta, ITA No. 976/JP/2019, order dated 09.06.2020 (ITAT, Jaipur Bench) 6. Per contra, Ld. DR for revenue defended the rectification done by AO. He referred following para of assessment-order passed by AO: “4. During the course of survey action u/s 133A of the IT Act, assessee has declared an amount of Rs. 10,00,500/- on account Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 5 of 16 of unexplained deposit in bank. Therefore, tax shall be payable as per provisions of Section 115BBE of the IT Act.” Then, he referred following para of rectification-order passed by AO: “In order u/s 143(3) dated 20/12/2019 it was mentioned that the tax shall be payable as per provisions of section 115BBE of the Income-tax Act on amount of Rs. 10,00,500/- being unexplained deposit in bank. However, while computing tax, normal rate of tax has been applied instead of tax calculation as prescribed for the income assessed as per provisions of section 115BBE….. Therefore, since the working of tax at regular rate instead of tax calculation as per the provision of section 115BBE mentioned in the order u/s 143(3) dated 20/12/2019, is mistake apparent from record & is rectified u/s 154 of the I.T. Act, 1961.” 7. Reading above paras line by line, Ld. DR contended that in the assessment-order itself, the AO firstly mentioned that the income of Rs. 10,00,500/- was “on account of unexplained deposit in bank” and secondly that the “tax shall be payable as per provisions of Section 115BBE of the IT Act.” However, in the “computation sheet” attached to assessment-order, the tax was wrongly calculated at normal rate instead of section 115BBE. This was very much an apparent mistake in assessment-order. Therefore, the AO passed rectification-order only to set right the working of tax to bring in line with section 115BBE as already noted by him in assessment-order. He submitted that it is not a case that the AO was silent in assessment-order or the AO mentioned about taxation of impugned income at normal rate in assessment-order and subsequently by means of rectification-order, it was brought in the realm of section 115BBE. Had that been the situation, Ld. DR submitted, the assessee would have been justified in claiming that it Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 6 of 16 would be out of scope of section 115BBE but it is not so in present case. Ld. DR very strongly contended that the present case of assessee is a clear-cut situation of wrong working of tax in “computation-sheet” contrary to the noting of section 115BBE made in assessment-order, therefore it is a situation of “apparent mistake” which undoubtedly attracts rectification proceeding u/s 154. He submitted that the CIT(A) has correctly upheld rectification-order passed by AO for this reason and the order of CIT(A) must be preserved. He submitted that the assessee’s objection against rectification done by AO is meritless and must be rejected. 8. We have considered rival submissions of both sides and carefully perused the orders of lower-authorities. We have already re-produced the relevant portion of assessment-order as well as rectification-order passed by AO in earlier Para. Now, we re-produce the order of first-appeal passed by CIT(A): “I have gone through the submission of the appellant along with the case laws and the rectification order. As per the rectification order, it was mentioned in the assessment order u/s 143(3) dated 20/12/2019 that the tax shall be payable as per provisions of section 115BBE of the income tax Act on the amount of Rs. 10,00,500/- being unexplained deposit in bank account. However, while computing the tax, normal rate of tax has been applied instead of tax calculation as prescribed for the income assessed as per provision of section 115BBE. Having this fact on record, it is clear that a mistake in computing the tax liability has occurred. Further, this mistake is apparent from the record within the meaning of section 154 of the IT Act. Thus, this mistake can be rectified u/s 154 of the IT Act. Further, I don't find any irregularity in the rectification-order against which this appeal lies. Accordingly, this ground of appeal is dismissed.” Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 7 of 16 9. On a careful consideration, we find that the CIT(A) has very neatly set out the facts of the controversy and his adjudication. As discussed in earlier para, the AO has made unambiguous noting in assessment-order that the impugned income was “on account of unexplained deposit in bank” and that the “tax shall be payable as per provisions of section 115BBE of the IT Act.” However, the AO made a mistake of computing tax at normal rates in “computation sheet” annexed to the assessment-order. Therefore, the AO passed rectification-order to set right the working of tax in order to bring in line with section 115BBE. The Ld. CIT(A) has correctly adjudicated that it is a case of apparent mistake which can be rectified u/s 154. We are in complete agreement with the order passed by Ld. CIT(A) and the arguments made by Ld. DR for revenue before us. The case of Hero Cycles (supra) quoted by Ld. AR was concerned with a situation wherein a new deduction u/s 35B was sought to be allowed by way of rectification-order and it is in that situation that the Hon’ble Apex Court held that a point which was not examined or fact in law, cannot be dealt as mistake apparent from record. Further, in Sudesh Kumar Gupta (supra), the ITAT Jaipur has dealt a situation wherein the AO did not record any finding qua the provision of section 69. From the order of ITAT, it seems that the AO has also not recorded any finding in assessment-order qua the applicability of section 115BBE. However, in present case, the AO has firstly mentioned the nature of income as “unexplained deposit in bank” which is nothing but an income taxable u/s 68 to 69D and secondly, the AO has clearly mentioned that the Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 8 of 16 tax shall be payable as per section 115BBE. Thus, the facts of both case- laws cited by Ld. AR are distinguishable and cannot help assessee. Considering the specific facts of present case, we are inclined to accept that the rectification done by AO is perfect and the order passed by CIT(A) upholding AO’s action does not require our interference. We accordingly uphold the orders of lower-authorities and this Ground of assessee is rejected being devoid of any merit. Ground No. 2: 10. In this ground, the assessee claims that the impugned income of Rs. 10,00,500/- was not an unexplained income and the same does not attract section 115BBE. 11. So far as this ground is concerned, we straightaway refer Q. No. 25 raised by authorities and the reply made by assessee during survey proceedings: \"\u000025- \u0000\u000028.09.2016 \u0000 \u0000\u0000\u0000\u0000\u0000\u0000\u0000 \u0000\u0000\u0000Briefcase \u0000HDFC Bank Freeganj Ujjain A/C No. 50100179868054 \u0000pass book \u0000\u0000\u0000Shri Shailesh Kalwadia (HUF) \u0000 \u0000\u0000\u0000 \u0000 \u0000pass book \u0000 \u000028.09.2016 \u0000\u000010,00,500/- Balance \u0000 \u0000\u0000\u0000\u0000\u0000\u0000\u0000\u0000\u0000- HDFC Bank A/C No. 50100179868054 \u0000HUF \u0000 account है। इसमŐ जमारा᎘शŜ. 10,00,500/- का˓ोत˙ʼ करनेमŐ मœ असमथŊ šँ।मœ ŝपये 10,00,500/- कोअघोिषत˓ोतोंसेअ᎘जŊतआयकेŝपमŐ अपनेShailesh Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 9 of 16 Kalwadia(HUF) \u0000 \u0000\u0000\u0000\u0000 \u0000\u0000\u0000 \u0000\u0000 \u0000\u0000surrender \u0000\u0000\u0000 \u0000 \u0000 Shailesh Kalwadia (HUF) \u0000 \u0000\u0000 \u0000 \u0000 \u0000\u0000\u0000\u0000\u0000\u0000\u0000\u0000 \u0000\u0000\u0000 \u0000” 12. Thus, the surrender was made on account of deposit in bank a/c. Further, the Karta of assessee-HUF stated that he was unable to explain the source of income and that he accepted income from undeclared sources. Nowhere in the statements, the assessee stated that the said income was earned from business of money lending. Further, during assessment- proceedings also, no iota of proof was submitted to AO to show that the surrendered income was earned from business of money lending. Therefore, the claim of assessee that it represented business income remains unsubstantiated. Hence, the AO’s approach to assess the impugned income as unexplained and apply tax rate u/s 115BBE is correct and we uphold the same. Consequently, this ground raised by assessee is also dismissed. Ground No. 3: 13. This is the last ground in which the assessee claims that the amendment is section 115BBE which prescribed 60% tax rate was applicable prospectively and not applicable to the income of Rs. 10,00,500/- surrendered in present case on 28.09.2016 which would be taxable @ 30% at pre-amended tax rate in section 115BBE. 14. Ld. AR submitted that the section 115BBE originally provided 30% tax rate, which was subsequently enhanced to 60% by way of amendment made Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 10 of 16 through The Taxation Laws (Second Amendment) Act, 2016effective from 15.12.2016. Ld. AR submitted that there are contrary decisions qua the applicability date of this amendment. She submitted the Hon’ble Kerala High Court in WA No. 984 of 2019, Maruthi Babu Rao Jadav Vs. The Assistant Commissioner of Income-tax, Central, Circle, Kozhikode, dated 23.09.2020, has held that the amendment though made on 15.12.2016, would apply to the whole previous year 2016-17 relevant to AY 2017-18 and this decision had been followed by ITAT, Indore in (i) Narendra Kumar Shantilal Jain HUF Vs. PCIT, ITA No. 124/Ind/2022, order dated 23.12.2022 and (ii) Gaurav Ajmera Vs. DCIT, Central Circle, Indore, ITA No. 71/Ind/2022, order dated 01.09.2023. However, very recently, vide order dated 19.11.2024, the Hon’ble Madras High Court in W.P. (MD) No. 2078 of 2020, S.M.I.L.E. Microfinance Ltd Vs. ACIT, Madurai has held that the amendment shall apply for the transactions from 01.04.2017 and for the prior transactions, the revenue is empowered to impose only 30% rate of tax. Hon’ble Kerala High Court – Maruthi Babu Rao Jadav (supra) favouring revenue: The relevant paragraphs of the decision are reproduced below: “The writ petition sought for a declaration that the amendments made by the Taxation Laws (Second Amendment) Act, 2016, to Section 115BBE of the Income Tax Act, 1961 enhancing the rate of income tax, for specified incomes which are unexplained, to 60% and the surcharge provided in the Finance Act, 2016 to 25% for income covered under Section 69A, to be prospective. The above referred enactments are herein after referred to as the '2nd Amendment Act', 'IT Act' and the 'Finance Act'. The 2nd Amendment Act was dated 15.12.2016 and the amendment to Section 115BBE was specified to be effective from 01.04.2017. The amendment enhancing the rate of tax was incorporated in the I T Act and that of surcharge in the Finance Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 11 of 16 Act. On declaration, consequential relief is sought against Ext.P2 assessment order levying tax at the enhanced rate of 60% and surcharge @25% on the 'advance tax'. The learned Single Judge rejected the writ petition by a cryptic judgment relying on Commissioner of Income Tax v. S.A.Wahab.((1990) 182 ITR 464 (KER)). 2. The learned Counsel Sri.Vishnu S Arikkattil appearing for the appellant would contend that even going by the decision in Karimtharuvi Tea Estate ltd. v. State of Kerala (AIR (1966) SC 1385) an amendment made on the 1st day of April of any financial year would apply to the assessments of that year. That is, if an amendment is brought into force on 01.04.2017, as is the case here, it can only apply to the assessment made in 2018-2019 (Assessment Year) of the income accrued for the previous financial year; which is 2017-2018. The learned Counsel would seek to draw a distinction in so far as a modification of the rate as brought out in the Finance Act and a substantive provision altering accrued rights or creating new liabilities, on the 1st of April of an year. In the former, it could apply to the assessments of the previous year, made in that financial year, but a substantive amendment not relating to the rates, could only be applied to the assessments of that financial year and not of the previous year. Reliance is placed on the Constitution Bench decision of the Hon'ble Supreme Court in C.I.T Vs. Vatika Township Private Ltd. (2015) 1 SCC 1. The learned Counsel would also place before us a number of decisions of the Hon'ble Supreme Court in Kesoram Industries v. Commissioner of Wealth Tax, [AIR 1966 SC 1385], Guffic Chem P. Ltd v. C.I.T [2011(4) SCC 245], C.I.T v. Sarkar Builders [(2015) 375 ITR 392 (SC)], Shiv Raj Gupta v. C.I.T [(2020) 425 ITR 420(SC)] and State of Kerala v. Alex George [(2004) 271 ITR 290(SC), to further buttress his arguments. Reliance is also placed on the Full Bench decision of the Patna High Court in LoknathGoenka v. C.I.T [2019 417 ITR 521(Patna)]. XXX 11. 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 trading in gold bullion. The appellant not having produced any books of accounts or cash flow statements failed to establish the source of the money seized; which was included in the total income under Section 69A of the IT Act. The writ petition or the appeal does not challenge such inclusion. On the said amounts tax was imposed @60% under Section 115BBE and surcharge @25%. The amendments to the Finance Act were by the 2nd Amendment Act dated 15.12.2016. The enhancement of tax under Section 115BBE was made effective only from 01.04.2017; the commencement of the assessment year 2017-2018, in which the assessments of the previous year are carried out. 12. The assessee contends that the seizures were made prior to the amendment. The affidavits admitting the ownership of amounts seized were also submitted prior to the amendment. The assessee was not aware of the enhanced tax liability when the admissions were made before the authorities. The assessee has also made an Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 12 of 16 attempt to relate the amendments to the demonetization of the specified currencies announced on 08.11.2016 which contention we reject at the outset. The subject amendments which are relevant for our consideration have no direct link with the demonetization introduced or the taxation and investment regime of Pradhaan Mantri Garib Kalyan Yojana 2016 brought in under Chapter IX A of the 2nd amendment Act. The 2nd amendment Act as is clear from the Statements of Objects and Reasons, was to curb, evasion of tax and black money as also plug loopholes in the IT Act and to ensure that defaulting assessees are subjected to higher tax and stringent penalty provision. Both the measures spoken of herein were to further the said objects and there cannot be any nexus assumed nor is it discernible. 13. Section 115BBE was inserted by Finance Act 2012 w.e.f 01.04.2013. As on 01.04.2016 the financial year in which the subject seizures occurred Section 155BBE provided for 30% tax on income referred to in Sections 68, 69, 69A, 69B, 69C and 69D. The same was amended by the 2nd Amendment Act; w.e.f. 01.04.2017, enhancing the rate to 60%. Hence there was no new liability created and the rate of tax merely stood enhanced which is applicable to the assessments carried on in that year. The enhanced rate applies from the commencement of the assessment year, which relates to the previous financial year. 14. Likewise it was by Chapter II with heading 'Rates of Income Tax', as provided in the Finance Act 2016, that a surcharge was introduced by way of the 3rd proviso of Section 2(9) of that Finance Act. This comes into effect from the Financial Year 2016- 2017; which is the year in which the subject seizures were occasioned. The proviso refers to various provisions where the advanced tax computed under the first proviso stands increased by a surcharge for the purpose of the Union. Section 115BBE is one of the provisions referred to in the 3rd proviso and in the case of individuals the surcharge was @15% where the total income exceeds one crore, as on 01.04.2016. By the 2nd Amendment Act Section 2 of the Finance Act, 2016 stood amended by which 115BBE was omitted from the 3rd proviso. After the 6th proviso yet another proviso was inserted which provided for the 'advance tax' computed under the first proviso, in respect of any income chargeable to tax under Section 115BBE(1)(i), to be increased by a surcharge for the purposes of the Union, calculated @25%. Hence there is no new liability of surcharge created and it is a mere enhancement of the rate of surcharge. 15. In the financial year 2016-17 itself the tax as provided under section 115BBE and the surcharge on advance tax was available as discernible from the IT Act and Finance Act, 2016 as it stood on 1.4.2016 itself. A major misdemeanor leading to assessment of income as accrued under Section 69A invites the consequences of Section 115BBE and surcharge provided under Section 2(9) of the Finance Act, 2016. When it stands enhanced from 01.04.2017, for every assessment carried out in that year, related to the previous year, the rates as applicable on 01.04.2017 has to be applied. There being no new liability created or obligation imposed, the arguments raised by the appellant's counsel fails. The appellant cannot have a contention that he committed the misconduct on the expectation that if he were caught he would have to shell out only lesser amounts as tax and surcharge. There is no right accrued on the assessee to commit an offence on the expectation of a lesser penalty. Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 13 of 16 16. It was also argued that Income Tax at the rate or rates specified, as prescribed in any Central Act to be charged for any assessment year, shall be so charged in respect of the total income of the previous year as per Section 4 of the IT Act. However, there is no such provision to enable a surcharge to be so taxed, on the Finance Act prescribing an enhanced rate at the commencement of an year. The said contention however, cannot be sustained especially looking at the decision of the Hon'ble Supreme Court in CIT Kerala v. K Srinivas. [(1972) 4 SCC 526]. The facts are not relevant to the issue raised here and we need only look at the declaration as to the nature of a surcharge imposed in the Finance Act. The legislative history with respect to the concept of surcharge was traced by the Court, which, for the first time was found to have been recommended, in the report of the Committee on Indian Constitutional Reforms Volume I Part I. The word surcharge was used compendiously for the special addition to taxes on income imposed in September 1931. It was held so in paragraph 7 and 8. 7. The above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term “Income tax” as employed in Section 2 includes surcharge as also the special and the additional surcharge whenever provided which are also surcharges within the meaning of Article 271 of the Constitution. The phraseology employed in the Finance Acts of 1940 and 1941 showed that only the rates of income tax and super tax were to be increased by a surcharge for the purpose of the Central Government. In the Finance Act of 1958 the language used showed that income tax which was to be charged was to be increased by a surcharge for the purpose of the Union. The word “surcharge” has thus been used to either increase the rates of income tax and super tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term “Income Tax” as used in section 2 includes surcharge. 8. According to Article 271 notwithstanding anything in Article 269 and 270 Parliament may at any time increase any of the duties or taxes referred to in those Articles by a surcharge for the purpose of the Union and the whole proceeds of any such surcharge shall form part of the consolidated Fund of India. Article 270 provides for taxes levied and collected by the Union and distributed between the union and these states. Caluse (1) says that tax on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the states in the manner provided in clause (2). Article 269 deals with taxes levied and collected by the Union but assigned to the States. The provisions of Articles 268 which is the First one under the heading distribution of revenue between the union and the states relate to duties levied by the Union but collected and appropriated by the states.Thus these Articles deal with the levy, collection and distribution of the proceeds of the taxes and duties mentioned therein between the Union and the state. The Legislative power of Parliament to levy taxes and duties is contained in Articles 245 and 246(1) read with the relevant entries in list I of the Seventh Schedule. Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 14 of 16 17. In the instant case surcharge was imposed by Finance Act, 2016 and the rate stood enhances by Finance Act 2017. The Income Tax even as per the Finance Act has to be at the rate specified in Part I of the 1st Schedule which shall be increased by surcharge for purposes of the Union. Surcharge hence partakes the character of Income tax and Article 271 itself empowers the Parliament, at any time to increase any of the duties or taxes by a surcharge for the purpose of the Union and it forms part of the consolidate fund. So when a surcharge is imposed it is in e4ffect an enhancement of the tax or duty. The provisions in the Finance Act also employs the words ‘the income tax computed … shall be increased by a surcharge. Section 4 of the IT Act squarely applied to the surcharge imposed. The judgement of the Learned Single judge is affirmed for the reasoning herein above and the writ appeal would stand dismissed without any order as to costs.” Hon’ble Madras High Court in W.P. (MD) No. 2078 of 2020, S.M.I.L.E. Microfinance Ltd Vs. ACIT, Madurai – favouring assessee: \"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: XXX 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 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.\" 15. Thus, there is a judicial controversy at the level of Hon’ble High Courts and there is no decision of Hon’ble Jurisdictional High Court. Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 15 of 16 Therefore, the assessee shall be entitled to the favourable view as held in CIT Vs. Vegetable Products 88 ITR 192 (SC). Accordingly, the decision given by Hon’ble Madras High Court in S.M.I.L.E. Microfinance Ltd (supra) holding in favour of assessee shall apply. Recently, the ITAT, Ahmedabad Bench has also followed the decision of Hon’ble Madras High Court in Naranbhai Samatbhai Bharwad Vs. ITO, Ahmedabad, ITA No. 272/Ahd/2024 order dated 03.01.2025. In view of this, we follow the decision of Hon’ble Madras High Court and accordingly hold that the tax rate of 60% shall not apply to the surrendered income of Rs. 10,00,500/- but tax rate of 30% as prescribed in pre-amended section 115BBE shall apply. Accordingly, we direct the AO to compute tax liability @ 30%. This ground is thus allowed. 16. Resultantly, this appeal is partly allowed. Order pronounced in open court on 25/06/2025 Sd/- Sd/- (PARESH M. JOSHI) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक/Dated : 25/06/2025 Patel/Sr. PS Shailesh Kalwadia (HUF) ITA No. 903/Ind/2024 – AY 2017-18 Page 16 of 16 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order E COPYSr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore "