ITAT Visakhapatnam Holds 30% Rate Applicable Under Section 115BBE for AY 2017-18

Background of the Dispute

The matter in Rama Rao Nallamothu Vs ITO (ITAT Visakhapatnam) revolved around the income tax reassessment for Assessment Year 2017-18. The controversy did not ultimately concern the quantum of additions but the rate of tax to be applied under Section 115BBE on unexplained income assessed for that year.

The assessee, an individual who had not originally filed a return for the relevant year, came under scrutiny based on information available with the Assessing Officer regarding substantial time deposits made during Financial Year 2016-17. This led to initiation of reassessment proceedings and subsequent additions under various deeming provisions of the Income Tax Act 1961.

Facts Leading to Reassessment

Initiation of Proceedings

  • The assessee had not filed a return of income for AY 2017-18.
  • The Assessing Officer (AO) had information that the assessee had placed time deposits of Rs.1,19,08,000/- during FY 2016-17.
  • Based on this, the AO issued a notice under Section 148 on **29.02.2024`.
  • In response to the notice, the assessee filed a return of income for the first time for the said year.

Assessment Proceedings

  1. The AO thereafter issued multiple notices under Section 142(1) calling for:

    • Bank account statements
    • Details and reconciliation of term deposits
    • Computation of income
    • Interest certificates

  2. The assessee replied on 24.07.2024, providing:

    • Bank statements
    • Computation of total income
    • Reconciliation for all term deposits
    • Interest details

  3. After considering the submissions, the AO completed reassessment under Section 147 read with Section 144B vide order dated 20.03.2025, determining total income at Rs.27,23,321/-.

Additions Made by the AO

The reassessment resulted in the following additions:

  • Unexplained money under Section 69A:
    • Cash deposits treated as unexplained: Rs.6,04,025/-
  • Unexplained credits under Section 68:
    • Bank deposits held to be without satisfactory explanation: Rs.17,35,500/-
  • Undisclosed interest income under the head "Income from Other Sources":
    • Interest added: Rs.23,176/-

These items were assessed as income from other sources, and the AO applied the higher tax rate of 60% under Section 115BBE, as amended by the Finance Act, 2016.

First Appeal Before CIT(A)

The assessee challenged the reassessment order before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, under Section 250.

Grounds Before CIT(A)

The assessee primarily contended that:

  • Cash deposits and bank credits represented amounts from explained and known sources.
  • Additions under Section 69A and Section 68 were unwarranted.
  • The interest income addition of Rs.23,176/- as undisclosed income was incorrect.

Order of CIT(A)

  • The **Ld.