Section 115BBE at 60%: ITAT Ahmedabad Rejects Rectification Attempt for AY 2017-18 — Debatable Issue Cannot Be Corrected Under Section 154

Overview of the Dispute

A significant ruling has emerged from the Income Tax Appellate Tribunal, Ahmedabad, in the matter of ITO Vs Udayan Mandavia (ITA No. 154/Ahd/2026, order dated 26.03.2026), where the Tribunal firmly rejected the Revenue's attempt to enhance the applicable tax rate on an addition made under Section 69A from 30% to 60% through rectification proceedings under Section 154 of the Income Tax Act, 1961. The Department's appeal was dismissed, and the order of the Commissioner of Income Tax (Appeals) quashing the rectification was upheld in its entirety.

This decision carries considerable significance for all assessees dealing with unexplained investments or cash additions for Assessment Year 2017-18, particularly in the context of the enhanced tax rate introduced by the Taxation Laws (Amendment) Act, 2016 under Section 115BBE.

The fundamental question before the Tribunal was twofold:

  1. Whether the amended tax rate of 60% under Section 115BBE is applicable to additions made under Section 69A pertaining to Assessment Year 2017-18.
  2. Whether, even assuming such applicability, the change in tax rate could be effectuated through a rectification order under Section 154 as a "mistake apparent from record."

Both questions were answered in favour of the assessee, resulting in the dismissal of the Department's appeal.

Facts of the Case

The assessee, an individual carrying on business activities, underwent reassessment proceedings. An addition of ₹1,40,76,000/- was made under Section 69A of the Income Tax Act, 1961, and the total assessed income was determined at ₹1,45,92,344/- under Section 147 read with Section 144B of the Act. At the time of completing the assessment, tax on the said addition was computed at the rate of 30% under Section 115BBE.

Subsequently, the Assessing Officer passed a rectification order dated 21.10.2024 under Section 154, revising the applicable tax rate from 30% to 60% by invoking the amended provisions of Section 115BBE, as introduced through the Taxation Laws (Amendment) Act, 2016. The AO's position was that for AY 2017-18, the correct and applicable rate was 60%, and the original computation at 30% constituted a mistake apparent from the record.

Assessing Officer's Stance

The Assessing Officer proceeded on the premise that:

  • The Taxation Laws (Amendment) Act, 2016 had amended Section 115BBE to prescribe a 60% tax rate on unexplained income covered under sections such as Section 69A.
  • This amended rate was, in the AO's view, applicable with effect from Assessment Year 2017-18.
  • The original computation at 30% was therefore an error on the face of the record, justifying correction under Section 154.

The AO accordingly recomputed the tax liability at the enhanced rate without affording a fresh opportunity of hearing to the assessee.

CIT(A)'s Findings

The assessee challenged the rectification order before the Ld. Commissioner of Income Tax (Appeals), raising two principal grounds: