The officer has taxed my addition at 60% and refused to let me set my losses against it. Was that rate even in force for my year, and from when does the bar on set-off actually run?
Three dates decide the answer. Section 115BBE was inserted by the Finance Act 2012 with effect from 1 April 2013, and for assessment years 2013-14 to 2016-17 the rate is thirty per cent. The Taxation Laws (Second Amendment) Act 2016 substituted sub-section (1) with effect from 1 April 2017, and from assessment year 2017-18 the rate is sixty per cent, plus a surcharge of twenty-five per cent of that tax, plus cess: 77.25% for assessment years 2017-18 and 2018-19 and 78% from 2019-20, before the ten per cent penalty under s.271AAC. Sub-section (2) has two limbs with different start dates: the bar on any deduction for expenditure or allowance has run since assessment year 2013-14, but the words "or set off of any loss" were inserted by a different Act, the Finance Act 2016, and bite only from assessment year 2017-18. So for assessment year 2016-17 and earlier the loss goes in, as CBDT's own Circular No. 11/2019 accepts and as the Rajasthan High Court held in Aacharan Enterprises; from 2017-18 it does not. The rate for assessment year 2017-18 itself is contested: Kerala has held the sixty per cent rate applies to the whole of financial year 2016-17, Madras and Rajasthan have held it prospective from 1 April 2017.
Start with what the section was when it arrived. Section 115BBE was inserted by the Finance Act 2012 (Act 23 of 2012) with effect from 1 April 2013, so the first year it governs is assessment year 2013-14. Before that there was no special rate at all and income added under s.68 or the s.69 family went into total income at ordinary rates. As inserted, sub-section (1) said that where the total income of an assessee includes any income referred to in ss.68, 69, 69A, 69B, 69C or 69D, the income-tax payable is the aggregate of (a) tax on that income at thirty per cent and (b) tax on what is left of the total income after taking that income out. That thirty per cent rate ran for four assessment years: 2013-14, 2014-15, 2015-16 and 2016-17, and for those years that is the whole of the section as it then stood.
The Taxation Laws (Second Amendment) Act 2016 (Act 48 of 2016) received assent on 15 December 2016 and substituted sub-section (1) with effect from 1 April 2017. The substituted sub-section is built differently. Clause (a) covers income of the ss.68 to 69D kind that is reflected in the return furnished under s.139. Clause (b) covers income of that kind determined by the Assessing Officer where it is not covered by clause (a). The tax is then the aggregate of (i) tax on the income in clause (a) and clause (b) at sixty per cent and (ii) tax on the balance of the total income. The same Act also put the surcharge in place, though not for the assessment itself: what it inserted into section 2 of the Finance Act 2016 is a proviso increasing the advance tax on income chargeable under s.115BBE(1)(i) by a surcharge of twenty-five per cent of that advance tax. The surcharge for the assessment year 2017-18 assessment comes from the Finance Act 2017, which carries the same proviso in the form "twenty-five per cent of such income-tax", and every Finance Act since has carried it forward in identical words, down to the Finance Bill 2025.
Work the rate out rather than repeating a figure. Take Rs 100 of income charged under s.115BBE. Tax under clause (i) is 60.00. Surcharge is twenty-five per cent of that tax, 15.00, giving 75.00. Cess is charged on income-tax and surcharge together. For assessment years 2017-18 and 2018-19 that was education cess at two per cent plus secondary and higher education cess at one per cent, three per cent of 75.00, which is 2.25 — a total of 77.25. From assessment year 2019-20 it is Health and Education Cess at four per cent, four per cent of 75.00, which is 3.00 — a total of 78.00. So the effective rate is 77.25% for assessment years 2017-18 and 2018-19 and 78% from 2019-20 onwards. Section 271AAC then adds a penalty of ten per cent of the tax payable under clause (i), which on a sixty per cent rate is six per cent of the income itself, taking the worst case to 84%. The surcharge is twenty-five per cent of the tax, not twenty-five per cent of the income; a page that adds 60 and 25 and 4 and prints 89% is wrong.
Now sub-section (2), which is where the dates separate. As inserted in 2012 it read: "Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1)." That is one bar only — expenditure and allowance — and it has run since assessment year 2013-14. The words "or set off of any loss" were not in it. They were inserted by the Finance Act 2016 (Act 28 of 2016) with effect from 1 April 2017. That is a different Act from the one that raised the rate, passed earlier in the same year, and it happens to share a commencement date with it. The amendment footnotes to the section make the split plain: the section itself is credited to Act 23 of 2012 with effect from 1 April 2013, and the set-off words are credited separately to Act 28 of 2016 with effect from 1 April 2017. So the deduction bar and the set-off bar are four assessment years apart, and an officer who applies the set-off bar to assessment year 2015-16 is applying words that were not in the statute that year.
Check the sub-clause number against the year before you cite it, because the letters changed meaning. For assessment year 2016-17 and earlier, "clause (a) of sub-section (1)" is the thirty per cent tax computation limb, and there is no clause (b) about the Assessing Officer at all — clause (b) is the tax on the rest of the income. From assessment year 2017-18 clause (a) means income disclosed in the return, clause (b) means income the officer determines, and the tax limbs are numbered (i) and (ii). A reply that cites "s.115BBE(1)(a)" for a 2015-16 assessment as though it meant return-disclosed income is citing a clause that then said something else. There is a loose end in the text itself. Reproductions of the section for 2016 and 2017 print sub-section (2) as still ending at "clause (a) of sub-section (1)", while reproductions for 2020 and later print "clause (a) and clause (b) of sub-section (1)" — and the Taxation Laws (Second Amendment) Act 2016 on its face substitutes only sub-section (1). The provision that changed that tail has not been identified, and it is recorded below as a gap. The loose end is worth something to you rather than nothing: on the tail in its earlier form, the set-off bar would reach only income reflected in the return under clause (a) and not income the officer determines under clause (b), which is an argument for a reader whose addition is the officer's and not his own disclosure, if he can produce the text applicable to his year.
The section reaches six provisions and no others: ss.68, 69, 69A, 69B, 69C and 69D. From assessment year 2017-18 it reaches the income whether you disclosed it or the officer found it — clause (a) and clause (b) are separate cases but both are taxed at the same sixty per cent, so offering the income in the return buys you nothing on rate. What it does buy is the s.271AAC proviso: no penalty where the income was included in the return under s.139 and the s.115BBE(1)(i) tax was paid on or before the end of the relevant previous year. Because everything turns on whether the item is within those six sections, the real fight is upstream. CBDT's own letter of 29 May 2026 to field offices, issued after a C&AG audit found officers invoking the wrong section and applying the wrong rate, tells the Assessing Officer to satisfy himself as to the true nature and source of the amount before invoking any of them. And in Sivasakthi Threads the Madras High Court refused to enter the s.115BBE argument at all because the assessment had been made under s.143(3) read with s.153C and not under s.115BBE.
Retrospectivity is two questions, not one, and they have different answers. Can the sixty per cent rate reach assessment year 2016-17 or earlier? No. The substitution operates from 1 April 2017 and for an earlier year the thirty per cent text is the law of that year. Can it reach income of financial year 2016-17 — the demonetisation deposits, including money that went in before the Act was even assented to on 15 December 2016? That is the live fight, and three High Courts have now spoken, one for the Revenue and two against it. The Kerala High Court in Maruthi Babu Rao Jadav v ACIT, W.A. No. 984 of 2019, decided 23 September 2020, held that the sixty per cent rate does apply: cash of about Rs 2.29 crore seized in August and November 2016 was added under s.69A for assessment year 2017-18, and the Court reasoned that no new liability was created, the rate merely stood enhanced, and an enhanced rate applies from the commencement of the assessment year. That is the decision the department leads with and you will meet it in the first reply. Against it, the Madras High Court in S.M.I.L.E. Microfinance Ltd v ACIT, W.P.(MD) Nos. 2078 and 1742 of 2020, decided 19 November 2024, held the enhanced provisions prospective and applicable only to transactions occurring on or after 1 April 2017. And the Rajasthan High Court in Deepak Maratha v Union of India, D.B. Civil Writ Petition No. 3625/2020, allowed a challenge to ss.115BBE and 271AAC: as the Jodhpur Bench of the Tribunal records that judgment in an order of 10 August 2026, it held the increase from thirty to sixty per cent prospective and effective from 1 April 2017, so that for financial year 2016-17 the law as it stood on 1 April 2016 governs and the sixty per cent rate applies only from financial year 2017-18. Say plainly what you are citing there: no copy of the Deepak Maratha judgment has been obtained, so what is set out is the Tribunal's account of it, which gives the date as 27 May 2026, together with the Rajasthan High Court's own later reference to it in Laxmi Devi v Union of India on 13 August 2026, where recovery was stayed on the same footing. Behind Kerala stands the ordinary rule, which you should know is there before you run the argument: in Reliance Jute the Supreme Court said it is a cardinal principle of tax law that the law to be applied is that in force in the assessment year, unless otherwise provided expressly or by necessary implication — and an amendment expressed to take effect from 1 April 2017 is the law for assessment year 2017-18, which is the whole of financial year 2016-17. Tribunal benches have gone with whichever High Court they were pointed at: Mumbai followed Kerala in April 2025, Chennai followed Madras in June 2026, Jodhpur followed Rajasthan in August 2026. So the point is worth taking for assessment year 2017-18 and two High Courts are behind it, but one is against it, and outside Kerala, Madras and Rajasthan every one of the three is persuasive only.
The set-off question is where this library has been carrying two authorities on opposite sides, so take them one at a time. In Fakir Mohmed Haji Hasan the Gujarat High Court, on 10 August 2000, held that income deemed under ss.69, 69A, 69B and 69C falls under none of the heads in s.14, not even income from other sources, because those sections operate precisely where the source is unknown or unexplained; and that if the income cannot be classified under a head, the deductions that go with a head are not available against it. Gold worth Rs 48,72,000 found in the assessee's car and confiscated by customs was rightly added under s.69A and its confiscation could not be claimed as a trading loss. In CIT v Chensing Ventures the Madras High Court, on 9 April 2007 and for assessment year 2002-03, dismissed the Revenue's appeal where Rs 28,50,000 surrendered at a survey had been added under s.69 and a determined business loss of Rs 8,20,384 had been refused a set-off without any reason. The Court reasoned that income tax is one tax on total income, that there is one assessment made after total income is ascertained, and that s.71 lets a loss remaining after intra-head set-off go against income of the same year under any other head except capital gains; once the loss is determined it must be set off against income determined under any other head.
They can be reconciled, and the reconciliation has three parts. First, they answer different questions. Fakir Mohmed is about a head-specific deduction — whether the value of confiscated gold is a trading loss deductible against a s.69A addition — and its reasoning is that there is no head to hang the deduction on. Chensing is about s.71, which is not a head-specific deduction at all: it operates on losses and income already computed and moves a loss across heads. Sections 71 and 72 were never put to the Gujarat High Court and are not considered in the judgment. The Madras High Court said exactly that in Sivasakthi Threads, declining to follow Fakir Mohmed on the ground that ss.71 and 72 had been lost sight of, and noting that the Gujarat High Court itself has since distinguished it in Radhe Developers India Ltd, Shilpa Dyeing and Printing Mills P Ltd and Krishnamegh Yarn Industries. Second, the statute has overtaken both of them on a dated line. For assessment year 2016-17 and earlier there was no set-off bar in s.115BBE(2), so Chensing states the law for those years; CBDT's Circular No. 11/2019 of 19 June 2019 says so in the Board's own words at paragraph 4, which binds the officer, and the Rajasthan High Court applied that cut-off in Aacharan Enterprises on 21 January 2020, upholding a set-off of a current-year loss of Rs 3,82,37,792 and a brought-forward loss of Rs 2,67,62,208 against a deemed income addition of Rs 6,50,00,000 for assessment year 2014-15 — the Commissioner (Appeals) allowed the set-offs, the Tribunal confirmed them and the High Court dismissed the Revenue's appeal. From assessment year 2017-18 s.115BBE(2) contains the words "or set off of any loss" and opens "Notwithstanding anything contained in this Act", so ss.71 and 72 yield and Chensing cannot be carried across; the result Fakir Mohmed reached is now the statutory position for ss.68 to 69D income, though not for its reasoning. Third, from assessment year 2022-23 s.79A does a wider job in a search, requisition or survey case: it is not tied to ss.68 to 69D, it names unabsorbed depreciation under s.32(2) expressly, and it too opens with a non obstante clause. Sivasakthi Threads held s.79A prospective from 1 April 2022.
So what is actually open, and what should you do about it? The clash between the two lines of reasoning is open only for assessment year 2016-17 and earlier, and even there the Board's circular makes it a short argument rather than a fight. For those years lead with Circular No. 11/2019 and Aacharan Enterprises, use Chensing for the unity-of-assessment reasoning, and meet Fakir Mohmed with the point that ss.71 and 72 were not considered in it and with Sivasakthi Threads. From assessment year 2017-18 onwards do not claim the set-off in the reply to the officer; move the argument to whether the item falls within ss.68 to 69D at all. One qualification, because it follows from what is said above about the rate. The set-off words carry the same commencement date as the sixty per cent rate, 1 April 2017, so on the Madras and Rajasthan reading of that date the set-off bar is equally out for financial year 2016-17 — and Laxmi Devi records the challenge in Deepak Maratha as having been to s.115BBE and s.271AAC generally, not to the rate alone. That point is available for assessment year 2017-18, and if you plead the rate point in appeal you should plead the set-off on the same commencement date in the same grounds. It is not worth putting to the Assessing Officer, because Circular No. 11/2019 fixes the set-off cut-off at assessment year 2016-17 in the Board's own words and an officer is not free to go behind a circular that binds him; asking him to do so costs you credibility on the rest of the reply. For any year after 2017-18 the argument does not arise at all. And note what the bar does not say. Section 115BBE(2) denies the set-off "in computing his income referred to in" the clauses of sub-section (1), and s.79A denies it "against such undisclosed income" — both are limited to the deemed income, so on their own words neither extinguishes the loss for other purposes.
The difference between thirty per cent and seventy-eight per cent on the same figure is the whole case, and it is decided by a commencement date rather than by anything on the facts. Getting the year wrong in either direction is expensive: claim a set-off for assessment year 2017-18 and you invite s.271AAC on top; fail to claim it for assessment year 2015-16 and you have paid tax the Board's own circular says you did not owe.
The two limbs of sub-section (2) are the most common place this goes wrong, because they sit in one sentence and read as one bar. They are not. The expenditure and allowance bar came in with the section in 2012; the set-off bar came in four years later, by a different Act, and an assessment for any year up to 2016-17 that applies it is applying words that were not there.
The Assessing Officer rejected my explanation for cash credits. Must he then prove where the money actually came from before taxing it?
Additions were made to my book profits in earlier years. Can I use that money to explain a cash credit or an unexplained payment in a later year?
My client stopped importing and now only exports. The officer says the old import loss dies because it is not the same business. Is he right?
I made unexplained investments after the close of my accounting year. Which year can the officer tax them in, and can he reopen an earlier year to do it?
The officer has disallowed a receipt on the ground that it is not 'derived from' our undertaking. Does the exact wording of the deduction section decide the point?
Valuables were found at my premises and I say they are not mine. Who has to prove ownership?
The landlord paid my company to give up its tenancy. Is that taxable, and if it cannot be computed as a capital gain can the officer tax it as a casual receipt instead?
A fixed deposit stands in the name of a partner's son and my firm used it as security for its overdraft. The Assessing Officer says the money is really the firm's concealed income. Who has to prove what?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.
