9911796707
TMI Blog2002 (4) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... olved. The assessee-company, which was incorporated on December 9, 1992, is engaged in production and distribution of motion pictures mainly in Tamil language. There was a search under section 132 of the Income-tax Act at the business premises of the assessee on September 13, 1996, during which, certain books of account and documents were found and seized. Till the date of search, the assessee-company had produced five Tamil films and distributed a few Hindi films. In this search, a number of notebooks were seized which were in the form of cash book and ledger. They were in respect of three films produced. It was apparent that the assessee had maintained another set of books for income-tax purposes and from the books which were seized, it was apparent they were in respect of production of some films for which payments were made to the artists, technicians, etc., and other expenditure made including the shooting expenses. The payments were made out of the cash recorded in the names of M.G. Sekar, S. Santhanam and G. Vijayakumar, who are the directors in the assessee-company. A notice came to be issued under section 158BC of the Income-tax Act. In response, the assessee filed its re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ultimately, the assessing authority noted: "while the payments outgoings recorded in the seized notebooks are allowed as deductions against the income of....in the names of the directors and others recorded in the seized notebooks, the payments mentioned hereinabove are disallowed in accordance with the provisions of section 40A(3). Thus the income assessed gets absorbed by allowance of the expenses in the first instance while the disallowance...undisclosed income of the assessee in the respective financial year which is brought to tax account for assessment." Ultimately, the total undisclosed income was arrived at Rs. 1,26,84,400 and, therefore, the tax liability was found at Rs. 87,52,236. An appeal came to be filed against this decision before the Commissioner of Income-tax (Appeals). The appellate authority confirmed the order and so also the Income-tax Appellate Tribunal. It is now in this appeal that all these concurrent decisions are being assailed on the questions of law which we have quoted earlier. Shri Jayakumar, learned counsel appearing on behalf of the assessee by way of his first submission invited our attention to the definition of the term "undisclosed income". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absurd result that even if the assessee is found to have suppressed certain expenditure which became unearthed during the search proceedings, merely because the assessee is able to show that he has actually spent the amount, the whole expenditure has to be ignored. Such cannot be the import of the law. What is provided is that if some expenditure is falsely claimed to be the expenditures made in pursuance of the business or profession then, such expenditure would become the undisclosed income. Its antitheses, however, is not logical and correct. Therefore, all the expenditure, which has actually been made, would automatically come out of the undisclosed income. In our opinion, in canvassing this, learned counsel is doing harm to the logic and is seeking to read something which is not there in the section. If some expenditures made are unearthed during the search are proved to be the genuine expenditure, they would still have to be assessed in the light of the other provisions and cannot be completely ignored merely because they ceased to become undisclosed income. It will be seen section 158BH specifically provides that excepting those provisions which have specifically been m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent. only in respect of a movie made after the amendment to the section. He further contends that the amendment to the section is in the nature of a procedural amendment and, therefore, it would apply to all the earlier payments made by cash (not by cheques as provided by the section). Learned counsel assails the interpretation put forward by the Tribunal that the amendment to section 40A(3) is not procedural in nature and is, therefore, not retrospective. Indeed, the Tribunal has held this amendment to be prospective and, therefore, has given the benefit of this amendment only in respect of the Tamil movie Thirumoorthy, the relevant year for which is 1996-97. Before proceeding to appreciate the argument, it will be better to see the relevant portion of the section: "40A. Expenses or payments not deductible in certain circumstances-.... (3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding twenty thousand rupees otherwise than by a crossed cheque drawn on a ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be made by cheque and all such payments were disallowed completely. This position continued up to March 31, 1989, from April 1, 1989, the limit of Rs. 2,500 was increased to Rs. 10,000. However, any payments made in breach of the section entirely were liable to be disallowed. This position continued upto April 1, 1996, when the amendment was brought in where the limit was retained to Rs. 10,000. However, it was provided that in contradistinction to all the expenditure not being allowed 20 per cent. of the expenditure would not be allowed meaning thereby that the authority had discretion to allow such expenditure to the extent of 80 per cent. (subject of course to other relevant provisions). From April 1, 1997, the limit of Rs. 10,000 was increased to Rs. 20,000. However, the percentage of disallowance was retained at 20 per cent. Learned counsel seeks to argue that the amendment brought in with effect from April 1, 1996, being a retrospective amendment would relate back to all the earlier payments made including the payments made in the block period and, therefore, the unallowable expenditure could be to the extent of 20 per cent. of the payments exceeding the payment of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vied would not be on the income, rather it would be arbitrarily levied on an assumed income. The learned judges observed as follows:...."we are of the opinion that the said provision is more a rule of procedure, rather than creating any substantial hindrance in the way of an assessee who wants to have deduction on the genuine purchase transactions." The learned judges referred to sub-rule (j) of rule 6DD and pointed out that the said rule provided for all the eventualities which may occur due to exceptional and unavoidable circumstances. The Bench held that the provision has been made to safeguard the revenues of the State and if the measures were taken to check the evasion of income-tax, it could not be said that the said measure was ultra vires on the ground of arbitrariness and being violative of article 14 of the Constitution. The learned judges then observed: "The said provision, in our view, has been introduced only to regulate the business activities and prevent unaccounted money being used for clandestine transactions and it was in the interest of revenue and national economy that the restriction imposed in this provision has been enacted. This provision in no way can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certainly changes the whole scenario. Therefore, by this amendment, which is assessee-friendly, the assessee stands benefited and gains a right inasmuch as instead of the whole expenditure being disallowed, the amendment provides for the compulsory disallowance of 20 per cent. expenditure only. This would change the very nature of the amendment and therefore the observations made by the learned judges in respect of the nature of the amendment would not be applicable to the present provision as it now stands. Such amendment which limits the discretion of the assessing authorities and creates a right in the assessee to plead for the remaining 80 per cent. expenditure as an allowable expenditure cannot be viewed as a mere procedural provision. It will have to be held as a provision dealing with substantive right of the assessee. Therefore, considering the language of the amended provision and the import thereof, we are of the clear opinion that this amended provision is not of retrospective nature. In our view, the Tribunal was right in holding that the amended provision was only prospective. We agree with the order of the Tribunal in that behalf. In Land Acquisition Officer-cum-DSW ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
