By TIOL News Service

NEW DELHI, APR 01, 2015: THE issue before the Bench is - Whether when it is clearly mentioned that an amendment in the statute is substantive in nature, the assessee has the option to avail the benefits even on retrospective basis. And the verdict goes against the assessee.

Facts of the case

The assessee concern is engaged in production and distribution of motion pictures mainly in Tamil language. There was a search u/s 132 at the business premises of the assessee during which certain book of accounts were seized. Consequent to search, proposal was made for assessment for the block period of ten years 1.4.1986 to 31.3.1996 and thereafter up to 13.9.1996. The AO disallowed the expenditures where the payments were made in cash in excess of Rs.10,000/- relying on Section 40A(3) as it stood prior to 1.4.1996. On appeal, Tribunal had partly allowed the appeal and remitted the matter to AO for considering the claim whether the income/loss from the file Thirumurthy was to be computed for the AY 1996-97 in accordance with Rule 9A of the Income Tax Rules. It was also directed that in making the computation AO will consider the expenditure and make the disallowance under the provisions of Section 40A(3), as was applicable for the AY in question. On further appeal, High court had not accepted the contentions of the assessee which were based on the amended Section 158B(b) in Chapter XIVB of Finance Act, 2002 and dismissed the appeal.

The Apex court held that,

++ as is clear from the facts noted above, because of search carried on at the premises of the assessee, a proposal was made for completion of assessment for the block period of ten years from 1.4.1986 to 31.3.1996. In the year 1996, the provisions of Section 40A(3) did not allow any expenditure if it was more than Rs.20,000/- and paid in cash. The only exception that was carved out in such cases where the assessee could satisfactorily demonstrate to AO that it was not possible to make payment in cheque. Even in those cases, the expenditure was allowable up to Rs.10,000/-, and all cash payments made in excess of Rs.10,000/- were to be disallowed as the expenditure. Provisions of Section 40A(3) were amended with effect from 1.4.1996. With this amendment, in cases where the cash payment is made in excess of Rs.20,000/-, disallowance is limited to 20% of the expenditure. Since the date of the amendment falls within the aforesaid block period, the assessee wants the benefit of this amendment for the entire block period of ten years, i.e., 1.4.1986 to 31.3.1996. Such a plea is unacceptable on the face of it. It is clear that amendment is substantive in nature, which is so mentioned in the explanatory notes of amendments as well. Once we find that the amendment is substantive in nature, it cannot be applied retrospectively. The only ground on which the assessee wants benefit of this amendment from 1.4.1986 is that the assessment was of the block period of ten years. However, on our pertinent query, counsel for the appellant was fair in conceding that there is no judgment or any principle which would help the appellant in supporting the aforesaid contention. We are, thus, of the opinion that the order of the High Court is perfectly justified. There is no merit in this appeal, and the same is accordingly dismissed.

(See 2015-TIOL-37-SC-IT)