2013 (11) TMI 16 - HC - Income Tax

Additions made u/s 69C of the Income Tax Act Whether the Assessing Officer had acted on conjectures and surmises Held that - The assessee was in the best position to explain the expenditure incurred as per the books of account maintained, but could give an explanation only with regard to a part of the expenditure and not the entire expenditure. Both the authorities that is the Assessing Officer as well as the Tribunal considered the explanations offered and found them unsustainable - Cannot reappreciate the material on record and come to a different conclusion, unless the view expressed by the Assessing Officer and the Tribunal are perverse or are views that could not reasonably be arrived at No any perversity in the conclusions arrived at by the authorities - Additions were made on the basis of conjectures and surmises is not true - The expenses were mentioned in the documents seized from the premises of the assessee and were admitted by the assessee. It was for the assessee to justify the expenditure incurred as business expenditure. He was able to do so for only a part thereof Decided against the Assessee.

Issues Involved:
1. Retrospective effect of the proviso to Section 69C of the Income-tax Act, 1961.
2. Validity of additions made as undisclosed expenditure based on mere suspicions, surmises, and conjectures.

Detailed Analysis:

1. Retrospective Effect of the Proviso to Section 69C:

The core issue was whether the proviso to Section 69C of the Income-tax Act, 1961, introduced by the Finance (No. 2) Act, 1998, with effect from April 1, 1999, is declaratory of the existing legal position and thus retrospective, or if it creates a new liability and is prospective.

The court examined Section 69C, which states that if an assessee incurs expenditure without satisfactorily explaining its source, the amount will be deemed income. The proviso specifies that such deemed income shall not be allowed as a deduction under any head of income. The court noted that the substantive provision of Section 69C is clarificatory and retrospective, as affirmed by the Delhi High Court in Yadu Hari Dalmia v. CIT and supported by CBDT Circular No. 204.

However, the court emphasized that the proviso to Section 69C creates a new liability by disallowing deductions on deemed income, which changes the existing legal position. This new obligation suggests prospective operation, as retrospective application would impair existing rights and impose new liabilities. The court cited principles from CIT v. Gold Coin Health Food P. Ltd., Thirumalai Chemicals Ltd. v. Union of India, and other cases, concluding that the proviso is not retrospective.

The Revenue's documents, including the Notes on Clauses and CBDT Circular No. 772, indicated that the proviso was intended to be prospective, effective from the assessment year 1999-2000. The court held that the proviso to Section 69C does not have retrospective operation.

2. Validity of Additions as Undisclosed Expenditure:

The assessee challenged the additions of Rs. 20,90,000, Rs. 5,15,300, and Rs. 18,95,000 as undisclosed expenditure, arguing they were based on suspicions, surmises, and conjectures.

a. Addition of Rs. 20,90,000:
The assessee claimed to have paid Rs. 55,50,000 to artists and technicians for the film "Rangeela," but only Rs. 34,60,000 was accounted for in the seized books, leaving Rs. 20,90,000 unexplained. The assessee's explanation, based on memory, was rejected by the Assessing Officer and the Tribunal, who found the expenditure unexplained.

b. Addition of Rs. 5,15,300:
The assessee's seized documents showed an expenditure of Rs. 7,10,000 in Madras, while the books accounted for only Rs. 1,94,700. The explanation that the expenses were projected and not actual was not accepted by the Assessing Officer and the Tribunal, who upheld the addition of Rs. 5,15,300 as unexplained expenditure.

c. Addition of Rs. 18,95,000:
The seized documents indicated payments of Rs. 28,60,000, with only Rs. 9,65,000 reflected in the books. The assessee's explanation that the payments were preliminary estimates was not accepted, leading to an addition of Rs. 18,95,000 as unexplained expenditure.

The court found that the issues raised by the assessee did not constitute a substantial question of law but were factual matters concerning the explanation of the expenditure incurred. The Assessing Officer and the Tribunal's conclusions were based on the seized documents and the assessee's inability to explain the expenditure. The court did not find any perversity in their conclusions and upheld the additions.

The court also addressed the assessee's general contention that the statement recorded after midnight was unreliable and retracted, citing Kailashben Manharlal Chokshi v. CIT and CIT v. S. Khader Khan Son. However, the court noted that the Revenue's case was based on seized documents, not just the statement, and the assessee failed to satisfactorily explain the expenditure.

The court concluded that no substantial question of law arose from the assessee's proposed additional question and answered it in favor of the Revenue.

Conclusion:

The appeal was disposed of with the court holding that the proviso to Section 69C of the Income-tax Act, 1961, is prospective and does not apply to the block assessment period 1986-87 to 1996-97. The court also upheld the additions made by the Assessing Officer and the Tribunal as undisclosed expenditure, finding no substantial question of law in the assessee's challenge.

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