2015 (4) TMI 17 - SC - Income Tax

Disallowance under Section 40A(3) - limit of payments in cash in excess of ₹ 10,000/- increased to ₹ 20,000 by an amendment - whether to be applied retrospectively - Block assessment - Held that - 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, learned 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. - Decided against assessee.

Summary

Issues:
1. Disallowance of expenditures under Section 40A(3) of the Income Tax Act, 1961 for the block period of ten years.
2. Applicability of the amendment to Section 40A(3) of the Act from 1.4.1996 retrospectively for the entire block period.

Analysis:
1. The appellant, engaged in the production and distribution of motion pictures, faced a search under Section 132 of the Income Tax Act, 1961, resulting in a proposal for assessment for a ten-year block period. The Assessing Officer disallowed expenditures exceeding Rs. 10,000 paid in cash based on Section 40A(3) of the Act pre-1.4.1996. The Income Tax Appellate Tribunal remitted the matter to the Assessing Officer for further consideration, directing computation under Rule 9A of the Income Tax Rules and disallowance under Section 40A(3) applicable for the relevant assessment year. The High Court upheld the decision, rejecting contentions based on the amended Section 158B(b) of the Finance Act, 2002. The appellant appealed to the Supreme Court challenging the High Court's judgment.

2. The appellant sought the benefit of the amendment to Section 40A(3) of the Act from 1.4.1996 for the entire block period. However, the Court noted that the amendment, limiting disallowance to 20% of expenditures exceeding Rs. 20,000 in cash, was substantive and not applicable retrospectively. The appellant's argument that the block period assessment warranted retrospective application of the amendment was unsupported by legal precedent. The Court emphasized that the amendment's nature, as indicated in explanatory notes, precluded retrospective application. Consequently, the Court affirmed the High Court's decision, dismissing the appeal for lack of merit.