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TMI Blog2013 (11) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... e. He was able to do so for only a part thereof – Decided against the Assessee. - I.T.T.A. No.27 of 1999 - - - Dated:- 28-12-2011 - MADAN B. LOKUR AND SANJAY KUMAR, JJ JUDGEMENT Madan B. Lokur C. J.- The substantial question of law framed for our consideration in this appeal filed under section 260A of the Income-tax Act, 1961 (hereinafter referred to as "the Act") is as follows : "Whether the proviso to section 69C of the Income-tax Act, 1961, is merely declaratory of the existing legal position, in which case the provision could operate in respect of the previous assessment years or it creates a new liability?" During the course of the submissions, the learned counsel for the assessee proposed an additional question of law which is as follows : "Whether the additions confirmed as undisclosed expenditure of Rs. 20,90,000 as payments to artists, Rs. 5,15,300 as film production expenses at Madras and Rs. 18,95,000 as payments to artists, technicians, manager, etc., are on the basis of mere suspicions, surmises and conjectures and, therefore, the findings of the Appellate Tribunal are unsustainable ?" Broadly, the facts of the case indicate tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year : Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income." On a plain reading of this section, it is clear that it merely provides, as a rule of evidence, that if an assessee incurs some expenditure and is unable to explain the source of that expenditure, then the expended amount will be deemed to be his income. The proviso (which was introduced much later) lays down that such deemed income shall not be allowed as a deduction under any head of income. From a reading of the section (minus the proviso), it does appear that an assessee could claim deductions on the deemed income. It seems that the proviso was introduced to prevent this and ensure that such deductions "shall not be allowed". The question is whether a deduction "shall not be allowed" in respect of only future claims or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (or vested) right, then it has only prospective effect, unless the language of the statute is clear that it has retrospective operation (or it must necessarily be so implied). This general proposition was accepted by the Supreme Court in CIT v. Gold Coin Health Food P. Ltd. [2008] 304 ITR 308 (SC), wherein it was held (page 317) : "It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations." On the other hand, if the statute affects a procedural right, then the presumption is that the statute is intended to have retrospective effect. This general proposition was acknowledged in Thirumalai Chemicals Ltd. v. Union of India [2011] 183 Comp Cas 380 (SC) ; [2011] 6 SCC 739 in the following words (page 389 of 183 Comp Cas) : "Substantive law refers to body of rules that creates, defines and regulates rights and liabilities. Right conferred on a party to prefer an appeal against an order is a substantive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only." 14.3 CIT v. Shelly Products [2003] 261 ITR 367 (SC). In this case, the assessment order was held as void ab initio. The assessee then sought refund of tax paid on the basis of the assessment order as well as the advance tax and self-assessment tax paid. The Revenue was of the opinion that the assessee was entitled to a refund only of the tax paid pursuant to the assessment order, since declared void. The Revenue placed reliance on proviso (b) to section 240 of the Act, contending that it was retrospective in operation. The Supreme Court agreed with the Revenue and held that proviso (b) to section 240 of the Income-tax Act (page 383) : " . seeks to clarify the law so as to remove doubts leading to the courts giving conflicting decisions, and in several cases directing the Revenue to refund the entire amount of income-tax paid by the assessee where the Revenue was not in a position to frame a fresh assessment. Being clarificatory in nature it must be held to be retrospective, in the facts and circumstances of the case. It is well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole." 14.7 CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) in which the Supreme Court referred to Allied Motors and held (page 315) : "This court, in Allied Motors P. Ltd. [1997] 224 ITR 677 (SC) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read as retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this court, in Allied Motors P. Ltd. held that the first proviso (to section 43B of the Income-tax Act) was curative in nature, hence, retrospective in operation with effect from 1st April, 1988." The principles that emerge from the aforesaid decisions indicate as follows : (i) A statute is prima facie prospective in operation, but it may be given retrospective operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be allowed as a deduction under any head of income. In other words, even if the assessee can justify the expenditure, but cannot explain its source, the proviso effectively disentitles him from claiming a deduction on the deemed income under any head of income. The distinction, therefore, between the section and the proviso is that the section deals with the inability of the assessee to explain the source of the expenditure and, therefore, deems that expended amount his income for the relevant financial year. This, nevertheless, leaves a window open for the assessee to justify the expenditure and thereafter claim a deduction thereon. However, with the insertion of the proviso, that window has been closed and even if an explanation for the expenditure is forthcoming, it will not benefit the assessee and the expenditure would nevertheless be taxable as a part of the total income. To this extent, the existing right of the assessee to explain and justify the expenditure has been taken away with the insertion of the proviso and has made the assessee open to a liability. In view of this, in our opinion, the proviso does not have retrospective operation inasmuch as it changes the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision for disallowance of such expenditure. 29.2 This used to enable the taxpayer charged to tax under section 69C to claim the expenditure as deduction under section 37 defeating the very objective of the section. 29.3 The Act has amended section 69C of the Income-tax Act according to which unexplained expenditure deemed as income cannot be allowed as deduction under any head of income. 29.4 This amendment will take effect from 1st day of April, 1999, and will, accordingly, apply in relation to the assessment year 19992000 and subsequent years." This document too may not have any binding effect per se, but again this document suggests that the introduction of the proviso to section 69C of the Act would affect the existing rights of an assessee and might place a financial burden on the assessee requiring payment of tax with retrospective effect. It is to avoid this situation that the Central Board of Direct Taxes made it clear that the provision would have prospective effect. Assuming the Central Board of Direct Taxes Circular has no binding effect, yet where the Revenue itself decides to interpret the law in favour of a citizen, there is no reason why the court should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure of Rs. 55,50,000 was made out which an amount of Rs. 20,90,000 was unexplained. The second addition is with regard to an unexplained expenditure of Rs. 5,15,300 incurred in Madras in July, 1995. As per the seized documents, the assessee had spent Rs. 7,10,000 during this period but the books of account showed an expenditure of Rs. 1,94,700 only. There was no explanation forthcoming from the assessee in this regard except that the expenses were projected expenses scribbled on a loose sheet of paper and could not be conclusive proof of actual expenditure. Again, the Assessing Officer did not believe the explanation since some of the expenses shown on the seized document could not be deferred such as hotel expenses, etc., and, therefore the Assessing Officer disallowed an amount of Rs. 7,10,000 Rs. 1,94,700 = Rs. 5,15,300 being unexplained expenditure. The Tribunal also did not accept the explanation of the assessee in this regard and upheld the conclusions arrived at by the Assessing Officer. The third addition pertains to an amount of Rs. 18,95,000. As per the seized documents, the assessee made certain payments of Rs. 28,60,000 out of which an amount of Rs. 9,65, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 _" the balance remained unexplained and did not find any mention in the books of account. The general contention of learned counsel for the assessee with regard to the additions was that the statement of the assessee was recorded well after midnight and therefore it could not be relied on to his detriment. Secondly, it was submitted that the statement was in any event retracted by the assessee. In support of these submissions, reliance was placed on Kailashben Manharlal Chokshi v. CIT [2010] 328 ITR 411 (Guj) and CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad). In this context, learned counsel also referred to a circular issued by the Central Board of Direct Taxes on March 10, 2003, to the following effect : "Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search and seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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