Prior to 1.6.2013 Seized cash allowed to be Adjusted towards Advance Tax

FULL TEXT OF THE ITAT ORDER

These are appeals by the assessee are directed against separate orders of Ld. CIT-A. Since the issues are common and the appeals were heard together, these are being disposed off by a common order.

2. The common grounds raised relate to non grant of credit for cash seized during search despite request by the assessee and consequential charge of Interest u/s. 234 B and 234 C.3. Since the facts are identical we are adjudicating the issue with reference to facts and figures from assessment year 20 10-11.

A search and seizure action under section 132(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was conducted on 11/05/20 10 by the DIT (Inv.) Unit – IX(2), Mumbai in the case of the management council members of SIES (hereinafter referred to as SIES Group). The residential premises of office bearers of SIES viz. Shri V. Shankar (Ex Hon. Secretary), Shri G. Chidambaram (Ex-Treasurer), Shri G.R. Ramachandran (Ex Jt. Secretary), Shri KA Vishwanathan (Ex Managing Council Member), Shri N. Venkatanathan (Life member of SIES and personal aide of .Shri Y Shankar) were also covered under section 132 of the Act. The appellant was also covered in the above mentioned search action. After the search action, return was filed on 31.07.2010 showing income of Rs.172,80,810/- Notice u/s.153A of the Income Tax Axt 1961, was issued on 04.11.2011 calling for a true and correct return of total income to A.Y. 20 10-11.

4. During the course of search proceedings cash was found and seized from appellant’s residence and bank lockers being.

Panchanama dated	Amount	Place
11/05/2010	Rs. 51,00,000	Residence
12/05/2010	2,28,00,000	Indian Bank Locker No. 320H
14/05/2010	Rs. 67,00,000	Lakshmi Vilas Bank Locker No. 10

During the course of search proceedings statement on oath was recorded on 11/5/2010, 12/05/2010 & 14/05/2010. In statement recorded u/s 132(4) dated 11/05/2010 appellant had admitted that the cash seized of Rs. 2.28 Crores from Indian Bank Locker No 320H was accumulated by him out of cash collected by him directly from students seeking admission through him under management quota in various courses offered by the educational institutions run by the SIES, without the knowledge of the Managing Council members of SIES and offered the same as his undisclosed income.

4.1 As regards the sum of Rs. 1,18,00,000/- (Rs. 51 lacs + Rs. 67 lacs) it was explained that the same belongs to SIES which was acknowledged by SIES and credit for the said seized cash has also been granted in the case of SIES by the Department and no addition thereof have been made in case of the appellant. The year wise break up of income offered to tax of Rs.2.28 crores is as under:

Assessment Year	Offer of Income	Tax Liability
2010-11	1,70,00,000	56,36,360
2009-10	25,00,000	9,75,000
2008-09	20,00,000	8,57,000
2007-08	13,00,000	6,35,000
	2,28,00,000	81,03,360

The appellant based on the offer made of the case seized, had requested for adjustment of seized cash against his tax liability arising on account of the offer of income for the above years vide letter dated 29.07.2010 to ADIT (Inv) Unit IX(2), Mumbai.

Subsequently, on 18.11.2011, while filing the Returns in response to notice u/s. 153A, the appellant had also requested for adjustment of seized cash against his tax liability arising on account of the offer of income for the above years vide letter dated 18.11.2011 to ADIT, Central Range 10, Mumbai as under. The said letter dated 18.11.2011 was also filed with Addl. CIT, Central Range 2 & Commission of Income Tax, Central-1. Copies of the above said two letter were enclosed for ready reference.

The details being

Assessment Year	Offer of Income	Tax Liability
2010-11	1,70,00,000	56,36,360
2009-10	25,00,000	9,75,000
2008-09	20,00,000	8,57,000
2007-08	13,00,000	6,35,000
2006-07	15,29,590	5,11,050
2005-06	1,23,490	66,350
	2,45,75,650	87,80,349

4.2 Thus the appellant had duly requested the Department regarding adjustments of cash seized. The orders u/s. 143(3) rws 153A dated 19.03.2013 were passed without adjusting liability from the said seized cash of Rs.2.28 Crores.

The AO had levied interest u/s. 234B up to the date of issue of orders u/s. 143(3) rws 153A i.e. till 19.03.2013. The interest leviable u/s. 234B should have been up to 29.07.2010 i.e. when application for cash seized adjustment was made by the appellant.

The AO out of cash seized of Rs. 2.28 Crores has subsequently adjusted Rs. 113,38,628/- on 22.03.2013 against the total demands raised including interest charged up to 19.03.2013 u/s. 234B. The year wise breakup of adjustment of seized cash by department on 22.03.20 13 is as under;

Assessment Year	Demands as per order	Tax adjusted out of cash seized
2005-06	74,525	74,525
2006-07	5,80,516	5,80,516
2007-08	8,51,863	8,51,863
2008-09	12,23,361	12,23,361
2009-10	12,82,411	12,82,411
2010-11	73,11,048	73,11,048
2011-12	14,904	14,904
Total	1,13,38,628	1,13,38,628

5. Before the Ld. CIT-A assessee submitted that the cash seized u/s. 132 can be adjusted against the amount of any existing tax liability. The self assessment tax is clearly an existing liability when offer of income is already made. The appellant relied upon several case laws as follows:-

Sr. No	Case Laws
1	M/s Bombay Beeds Centre, Mumbai vs Department of Income tax on 2 March, 2012 ITA No. 3458/Mum/2011
2	CIT vs Garg Rice and genral Mills, Kharar ITA No. 81 of 2005 (P&H HC)
3	Nitin M. Jadia vs. ACIT 107 Taxman 203 (Mum.) (Mag.)
4	Ashok Kumar (2011) 334 ITR 355 (Punj. & Har.)
5.	CIT v. Arun Kapoor [2011] 334 ITR 351 (Punj. & Har.)
6	CIT vs K K Marketing [2005] 278 ITF 596 (Delhi)
7	Ramjilal Jagannath vs ACIT [2000] 241 ITR 758 (MP)
8	Nikka Mal Babu Ram vs ACIT [2010] 41 SOT 407 (Chd.)

5.1 Thus it was argued that the interest u/s. 234B cannot be charged up to 19.03.2013 i.e. passing of the order of the interest u/s. 234B requires to be restricted till the date of adjustment request made by appellant i.e. 29.07.2010. However Ld. CIT-A was not convinced he upheld the action of Assessing Officer holding as under:-

I am unable to agree with the contentions of the appellant. First of all the question of any existing tax liability cannot arise till a return is filed. The Self Assessment Tax u/s. 140A cannot arise until return of income is filed. After a return is filed, if the return is processed u/s. 143(1), and demand notice is issued, then only liability will become due and liability arise. The Explanation 1 to section 234B clearly lays down that assessed tax means the tax on total income determined u/s. 143(1). This is in contrast to the provision as existed prior to 1.04.1989. As per explanation 2 to section 132B, the term ^„existing liability^‟ does not include advance tax payable. In the case of Shri Ramji Lal jannnath v ACIT (2000) 241 ITR 758 (MP) it was held that the amount seized under section 132 cannot be dealt with unless an order is made by the ITO either under section 132(5) or the money is applied or appropriated in accordance with section 1328. In the present case there was no existing liability. Secondly, In my view, the assessing officer cannot adjust the cash seized towards tax liability till he comes to the conclusion that the cash seized belongs to the appellant. As per the earlier provisions before 01/06/2002 in section 132(5), the assessing officer was required to pass an order, within 120 days of the seizure, making the provisional assessment of the person concerned from whom the money, bullion, jewellery or other valuable article or thing was seized in the course of search. Further he was required to retain in his custody such assets which was sufficient to meet the aggregate demand based on this provisional assessment and release the balance asset. The provision for provisional assessment is longer on statute. Only the assessment u/s. 153A/153C is now required to be passed. It is only when the assessment order is passed that the assessing officer can determine whether the asset seized is accounted or not and also the ownership of such asset. What if another claimant comes up to claim the money or assets later? Money credited towards an assessee ‘s tax liability will not be available to the real and correct owner when the same is determined.

In the present case the case seized was claimed to be partly belonging to South India Education Society and part of it was claimed belong to the appellant. The sources of the cash found in the search was explained to be out of capitation fee in cash charged from the students seeking admission to the courses run by colleges under SIES. Therefore, the question of giving credit to the cash seized as tax paid by the appellant before the assessment order is premature.

Thirdly, this appeal involves AY 2010-11, and the due dates for advance tax are long over and the amount of cash seized cannot be appropriated to advance tax payable. This proposition is supported by the decision reported in Rajesh Kumar Vinit Kumar v CIT (2006) 283 ITR 395(AII).

6. Against the above order assessee is in appeal before us. We find that the cash seized during search was offered by the assessee as income and the assessee had also requested to adjust the same towards the tax liability. This plea was rejected by the authorities below on the ground that the cash seized cannot be adjusted before the completion of assessment. Hence the assessee’s plea of adjusting the same against advance tax liability was not accepted. We find that it is not disputed that assessee has offered the amounts seized as undisclosed income during search. The revenue has also accepted the same as assessee’s income. In such situation when assessee has requested to adjust the cash seized against the assessee’s liability towards tax the authorities below have erred a not adjusting the cash seized against the tax liability including of tax liability. In this regard we may gainfully refer to provisions of Section 132B as under:-

57. For section 132B of the Income-tax Act, the following section shall be substituted with effect from the 1st day of June, 2002,—

‘132B. Application of seized or requisitioned assets.— (1) The assets seized under section 132 or requisitioned under section 132A may be dealt with in the following manner, namely:—

(i) the amount of any existing liability under this Act, the Wealth-tax Act, 1957 (27 of 1957), the Expenditure-tax Act, 1987 (35 of 1987), the Gift-tax Act, 1958 (18 of 1958) and the Interest-tax Act, 1974 (45 of 1974), and the amount of the liability determined on completion of the assessment under Chapter XIV-B for the block period (including any penalty levied or interest payable in connection with such assessment) and in respect of which such person is in default or is deemed to be in default, may be recovered out of such assets:

Provided that where the nature and source of acquisition of any such asset is explained to the satisfaction of the Assessing Officer, the amount of any existing liability referred to in this clause may be recovered out of such asset and the remaining portion, if any, of the asset may be released, with the prior approval of the Chief Commissioner or Commissioner, to the person from whose custody the assets were seized:

Provided further that such asset or any portion thereof as is referred to in the first proviso shall be released within a period of one hundred and twenty days from the date on which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed;

(ii ) if the assets consist solely of money, or partly of money and partly of other assets, the Assessing Officer may apply such money in the discharge of the liabilities referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied;

(iii ) the assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the Assessing Officer or, as the case may be, the Tax Recovery Officer under authorisation from the Chief Commissioner or Commissioner under sub-section (5) of section 226 and the Assessing Officer or, as the case may be, the Tax Recovery Officer may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule.

(2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid by any other mode laid down in this

(3) Any assets or proceeds thereof which remain after the liabilities referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized.

(4) (a) The Central Government shall pay simple interest at the rate of eight per cent per annum on the amount by which the aggregate amount of money seized under section 132 or requisitioned under section 132A, as reduced by the amount of money, if any, released under the first proviso to clause (i) of sub-section (1), and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (i) of sub-section (1), exceeds the aggregate of the amount required to meet the liabilities referred to in clause (i) of sub-section (1) of this section.

(b) Such interest shall run from the date immediately following the expiry of the period of one hundred and twenty days from the date on which the last of the authorisations for search under section 132 or requisition under section 132A was executed to the date of completion of the assessment under Chapter XIV-B.

Explanation .—In this section,—

(i) “block period” shall have the meaning assigned to it in clause (a) of section 158B;

(ii) “execution of an authorisation for search or requisition” shall have the same meaning as assigned to it in Explanation 2 to section 158BE.’.

In this regard we note that Hon’ble jurisdictional High Court in the case of CIT vs. Shri Jyotindra B. Mody in order 21.09.2011 had held that once assessee offers to tax undisclosed income including the amounts seized during search, the liability to pay advance tax in respect of that amount arises even before completion of the assessment. The Hon’ble High Court further held that section 132 B(1) of the Act does not prohibit utilization of amounts seized during the course of search towards the advance tax liability.

6.1 Furthermore in a recent decision in the case of principal CIT vs. S.K. Khindri in ITA 25 of 2016 vide order 28.02.20 17 Hon’ble Punjab & Haryana High court held as under:-

We do not find any merit in the submission made by the learned counsel for the appellant-revenue. The issue has already been decided by this Court against the revenue in Income Tax Appeal No. 36 of2004 Commissioner of Income Tax Vs. Ashok Kumar, (2011) 334 ITR355 wherein it was recorded as under:-

“In Commissioner of Income Tax (Central), Ludhiana Vs. Arun Kapoor, ITA No. 149 of 2003 decided on 27.07.2010,this Court had occasion to consider similar issue where it has been held that the assessee is entitled to adjustment of seized amount towards advance tax liability from the date of making the application in that regard. In the present case, the assessee had made request for adjustment of the advance tax liability of Rs.3,14,312/- against the seized amount of Rs.5,90,000/- on28.08.1989. Since the first instalment of advance tax was payable on 15.09.1989 and the request for adjustment having been made on 28.08.1989 and reminder on 12.09.1989, no interest was exigible under Sections 234-A and 234-B of the Act. The Tribunal has rightly held that the assessee was entitled to adjustment of the said amount and no interest could be charged on that basis. Therefore, no fault could be found with the approach adopted by the Tribunal.”

Similarly, in ITA No .425 of 2014 (Commissioner of Income Tax(Central), Ludhiana Vs. M/s Cosmos Builders and Promoters Limited) decided on 14.07.2015, the issue was adjudicated against the revenue. The assessee has been held entitled to adjustment of cash seized against its advance tax dues. It has further been held that the Explanation 2 to Section 132B of the Act is not retrospective in nature. The SLP against the said judgment has already been dismissed by the Apex Court vide order dated 06.05.2016. Moreover, Explanation 2 to Section 132B of the Act came into force on 01.06.2013 whereas the present case relates to the assessment year2011-12. Further, the relevant findings recorded by the Tribunal read thus:-

“We find that the explanation 2 to Section 132B, as Finance Act, 2013 clearly states is effective from 1st June, 2013. When the law so specifically states, there is no scope of holding that it is retrospective in effect. This provision restricts the scope of adjustment of seized cash, and, therefore, is to be treated as advance to the assessee. As held by Hon^‟ble Supreme Court in the case of CIT Vs. Vatika Township Private Limited, (2014)367 ITR 466 (SC), the legislation which modifies accrued rights or which imposes obligations or impose new duties or attach a new disability have to be treated as prospective, unless the legislative intent is clearly to give the enactment a retrospective effect. In view of these discussions and consistent with the stand taken by the co-ordinate bench, we approve the reasoning adopted by the CIT(A). Accordingly we approve the order of the CIT(A) and decline to interfere in the matter.”

In view of the above, we do not find any ground to interfere with the impugned order dated 31.08.2015, Annexure A.3, passed by the Tribunal. The judgment of learned Single Bench of Madhya Pradesh High Court in Ramjilal Jagannath^‟s case (supra) does not come to the rescue of the revenue in view of binding decisions of the Division Benches of this Court as noticed herein before. Consequently, no substantial question of law arises and the appeal stands dismissed.

6. From the above case law, it is evident that provision of Explanation 2 to Section 132(B)(4) which excludes advance tax from the ambit of existing liability is applicable from 1^st June 2013 and not applicable to the assessment years involved in this appeal.

7. In the background aforesaid discussion of precedent we find that assessee was entitled to adjustment of cash seized and offered for taxation towards its liability for taxes including advance tax. Hence in our considered opinion the authorities below have erred in charging interest u/s. 234 B and 234 C on the facts of the circumstances of the case.

In the result these appeals by the assessee stand allowed.

Order pronounced in the Open Court on 30.05.2017