Conclusion: AO was not justified in treating assessee’s transaction of purchase of agricultural land from his wife as colorable device to avoid the legitimate payment of tax on mere difference between purchase price declared by assessee vis-a-vis Jantri Value as assessee had discharged his primary onus by furnishing the necessary details to justify the cost of acquisition and now the onus was on the Revenue to bring on record the details of the cases to justify the actual prevailing market rate at the time of the purchase of land by assessee.
Held: Assessee had purchased a piece of land from his wife (share 33%) and friend’s wife (share 67%). AO was of the view that the transaction representing the purchase of land by assessee from the aforesaid ladies including his wife was the colorable device to avoid the legitimate payment of tax in the hands of assessee. The impugned land was agricultural land which was subsequently converted to non agricultural by the assessee. As such, the gain on the sale of such agricultural land was claimed exempted by the aforesaid ladies under the provisions of section 2(14)(iii)(b) on the sale of the land. Accordingly, assessee had purchased the impugned land at a much higher value in order to generate more capital gain income in the hands of these ladies which was exempted in their hands. Simultaneously, the purchase cost of the land was higher in the hands of the assessee which was adjusted against the subsequent sale of the land after plotting. Thus the entire transaction of purchase of land at a higher price than the Jantri Value was to escape from the payment of alleged tax on the income from the sale of such land after the plotting. In view of the above, AO sought clarification from the assessee for substituting the cost of acquisition declared by the assessee with the Jantri Value. It was held that assessee during the assessment proceedings had justified the purchase price by furnishing the comparable cases but the same was rejected by the AO after pointing out certain defects there in. However, assessee had discharged his primary onus by furnishing the necessary details to justify the cost of acquisition. Now, the onus was on the Revenue to bring on record the details of the cases to justify the actual prevailing market rate at the time of the purchase of land by assessee. But AO had just rejected the contention of the assessee and grossly failed to bring anything on record suggesting that the prevailing market rate at the time of purchase of land was at par with the Jantri Value. Thus, the impugned transaction could not be regarded as colorable device merely on the reasoning that there was no tax liability arising in the hands of the seller being the wife of assessee.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–IV, Ahmedabad [CIT(A) in short] vide appeal No. CIT(A)-IV/58R/CC-2/12-13 dated 13/11/2013 arising in the assessment order passed under s. 143(3) of the Income Tax Act 1961 (hereinafter referred to as “the Act”) dated 30/01/2013 relevant to Assessment Year (AY) 2011-12.
The Assessee has raised the following grounds of appeal:-
1. The learned Commissioner of Income-tax (Appeals) – IV, Ahmedabad erred in sustaining the addition to the extent of ₹ 26,83,137/-, being 33% out of addition of ₹ 81,30,720/- made by the Assessing Officer on account of income from short term capital gain.
2. The learned Commissioner of Income-tax (Appeals) – IV, Ahmedabad erred in treating a duly registered transaction of purchase of impugned land as a ‘colorable device’.
3. The learned Commissioner of Income-tax (Appeals) – IV, Ahmedabad erred in holding that the appellant reduced short term capital gain in his hands by increasing the cost of acquisition of land.
4. The learned Commissioner of Income-tax (Appeals) – IV, Ahmedabad failed to appreciate that the actual cost of acquisition of land in F.Y. 2009-10 which was duly disclosed in the books has come to be accepted by the Department as part of assessment for A.Y. 2010-11 vide order u/s. 153A of the Act and hence the same could not have been altered by the Assessing Officer in the year of sale of the impugned land by the appellant.
5. The learned Commissioner of Income-tax (Appeals) – IV, Ahmedabad erred in not granting credit for cash of ₹ 15,00,000/- seized on 24-06-2010 as and by way of advance tax payment for the assessment year 2011-12.
6. The learned Commissioner of Income-tax (Appeals) – IV, Ahmedabad erred in directing Assessing Officer to charge interest u/s. 234B of the Act.
The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.
2. The first interconnected issue raised by the assessee in ground No. 1 to 4 is that the learned CIT (A) erred in confirming the order of the Assessing Officer by sustaining the addition of ₹26,83,137/- being 33% of the total addition on account of short-term capital gain.
3. The facts in the present case are that the assessee is an individual and engaged in the business of dealing in shares & securities, lands and also drawing salary & share of profit. The assessee has purchased a piece of land in the immediate preceding assessment year dated 20 February 2010 from his wife (share 33%) and friend’s wife (share 67%) as detailed under:
|SN||Name of the sellers and
|Survey No.||Whether agricultural or not||Amount paid||Date of sale||Area in sq meters|
|1||Smt Ketna J Kalaria (33%)||191||Agricultural||3,00,00,000||20.2.2010||40873|
|Smt Kavita H Goswami (67%)|
3.1. The above land was purchased by the aforesaid ladies dated 3 February 2007 for an amount of Rs. 4,95,000.00 which was subsequently sold to the assessee at very high price as discussed above. The Jantri value of the impugned land purchased by the assessee is of Rs. 200 per square meter but the assessee has purchased the same at ₹734 per square meter.
3.2. However, the AO was of the view that the transaction representing the purchase of land by the assessee from the aforesaid ladies including his wife in the immediate preceding assessment year is the colorable device to avoid the legitimate payment of tax in the hands of the assessee. The impugned land was agricultural land which was subsequently converted to nonagricultural by the assessee. As such, the gain on the sale of such agricultural land was claimed exempted by the aforesaid ladies under the provisions of section 2(14)(iii)(b) of the Act on the sale of the land. Accordingly the assessee has purchased the impugned land at a much higher value in order to generate more capital gain income in the hands of these ladies which was exempted in their hands. Simultaneously, the purchase cost of the land was higher in the hands of the assessee which was adjusted against the subsequent sale of the land after plotting. Thus the entire transaction of purchase of land at a higher price than the Jantri Value was to escape from the payment of alleged tax on the income from the sale of such land after the plotting. In view of the above the AO sought clarification from the assessee for substituting the cost of acquisition declared by the assessee with the Jantri Value.
3.3. The assessee in response submitted that the land in question was adjacent to Metoda GIDC – an area which was under the development. Therefore the price of the land has gone manifold high than the Jantri value. Accordingly, the assessee claimed that he has sold the impugned land at an average rate of ₹2000 per square meters despite the Jantri Value is at Rs. 800 square meters which was offered to tax as short-term capital gain.
3.4. The assessee also claimed that he has also purchased the impugned land from the non-related party being the wife of his friend Smt. Kavita H Goswami holding major share in the impugned land i.e. 67%. As such, there was no reason for the assessee to purchase the impugned land at a higher value from the unrelated party.
3.5. The assessee also submitted that there is no provision under the Act under which the cost of the acquisition for the impugned land can be disturbed.
3.6. The assessee also justified the purchase price of the impugned land by comparing the cost of acquisition the similar/comparable cases and accordingly submitted that the adjacent land was sold at ₹1,634 per square meter whereas the Jantri Value is of Rs. 400.00 per square meter.
3.7. The assessee also contended that he has sold the impugned land after plotting at an average price of Rs. 2,000.00 per square meter whereas the Janri value stands at ₹800 only. Accordingly he requested to treat the sale price at par with the Jantri Value.
3.8. However, the AO disagreed with the contention of the assessee by observing that the assessee has moved an application for the conversion of agricultural land to non-agriculture land vide application dated 13.12.2009 before the date of purchase of land by him.
3.9. The assessee immediately after the transfer of the property has taken the loan from the husband of Smt. Kavita Goswami for Rs. 2.01 crores which evidences that the amount paid by the assessee on the purchase of land has come back from the seller.
3.10. The AO also observed that the actual capital gain can only be worked out after reducing the correct cost of acquisition of the land under the provisions of section 48 of the Act. In view of the above the AO held that the assessee has claimed inflated cost of acquisition against the short-term capital gain declared by him. Accordingly he worked out the amount of short-term capital gain which was not disclosed in the income tax return amounting to ₹81,30,720.00 and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT(A).
4. The assessee besides reiterating the submissions made before the AO further contended that the AO has not doubted the prevailing market rate at the time of purchase of the land. He has just compared the market rate declared by the assessee with the Jantri value.
4.1. The assessee also submitted that he has purchased adjacent non-agriculture land in the adjacent area admeasuring 4856.40 square meter of land on which the seller has incurred conversion expenses amounting to ₹51,80,160 i.e. Rs. 1067 per square meter. Thus the prevailing market rate should certainly be over and above the amount of ₹1100 per square meter. But the AO has not doubted the cost of acquisition of such land only on the ground that this land was being non-agriculture and the income from the same was not exempted. Accordingly, the assessee claimed that cost of acquisition of the land cannot be doubted merely on the ground that the income from the sale of such agricultural land would generate tax free income.
4.2. Similarly, the assessee also furnished the details of the adjacent lands where these lands were sold more than the Jantri Value.
4.3. The assessee also contended that the AO before altering the cost of acquisition claimed by the assessee should have referred the matter to the DVO for the determination of the prevailing market rate at the time of acquisition of the impugned land. But the AO has not done so.
4.4. The assessee also claimed that the amount of loan taken from the husband of Smt. Kavita H Goswami cannot be compared with the purchase of the land as both are different transaction and cannot be compared.
4.5. The learned CIT(A) after considering the submission of the assessee deleted the addition made by the AO in part by observing as under:
“(x) The contention of the appellant appears to be correct partly as the wife of the appellant is only 33% owner of the relevant land in question, the remaining 67% is owned by Smt. Kavita H. Goswami wife of appellant’s friend Shri Hiteshgiri Goswami who has given unsecured loand of Rs.2,01,00,000/- to the appellant. In order to check the sources of income of Smt. Kavita H. Goswami & Shri Hiteshgiri Goswami, details of their bank account, statement of income and balance sheet were called. It is seen that Shri Hiteshgiri Goswami is assessed to tax and has filed return of income for AY 2011-12 declaring income of Rs.33,16,134/-. Shri Hiteshgiri Goswami has capital of Rs.1,76,62,294/-. This shows that Shri Hiteshgiri Goswami has the capacity to advance loan to the appellant. Similarly, Smt. Kavita H. Goswami is regularly assessed to tax and for AY 2011-12 she had filed return of income declaring total income of Rs.45,96,647/- and she has capital of Rs.3,44,92,352/-. Therefore financial credit worthiness of Smt. Kavita H. Goswami is also not doubtful. From these facts, it cannot be said that Smt. Kavita H. Goswami or her husband Shri Hiteshgiri Goswami are benamidars of appellant and were used by the appellant as per his wishes. Both the persons are regular tax payers with sufficient financial capacity and the relevant transactions have been duly reflected in their books.
5.2.2. In view of the above notings, it is held that as far as purchase of land by the appellant from Smt. Kavita H. Goswami is concerned, it cannot be said that the appellant has used a ‘colorable device’ to evade taxes as both of them are neither related parties nor persons of insufficient financial means. But appellant has definitely used a ‘colorable device’ as far as 33% of land purchased from his wife is concerned. Accordingly, it is held that 33% of the addition of Rs. 81,30,720/- which comes to Rs.26,83,137/- is to be sustained as in appellant has evaded taxes in respect of this amount. The appellant gets the relief for balance 67% of the addition related to Smt.Kavita H.Goswami. This ground is partly allowed.”
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before.
5. The learned AR before us filed a paper book running from pages 1 to 26 and submitted as under:
“Therein actual cost of impugned land is shown as investment, in B/S – such actual cost has come to be accepted by the Dept. and assessed in A.Y. 2010-11. Hence, actual cost cannot be disturbed. No provision under ‘capital gains’ to reduce the same. [Page 17]
In hands of sellers, for A.Y. 2010-11, the transaction of sale was disclosed and exempt gain as disclosed at documented value is not disbelieved by same A.O. in same circle [23 – 26] – stamp duty was paid by purchaser. [See order of Smt. Kavita Hiteshgiri Goswami on page no. 25]
In case of one seller who is non-relative, there can’t be a colourable device. Due stamp – duty at higher value is paid by assessee-buyer. Transaction is within four corners of law, because law itself treated the sale as exempt income – there is nothing to show the transaction as sham or bogus [326 ITR 0001 – SC]. Wife had minority share in land.
The funds received by assessee from husband of joint-seller are refunded in later years on which even interest was paid in one of the years. CIT(A) has given a finding that he had enough capital to advance.
Assessee bought impugned land at higher than stamp duty value. But he bought adjoining land one year later also at higher than Jantri value. Even his sale of impugned land is at higher than Jantri value.”
6. On the other hand, the learned DR before us vehemently supported the order of the Authorities below.
7. We have heard the rival contentions of both the parties and perused the materials available on record. The assessee in the present case has purchased a piece of land in the immediate preceding assessment year dated 20th February 2010. The purchase price of such land was very high than the Jantri Value. Accordingly the AO was of the view that the assessee knowingly has purchased the impugned land from the seller being his wife and his friend’s wife at the higher price in order to shift the income in the hands of the respective ladies. It was done due to the fact that the income in the hands of the ladies on the sale of the land was exempted being agricultural land. However, the learned CIT(A) deleted the addition made by the AO pertaining to the amount of capital gain income in connection with the transaction for the purchase of property from the wife of his friend. However, the learned CIT (A) was pleased to confirm the addition made by the AO in connection with the transaction carried out by the assessee with his wife.
7.1. Admittedly, the assessee has purchased the land from his wife (holding 33% share in the land) at Rs. 734 per square meter whereas the Jantri Value was ₹200 per square meter. Accordingly, the AO doubted the transaction on the purchase of land shown by the assessee. Thus the entire thrust of the AO holding the transaction of the assessee as a colorable device was based on the difference between the purchase price declared by the assessee viz a viz Jantri Value of such land. In this regard, we find that the assessee during the assessment proceedings has justified the purchase price by furnishing the comparable cases but the same was rejected by the AO after pointing out certain defects there in. However, we are of the view that the assessee has discharged his primary onus by furnishing the necessary details to justify the cost of acquisition. Now, the onus was on the Revenue to bring on record the details of the cases to justify the actual prevailing market rate at the time of the purchase of land by the assessee. But the AO has just rejected the contention of the assessee and grossly failed to bring anything on record suggesting that the prevailing market rate at the time of purchase of land was at par with the Jantri Value.
7.2. Indeed, the agricultural land purchased by the assessee from his wife was not subject to capital gain in pursuance to the provisions of section 2(14) of the Act. But to our mind the exemption provided under the statute cannot be used to hold that the transaction was a colorable device to escape from the tax liability until and unless the Revenue proves based on documentary evidence. As such we strongly feel that the onus was on the Revenue to prove that the market rate prevailing at the time of purchase of land by the assessee was at par with the Jantri Value. Thus in the absence of such necessary details, we are not impressed with the finding of the authorities below.
8. The main allegation/finding of the AO, which was later confirmed by the ld. CIT(A), that assessee has used this transaction as a colorable device to reduce its tax liability by diverting the income. Regarding this we note that Honorable Supreme court in case of McDowell & Co. Ltd vs. Commercial tax officer (154 ITR 148) dated 17-4-1985 observed that tax planning within the law is permitted, but colorable devices cannot be part of tax planning.
8.1. In the case of McDowell & Co, the assessee was not collecting the sales tax liability on the excise duty even after the amendment in the distillery rules 76 & 79 w.e.f. 4-8-1981. As such before the amendment in the rules, i.e., distillery rules 76 & 79 w.e.f. 4-8-1981, the buyers were liable to deposit the excise duty directly to the state government. Therefore the assessee did not collect the sales tax on such excise duty. It is pertinent to note that the Hon’ble SC before the amendment in the rules 76 & 79 decided the issue in favor of the assessee reported in 1 SCR 914 dated 25-10-1976. But when the assessee defaulted to comply the amended distillery rules 76 & 79 w.e.f. 4- 8-1981, the Hon’ble Apex Court decided the issue in favor of Revenue. Hence we are of the considered view that the principles laid down by the Hon’ble Apex Court cannot be applied in the case before us as the facts are different.
8.2. It is also pertinent to note here that the Hon’ble apex court in case of Union of India And Anr vs. Azadi Bachao Andolan (263 ITR 705) discussed the case of McDowell & Co. Ltd vs. Commercial tax officer (supra) in detail and distinguished from it by observing as under:
“We may in this connection usefully refer to the judgment of the Madras High Court in M.V.Vallipappan and others v. ITO , which has rightly concluded that the decision in McDowell cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgment of the Privy Council in IRC v. Challenge Corporation Ltd. , and did not have the benefit of the House of Lords’s pronouncement in Craven , the view taken by the Madras High Court appears to be correct and we are inclined to agree with it.”
8.3. Further, we also note that Hon’ble Jurisdictional High Court in case of Banyan And Berry Vs. Commissioner Of Income Tax (222 ITR 831) held that tax planning within the law is permissible and only if any transaction which is reducing the tax liability cannot be regarded as a colorable device. The court also discussed the meaning of colorable device and case of McDowell & Co. Ltd vs. Commercial tax officer (supra) in detail. The relevant extract of the order is read as under:
“From the aforesaid, it is apparent that on the factual aspect the Court was considering the case where in a going business a liability to pay duty which was legally of the assessee and which on such payment was to become part of its cost of commodity sold by it and to become part of its selling price to the buyers, was as a result of arrangement between the seller and buyer split into two, namely – duty so far paid separately directly to the tax authorities and the balance so paid to the seller; the arrangement was existing solely for the purpose of not paying the tax and it is not a transaction in reality of receiving less price than the one on which it was marketing. The Court no where said, that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act; an inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in McDowell’s case (supra). Ratio of any decision has to be understood in the context it has been made. The facts and circumstances which led to McDowell’s decision (supra) leaves us in no doubt that the principle enunciated in the above case has not affected the freedom of citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the frame work of law, unless the same fall in the category of colorable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity.
It was with this consciousness that the Court has used these expressions while depreciating the schemes of tax avoidance in the name of tax planning. All the expressions used by their Lordships in depreciating the methodology of tax avoidance through tax planning of resorting to ‘colorable device’, ‘dubious methods or subterfuge’ have special significance in legal world.
In the context of the present discussion, the meaning assigned to ‘colorable’ in Brown’s Judicial Dictionary has been defined as ‘reverse of bona fide’.
Black’s Law Dictionary explain ‘colorable’ to mean ‘that which is in appearance only, and not in reality, what it purports to be, hence, counterfeit, feigned having the appearance of truth’.
So also a device. The context in which the expression device has been used in its ordinary dictionary meaning as per Shorter Oxford Dictionary means ‘inneuity, something device, arrangement, plan, contrivance, a plot or a trick. Black’s
Dictionary refers to device as contrivance, a scheme, trick. Subterfuge – according to ordinary meaning as per the Shorter Oxford English Dictionary – means that to which one refers for escape or concealment. Subterfuge on historical principles means, an article or device to which a person refers in order to escape the force of an argument, an excuse with which conceals a clue.
So also the expression dubious refers to a doubtful or of questionable character. That is to say what has been deprecated as tax planning for avoidance of tax are those acts which have doubtful, or questionable character as to their bona fide and righteousness. Not all legitimate acts of a taxpayer which in ordinary course of conducting his affairs a person does and are under law he is entitled to do, can be branded of questionable character on the anvil of McDowell (supra).
We are unable to read in the aforesaid decision that any act of an assessee which results in reduction of his tax liability or expectation of tax benefit in future amounts to colorable device, a dubious method or subterfuge to avoid tax and can be ignored if the acts are unambiguous and bona fide, merely on the ground that treating those as deliberate would result in tax liability in future.
While the planning adopted as a device to avoid tax had been deprecated, principle cannot be read as laying down the law that a person is to arrange his affairs so as to attract maximum tax liability, and every act which results in tax reduction, exemption of tax or not attracting tax authorised by law is to be treated as device of tax avoidance.”
8.4. However, we further note that before applying the aforesaid principles laid down by the Hon’ble Apex court in case of McDowell (supra) to the case on hand certain facts needs to be considered for arriving at a finding whether a particular series of the transactions is a colourable device or not. In such situation the onus is on the AO to find out:
(i) whether the parties to the transactions have concealed or hidden any fact and/or whether what is shown to be done could have actually happened in different time or at different place;
Ans: Regarding the facts of the transactions, we note that all the necessary facts were duly disclosed by the assessee and the assessment was also framed under section 153A/143(3) for the year in which the land was purchased. Thus, we are of the view no facts were concealed or hidden.
(ii) Even where individual transactions of the device are legal or legitimate, whether combination of these steps creates an effect which is abnormal in the business world and could not have been otherwise undertaken in normal circumstances;
Ans. In the present case there was no reference made by the authorities below suggesting that the transaction is carried out illegally, as the transaction in the instant case were within the ambit of the law as nothing being illegal/illegitimate was brought to our notice.
(iii) These individual transactions create an effect which is contrary to human probabilities;
Ans. The transactions carried out by the parties were very much normal transaction.
(iv) whether actions of the parties finally are at variance with the terms of the agreement;
Ans. There was no variance in the impugned transaction with regard to the terms of the agreement.
8.5. In view of the above we hold that the impugned transaction cannot be regarded as colorable device merely on the reasoning that there is no tax liability arising in the hands of the seller being the wife of the assessee. Hence the ground of appeal of the assessee is allowed.
9. The 2nd issue raised by the assessee is that the learned CIT-A erred in not granting the credit for the cash seized during the search for ₹15 lakhs by treating the same as advance tax.
10. During the search, certain loose papers and other documents were seized including the cash of Rs. 15,00,000/- found on the day of the search. However, the AO in the Assessment Order dated 30-01-2013 framed u/s 143(3) of the Act, did not treat the seized cash as advance tax. Accordingly, the AO charged interest u/s 234B of the Act without adjusting the cash seized.
Aggrieved assessee preferred an appeal to the Ld. CIT (A).
11. The assessee before the Ld.CIT (A) submitted that the interest charged u/s 234B of the Act is compensatory in nature. Therefore he should be given credit with effect from the day of the seizure of cash.
11.1. However, the Ld.CIT (A) disregarded the contention of the assessee by observing that the cash seized as a result of the search can be appropriated against the existing tax liability or the amount of tax liability determined on the completion of the assessment as per the provisions of section 132B of the Act. As there was no tax liability as on the day of the search, therefore the cash seized cannot be treated as an advance tax payment.
Being aggrieved by the order of the Ld.CIT (A) assessee is in appeal before us.
12. The Ld.AR, before us, reiterated the submission as made before the Ld.CIT (A).
13. On the other hand the Ld. DR vehemently supported the order of authorities below.
14. We have heard the rival contentions and perused the materials available on record. In the instant case search and seizure operation was carried out under section 132 of the Act, at the premises of the assessee dated 24-06-2010. During the search, a sum of Rs. 15,00,000/-was found which was seized. The 1st controversy before us arises for our adjudication whether the cash seized during the assessment proceedings can be treated as advance tax paid by the assessee.
14.1. The provisions for the adjustment of seized cash against the tax liability are contained under the provisions of section 132B of the Act. As per the provision, the cash seized during the search and seizure operation can be adjusted against the existing tax liability, and the liability of tax determined on the completion of the assessment. Now the question arises for the determination of the existing liability. In the instant case, the assessee has declared income of Rs. 1,22,16,750.00 in the return filed dated 30-9-2011 and the assessee has also requested to treat the seized cash as advance tax vide letter dated 29-09-2011. As a result of the disclosure of income in the return of income transpires that there was a liability of tax on the assessee. Thus in our considered view, the seized cash can be treated as an advance tax liability. In this regard, we also find support and guidance from the order of this tribunal in the case of Shreeji prints Pvt. Ltd. ITA no 359/AHD/2012 dated 20-04-2012 wherein it was held as under:
“In our opinion, if the assessee has declared income, during the year under consideration in that eventuality he is liable to pay advance tax as per law therefore the A.O. is required to find out whether such liability was existing on the date of seizure. If such liability is existing then he is empowered to apply/adjust the money seized in discharge of the existing liability even without any written representation from the assessee”.
14.2. Thus, from the above, it is clear that the cash seized during the search and seizure operation can be treated as advance tax liability in the given facts and circumstances.
15. We also note that the judgment of Madhya Pradesh High Court relied on by the Ld. CIT (A) in the case of Ramjilal Jagannath Vs. ACIT reported in 341 ITR 758 is against the assessee. But we find that the Hon’ble Calcutta High Court in similar facts and circumstances allowed the issue in favor of the assessee and against the Revenue in the case of CIT v. M/s Blb Securities (P) Ltd. in GA No. 3245 of 2012 dated 09.01.2013, for the sake of clarity, relevant extract is reproduced below:-
“The Court: The learned ITAT, by it order dated 25th June 2012 upheld the order allowing adjustment of the seized cash against the liability to pay tax which arose on 30thSeptember, 2008. Mrs. Ghutghutia submitted that under section 132B(i) of the Income Tax act, 1961, the seized cash could be adjusted against an existing liability and could not have been adjusted against a liability which arose subsequent thereto.
We are unable to accept this submission. If the seized cash can be adjusted against an existing liability, there is no reason why the seized cash cannot be adjusted against a liability which arose in future because in that the seized cash would amount to some sort of advance payment. We are as such unable to find any merit in the contention of Mr. Ghutghutia.
Mr. Ghutghutia lastly submitted that if such adjustment is permissible, then interest would be payable by the assessee. But that question was not raised before the learned Tribunal. The learned Tribunal, therefore, had no occasion to express any option with regard thereto.
In the facts of the case, it is not possible for us to say that the impugned judgment and order of the learned Tribunal is erroneous in law.”
15.1. It is settled law if there are different rulings of the non-jurisdictional High Court and there is no judgment on the issue by the Hon’ble jurisdictional High Court, then the view favoring the assessee will prevail. In this regard, we find support and guidance from the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Vegetable products Ltd reported in 88 ITR 192 wherein it was held as under:
“if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this Court in several of its decisions. Hence, all that the court has to see is, what is the true effect of the language employed in section 271(1)(a)( i). If court finds that language to be ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty”.
15.2. We also note that there was an explanation attached with section 132B which reads as under:
“73b[Explanation 2.—For the removal of doubts, it is hereby declared that the “existing liability” does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII.”
15.3. It is an undisputed fact that the explanation was brought by the Finance Act 2013 with effect from 1st June 2013. Thus the same cannot be applied to the facts of the case on hand. The Hon’ble Supreme Court in the case of CIT Vs. Cosmos Builders & promoters Ltd. reported in 76 taxmann.com 377 has held that such an amendment is prospective in nature. Accordingly, it cannot be applied to the case pertaining to the year under consideration.
15.4. In view of the above, we are not inclined to sustain the order of the Ld.CIT (A). Accordingly, we set aside the order of the Ld.CIT (A) and direct the AO to treat the seized cash as an advance tax with effect from the date of seizure of cash. Hence, the ground of appeal of the assessee is allowed.
16. The last issue raised by the assessee is that the learned CIT-A erred in directing the AO to charge interest under section 234B of the Act.
16.1. At the outset we note that, we have directed the AO to treat the amount seized during the proceedings as advance tax from the date of seizure of the same. Accordingly, we direct the AO to levy the interest under section 234B of the Act after giving the credit of ₹15 lakhs i.e. the cash seized during the search proceedings. Hence the ground of appeal of the assessee is allowed.
17. In the result, the appeal of the Assessee is allowed.
This Order pronounced in Open Court on 06/ 01 /2020