Allahabad H.C : Merely because a joint panchnama was drawn in name of assessee and third party, cash seized from petitioner could not be applied towards tax liability of third party in absence of any evidence of any connection between assessee and third party

High Court Of Allahabad

Vijay Prakash Agrawal vs. CIT (Central)

Block Period : 2001-02 To 2007-08

Section : 132

Prakash Krishna And Ram Surat Ram (Maurya), JJ.

Writ Tax No. 1357 Of 2012

April 17, 2013

JUDGMENT

Prakash Krishna, J. -Three brothers, namely, Sri Vijai Prakash Agrawal, Satya Prakash Agrawal and Jai Prakash Agrawal, with a partnership firm, M/s. Agrawal Chemical Company and Jewellers, have jointly filed the present writ petition claiming a writ of mandamus for direction to the Deputy Commissioner of Income-tax (Central), Circle-II, Kanpur, to return/release the cash seized during the search operation dated October 17, 2006, to the respective petitioners and also give interest on the said amount as per section 132B of the Income-tax Act.

2. It has been stated that petitioners Nos. 1, 2 and 3 are residing in property No. 59/44, Birhana Road, Kanpur, on the ground floor. Petitioner No.4, a partnership firm wherein petitioner No. 1 and the son of petitioner No. 2 are partners, are running a wholesale jewellery business in one room on the first floor of the said property. One Jeevan Kumar Agrawal with which none of the petitioners have any concern is also residing on the ground floor and has a shop on the ground floor of the said building. The Income-tax Department issued a search warrant in the name of Sri Jeewan Kumar Agrawal and Banarasi Misthan Bhandar (P.) Ltd. including the names of petitioners Nos. 1 and 2, namely, Vijay Prakash Agrawal and Satya Prakash Agrawal. In pursuance thereof, a search and seizure operation was carried on by the respondents on October 17, 2006. There was no warrant of authorization either in the name of petitioner No. 3 or 4. However, the search party searched the residential accommodations of all the four petitioners and seized cash belonging to them from their respective rooms. The particulars thereof are as follows :

(Rs. in lakhs)
A. Vijay Prakash Agrawal 17,10,000
B. Satya Prakash Agrawal 50,000
C. Jai Prakash Agrawal 2,50,000
D. M/s. Agrawal Chemical Company and Jewellers 4,90,000
Total 25,00,000

3. The proceedings for block assessment for the assessment years 2001-02 to 2007-08 were initiated. The returned income except for the assessment year 2007-08 has been accepted. The assessing authority made certain additions in the returned income of the petitioners by framing separate assessment orders for the assessment year 2007-08 under section 143(3) of the Income-tax Act. Those orders were challenged successfully separately in four appeals before the appellate authority. All the appeals were allowed. In the light of the appellate orders, the assessing authority revised the assessment orders in the case of all the petitioners by separate orders dated August 30, 2011. The amount of taxes which were deposited in pursuance of the assessment orders have been refunded with interest. They are not in dispute in the present writ petitions.

4. After completion of all these proceedings, the petitioners applied for realizing/return of the cash amount seized by the Department in the search operation. The reminders were given but of no avail. Hence, the present writ petition has been filed for return of the seized cash amounting to Rs.25 lakhs along with interest in the light of sections 132B(4)(b) and 244A of the Income-tax Act.

5. In reply, Sri Sushil Chand Srivastava, Income-tax Inspector, in the office of respondent No. 2 has filed a counter-affidavit wherein the facts as stated above, have not been disputed. The only defence which has been set up is that “substantial demands have been raised against M/s. Banarasi Misthan Bhandar (P.) Ltd. and Jeevan Kumar Agrawal. Therefore, the seized cash cannot be released as claimed”.

6. In the writ petition as well as in the rejoinder-affidavit, the stand of the petitioners is that they have no concern with the demands pending against Jeevan Kumar Agrawal as there is no common business interest or commercial relation between them. They are distinct and different parties and as such, the cash seized from the possession of the petitioners cannot be retained on the aforesaid premises.

7. Heard Sri Subham Agrawal, learned counsel for the petitioner and SriR. K. Upadhyay, learned counsel for the respondents. The only surviving dispute is with regard to the return of Rs. 25 lakhs seized in the search operation and interest thereupon. The material and essential facts are not in dispute. It is not disputed in the counter-affidavit nor was it argued by the respondents that any kind of dues is outstanding against any petitioner. The only defence is that Sri Jeewan Kumar Agrawal and Banarasi Misthan Bhandar (P.) Ltd. are in the arrears of tax. The question which falls for consideration is whether this is a valid defence to negate the claim of the petitioner for return of the cash amount seized from the possession of the petitioners.

8. Section 132B of the Act deals with the application of seized or requisitioned assets. Its sub-section (1) provides the manner of their disposal. Areading of section 132B would show that the seized assets shall be applied for payment of liability of the assessee under the Income-tax Act, Wealth-tax Act, the Expenditure-tax Act, the Gift-tax Act and the Interest-tax Act. It can be applied towards the existing liability of the assessee as well as towards the liability determined on the completion of the assessment under section 153A and the assessment year relevant to the previous year in which the search is initiated or requisition is made. After discharging the liabilities, the manner of disposal of surplus money seized in the search operation has been provided for under sub-sections (3) and (4) of section 132B of the Act. Sub-section (3) provides that any asset or proceeds which remain after the liabilities are discharge shall be forthwith met over or paid to the person from whose custody the assets were seized. Sub-section (4) creates liability of the Central Government to pay interest (We were informed that rate of interest has been varied from time to time it was at the rate of six per cent. at the relevant time), by which the surplus money exceeds the aggregate of the amount required to meet the liability referred to in clause (i) of sub-section (1) of section 132B. The interest shall run from the date of 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.

9. Coming to the facts of the case, the search took place on October 17, 2006. In the said search it is not in dispute that the amount of Rs. 25 lakhs as claimed by the petitioners were seized from the petitioners from their respective possession. In view of section 132B(4)(b) of the Act, the Central Government is liable to pay interest at the rate as provided thereon after the expiry of the period of 120 days to the date of completion of the assessment. The one hundred twenty days under section 132B shall expire on February 16, 2007. The assessments were finally completed after giving effect to the appellate order on August 30, 2011. Therefore, the petitioners are entitled to get the interest at the rate as was prevalent at that time on Rs. 25 lakhs, thereunder.

10. For the sake of convenience, a chart giving particulars of each petitioners, submitted by the learned counsel for the petitioner which was not disputed by the respondents, is reproduced below :

(Rs. in lakhs)
A. Vijay Prakash Agrawal 17,10,000
B. Satya Prakash Agrawal 50,000
C. Jai Prakash Agrawal 2,50,000
D. M/s. Agrawal Chemical Company and Jewellers 4,90,000
Total 25,00,000

 

Sl. No. Particulars Vijai Prakash Agrawal Satya Prakash Agrawal Jai Prakash Agrawal Agarwal Chemical Co. & Jewellers
1 Returned income 88780 36680 169130 15020
2 Assessed income 274320 142930 672680 75562
3 Date of order (assessment) 31-12-2008 31-12-2008 31-12-2008 31-12-2008
4 Tax paid (admitted) Nil Nil 9970 5590
5 Additions made by Assessing Officer 185540 106250 503550 60542
6 Disputed tax paid 40061 4379 176325 23418
7 Date of tax paid 26-3-2009 26-3-2009 26-3-2009 26-3-2009
8 Relief by CIT(A) 185540 106250 503550 60542
9 Date of order CIT(A) 18-5-2011 30-3-2011 18-5-2011 4-3-2011
10 Revised order by A.O. 88780 36680 169130 15020
11 Date of order (revised by AO) 30-8-2011 30-8-2011 30-8-2011 30-8-2011
12 Refund of disputed tax 45661 4481 201011 26693
13 Date of refund 30-8-2011 30-8-2011 30-8-2011 30-8-2011

11. The only point urged by Sri R. K. Upadhyay, learned counsel for the Department, is that the petitioners are not entitled either to get the refund of Rs. 25 lakhs or any interest thereupon in view of the fact that Jeewan Kumar Agrawal and Banarasi Misthan Bhandar (P.) Ltd. are in arrears of tax. It was stated that a joint warrant of authorisation was drawn against petitioners Nos. 1 and 2 and Jeewan Kumar Agrawal and M/s. Banarasi Misthan Bhandar (P.) Ltd. as also a joint panchnama. Therefore, petitioners Nos. 1 and 2 are related and connected with Jeewan Kumar Agrawal and Banarasi Misthan Bhandar (P.) Ltd. The said argument is wholly misconceived and untenable. It is necessary to have a look to the pleadings of the parties in this regard first. The petitioners have come out with the specific case that none of them have any business link or nexus or transaction or interest or investment or share or connection in any manner whatsoever with Banarasi Misthan Bhandar and with Sri Jeewan Kumar Agrawal vide paragraph 10 of the writ petition. For the sake of convenience paragraph 10 is reproduced below :

“That none of the petitioners have any business link or nexus or transaction or interest or investment or share or any commercial concern or connection in any manner whatsoever with Banarsi Mishthan Bhandar (P.) Ltd. or with Sri Jeewan Kumar Agrawal.”

12. The contents of paragraph 10 have been dealt with in paragraph 9 of the counter-affidavit. For the sake of convenience, paragraph 9 of the counter-affidavit is reproduced below :

“That the deponent submits that the averments contained in paragraphs 9 and 10 of the writ petition are not properly stated. The search was in respect of the entire premises and the panchnama (annexure 1 of the petition) indicates that the petitioners as well as others found at the premises were connected with each other.”

13. Similar averments have been reiterated in paragraph 15 of the counter-affidavit.

14. Having regard to the pleadings of the parties, it is quite evident that the denial contained in the counter-affidavit is for the sake of denial. The reply is evasive and vague as well.

15. It is true that a joint panchnama was drawn but it overlooks the facts that separate assessment orders were passed by the assessing authority in respect of the four petitioners on December 31, 2008. The matter was carried in four appeals which were heard and decided by passing separate orders. Merely because a joint panchnama has been drawn is of little consequence. We may at this juncture notice section 292CC of the Income-tax Act. For the sake of convenience, the said section is reproduced below :

“292CC. Authorisation and assessment in case of search or requisition.-(1) Notwithstanding anything contained in this Act,-

(i) it shall not be necessary to issue an authorisation under section 132 or make a requisition under section 132A separately in the name of each person ;

(ii) where an authorisation under section 132 has been issued or requisition under section 132A has been made mentioning therein the name of more than one person, the mention of such names of more than one person on such authorisation or requisition shall not be deemed to construe that it was issued in the name of an association of persons or body of individuals consisting of such persons.

(2) Notwithstanding that an authorisation under section 132 has been issued or requisition under section 132A has been made mentioning therein the name of more than one person, the assessment or reassessment shall be made separately in the name of each of the persons mentioned in such authorisation or requisition.”

16. The aforesaid section has been inserted by the Finance Act, 2012, but has been given a retrospective effect with effect from 1st of April, 1976. The object and purpose of introduction of the aforesaid section to validate the joint authorisation as it was held by this court with a joint authorisation for search is invalid. To overcome the said difficulty, section 292CC was introduced with retrospective effect. It in no uncertain terms provides that the mention of names of more than one person on such authorisation under section 132 shall not be deemed to construe that it was issued in the name of an association of persons or body of individuals consisting of such persons. The aforesaid section has put the things beyond the pale of doubt that the mention of names more than one in the warrant of authorisation will not make it in the name of an association of persons or body of individuals will not adversely affect an assessee. Meaning thereby, the status of the assessee will not in any manner be changed as the result of joint warrant of authorisation. Coming to the facts of the case indisputably, the Department respondent has treated petitioners Nos. 1, 2 and 3 as individuals and petitioner No. 4 as a partnership firm and assessed them accordingly, and separately. Not only that as a result of original assessment order making addition, the demand was paid by the petitioners and refund after the order of the appellate court have been granted to the petitioners individually. To put it differently, the stand of the Department that as in the warrant of authorisation, the names of the petitioners were also included along with Jeewan Kumar Agrawal and Banarasi Misthan Bhandar (P.) Ltd. is wholly irrelevant so far as assessment and refund of asset or cash is concerned. Except that the Department could not point out any connection whatsoever of the petitioners with Jeewan Kumar Agrawal and Banarasi Misthan Bhandar (P.) Ltd. The irresistible conclusion is that there is no justification for not refunding the seized cash during the search operation or not paying the interest thereon.

17. Sri R. K. Upadhyaya, advocate for the respondents, who also happens to be the Ex Chief Commissioner of Income-tax, could not refer any statutory provision to support the above stand of the Department even for a moment.

18. Proceeding further, we find that the Income-tax Act contemplates the payment of interest for the pre-assessment period as also for the post-assessment period. In the case of search, section 134B(4) takes care of payment of interest for the pre-assessment period. On the other hand, section 244A of the Act deals with interest of refunds after assessment. In Bhagwan Prasad Agrawal v. CIT [2006] 282 ITR 189 (All), one of us has held as follows (page 195):

“We find sufficient force in the argument of the learned counsel for the petitioner that section 132B(4) of the Act and section 244 operate in different field, inasmuch as they relate to the payment of interest for different period. There is no overlapping. To put it differently section 132B(4) deals with the liability of the Central Government to pay interest up to the date prior to the framing of the assessment or reassessment order, section 244 of the Act deals with the liability of the Central Government to pay interest for the subsequent stage which comes into existence after the completion of the assessment/ reassessment order. At this stage, the learned Standing Counsel has placed reliance upon section 240 of the Act and submitted that in view of words ‘except as otherwise provided in this Act’ disentitles the petitioner to claim interest under Chapter XIX which deals with ‘refunds’. Elaborating the argument it was submitted that the provisions relating to search and seizure as contained in Chapter XIII-C contains special provision dealing with the matter relating to search and seizure. The legislature have made necessary provisions for grant of interest on the amount of refund, where ever they have thought fit. Chapter XIX relating to ‘refund’ contains provisions of refund relating to refund and as such the special provision shall exclude the general provision. The said argument is misconceived. Chapter XIII does not contain the provisions relating to assessment and refund of the excess amount found as consequence of the assessment order. The heading and sub-heading of Chapter XIII suggests the appointment and control of the income-tax authorities, their jurisdiction and powers, the whole gamut for assessment has been provided for in Chapter XIV inclusive of search and seizure case for which the assessment order has to be framed under the aforesaid Chapter. In the case in hand the assessment order was framed under section 143(3) of the Act as at that time there was no provision for making block assessment which came into force with effect from July 1, 1995 through which Chapter XIV-B special procedure for assessment of search cases was inserted by the Finance Act, 1995. The phrase ‘existed as otherwise provided in this Act’ in section 240, therefore, contemplates a situation that there may be cases where the assessing authority shall not refund the amount to the assessee without his having to make any claim in that behalf. Moreover, the heading of section 240 suggests its applicability in the case of refund on the basis of appellate order or other proceeding under the Act etc. The phrase other proceedings would also means assessment order or revisional order, etc. It is not necessary to dwell upon section 240 any more as in the case in hand (i) the amount has been refunded to the petitioner ; and (ii) the assessment order was passed under section 143(3), i.e., under Chapter relating to assessment. There is no dispute that the Department has refunded the excess amount to the petitioner after completing the assessment proceedings but with delay, therefore, the present case is covered by section 237 read with section 240 of the Act. Section 243 of the Act creates statutory liability of the Central Government to pay interest on delayed refunds. It provides under section 243(1)(b) of the Act that if the assessing authority does not grant refund within three months from the end of the month in which the claim for refund is made under this Chapter, the Central Government shall pay the assessee the simple interest at the specified rate, The rate of interest was 12 per cent. per annum prior to October 1, 1984, which has been substituted by words 15 per cent. with effect from October 1, 1984. The procedure for calculating the interest is prescribed in rule 119A of the Income-tax Rules. A conjoint reading of sections 243 and 244 clearly shows the liability of the Central Government to pay interest in the present case at the rate of 12 per cent. per annum for the period after three months of the end of the month in which the total income is determined under the Act. The assessment order was framed on December 31, 1977, the liability of interest would start running after three months, i.e., from April, 1978, till the date of payment. We, therefore, hold that the petitioner is entitled and the respondents are liable to pay interest under section 244 of the Act on a sum of Rs. 31,060 for the period commencing from April 1, 1978, to the date of actual payment of excess/refund amount.”

19. Having regard what has been said above, it may be noted that in pursuance of the order passed by the Commissioner of Income-tax (Appeals), revised assessment order was passed by the assessing authority on August 30, 2011, in all the cases of the petitioners. Excluding a period of three months, the Department is liable to pay interest with effect from January 1, 2009, to the date of actual payment at the rate of 18 per cent. per annum on a sum of Rs. 25 lakhs in all to the petitioners till the date of actual payment as per seizure order.

20. The learned counsel for the petitioners submitted that in view of the decision of the apex court in the case of Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643 (SC) ; [2006] 2 SCC 508, they are entitled to get interest upon interest amount. Reliance was also placed on a subsequent decision of a Division Bench of this court in Writ Petition No. 102 of 2012 : Prayag Udyog Pvt. Ltd. v. Union of India decided on May 31, 2012-since reported in [2012] 348 ITR 217 (All) In reply, our attention was drawn to CIT v. Gujarat Flouro Chemicals [2012] 348 ITR 319 (SC) wherein the Supreme Court has doubted its earlier decision in the case of Sandvik Asia Ltd. [2006] 280 ITR 643 (SC) and the matter has been referred for reconsideration. The matter is engaging attention of the apex court and, therefore, we leave the matter as it is by providing that if the respondents return the seized amount along with accrued interest within a period of one month to the petitioners, they would not be liable to pay interest upon interest amount. It is true that the matter is engaging attention of the apex court but it is also true that the relied upon judgment in the case of Sandvik Asia Ltd. [2006] 280 ITR 643 (SC) is still operating and only its correctness has been doubted. If the Department fails to return the seized cash amount along with interest as stipulated within stipulated time, the respondent also be liable to pay the interest upon interest amount at 6 per cent. per annum from today to the date of actual refund.

21. Having regard to the facts of the case, it is but evident that the respondents have failed to discharge their legal obligation in not refunding the seized amount immediately or shortly after the completion of the assessment proceedings finally at least. We also do not appreciate the argument of the respondents counsel that unless a direction is issued, the respondents shall not pass any speaking order on the application/representation filed by the petitioner for refund of the amount due to him. This shows that the officers of the Income-tax Department are shirking their responsibilities.

22. Speedy and affordable justice is the requirement of the day. But it cannot be achieved until the executive including tax-man discharge their duties faithfully honestly within the four corners of law. As seen above, it is clear that the Revenue officials failed to take any decision right or wrong on the refund application filed by the petitioners and passed on the buck on the court. Time has come for the heads of the departments to keep a strict vigil on such shirkers and to fix their responsibility. While it is no doubt true that collection of revenue is a serious matter for the State-and the bounden duty of the authorities functioning under the Act is to implement the provisions of the Act, there should be safety and assurance to an honest taxpayer. An honest taxpayer should not be subjected to unnecessary harassment and an action not warranted in law, which can be of very serious consequence to the taxpayer if it is allowed to remain without correction, such harassment and browbeating of an honest taxpayer will otherwise drive even such honest taxpayers to become cynical and lead to a situation where taxpayers will get a feeling that paying taxes honestly is not a worthwhile exercise ; that the tax authorities are a menace to the society rather than simply being representatives of the State for enforcing the tax provisions ((See Raghavendra Sherrigar v. Asst. CCT [2005] 142 STC 153 (Karn).)

23. The apex court in the case of Sandvik Asia Ltd. [2006] 280 ITR 643 (SC) by the following paragraph has recorded their displeasure for this kind of attitude of the Department. For the sake of convenience, the said paragraph is reproduced below (page 100 of 267 ITR) :

“The decision of the Delhi High Court in Goodyear’s case [2001] 249 ITR 527 (Delhi) was on the assumption that the term ‘any amount’ in section 240 would include all amounts payable to the assessee, including interest, and therefore, the assessee was held to be entitled for interest on interest. For the reasons stated above and with respect, it is difficult to agree with the said proposition. In any case, the facts of the matter also disclose that the interest which was included in the amount due as refund was the one payable in terms of section 214. This is clear from the observation in the judgment that (page 532) : ‘Merely because this was inclusive of an amount which, was payable under section 214 of the Act, that would not make the position any different’ and the arguments canvassed on behalf of the Revenue were to the effect that (page 530) : ‘In a sense it was submitted that such a refund of the amount paid by the assessee or on its behalf under section 240 as well as section 244 are relatable to such amount only and not to any interest payable under section 214 of the Act’.”

24. The petitioners have been unnecessarily driven to this court to file the present writ petition and the respondents have purposely put a defence for the sake of defence. They are liable to pay costs of this writ petition assessed at Rs. 15,000.

25. In the result, the writ petition succeeds and is allowed. The respondents are directed to refund in all Rs. 25 lakhs seized from the petitioners on October 17, 2006, along with interest at the prevalent rate as provided for under section 132B(4) for the period December 16, 2007, to December 31, 2008, and simple interest under section 244A on the said amount of Rs. 25 lakhs from January 1, 2009, to the date of actual payment at the rate of 18 per cent. per annum within a period of two months, failing which they shall also be liable to pay the interest on interest amount at 6 per cent. per annum, as indicated above.

26. The writ petition is allowed with costs of Rs. 15,000 payable by respondents Nos.1 and 2 to the petitioners within a period of one month.

[Citation : 355 ITR 114]

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