Gujarat H.C :adjustment of assessee’s advance tax liability against seized cash allowed

High Court Of Gujarat

Gordhanbhai Nagardas Patel Vs. DCIT

Section : 234B, 132

Assessment year : 2012-13

Akil Kureshi And Biren Vaishnav, Jj.

Special Civil Application No. 18790 Of 2014

June 5, 2017

JUDGMENT

Akil Kureshi, J. – This petition is filed by the assessee disputing the action of the Revenue in charging interest under sections 234A, 234B and 234C of the Income Tax Act, 1961 [hereinafter to be referred to as ‘the Act’] and levying penalty under section 271AAA of the Act. The petitioner has also prayed for interest on delayed refund of the seized cash. These prayers of the petitioner arise in following background:

2. The petitioner is an individual. A search operation was carried out at the premises of the petitioner on 16.03.2012 during which, unaccounted cash of Rs. 70 lacs was found from the possession of the petitioner and seized by the authority. At the time of such search operation, the petitioner had taken a stand that such cash amount belonged to his son-in-law. However, subsequently, the petitioner wrote to the Revenue authorities on 29.03.2012 and took a stand that his statement was recorded during the search operation rather late at night. He was otherwise also unwell and that therefore, the statement made by him was not entirely accurate. He further stated that the said amount belonged to him and he was unable to explain the source of such amount. He, therefore, conveyed that the same may be treated as his income and the advance tax of such income may be calculated and thereafter, such advance tax liability be adjusted from the cash seized. He further stated that this request was made so that he does not have to pay any interest for non-payment of advance tax on such income of Rs. 70 lacs. Relevant portion of his letter dated 29.03.2012 reads as under:—

“7. Considering my mental position, I wish to purchase peace and mental rest with a request to consider the cash found from my premise. As per the provisions of the law in may case/hand. I therefore, request that under the law, the cash found if it is treated my income, then the appropriate tax thereon may please be calculated and the amount of tax that may be worked out may be appropriated towards the advance tax in my case for the A.Y. 2012-13. I am made to understand that the cash found is considered as income under the provisions of the Income tax Act, when satisfactory evidence regarding the cash is not furnished. I was not aware at the time of search on account of late night statement recording and my mental diseases as to the explanation of the cash found. Moreover, I have no direct evidence in my possession to clearly explain from whom the cash was received. In these circumstances, I could not make any declaration u/s. 132(4) of the Act. I therefore by this letter request that the cash found may be taken as my declared income u/s. 132(4) of the Act and all immunities may please be granted under the provisions of the law. Please note that the amount of Advance tax payable thereon may be deposited in my account towards the A.Y. 2012-13 relevant to F.Y. 2011-12.

8. I hereby withdraw all statement given at the time of search in respect of the explanation given for cash found. However, I confirmed by this petition the cash found may be treated as income u/s. 132(4) of the Act.

9. Please note that I am senor citizen and desired to avoid any undesired litigation in respect of tax matter. With this intention and with a view to purchase mental peace I am making this petition which may kindly be considered by your honour. I also request to appropriate the tax amount from the sum of Rs. 70 lacs cash seized, so that I may not be require to pay any interest under the provision of law for non-payment of advance tax.”

3. The Assessing Officer did not accept the said request of the petitioner. In fact, there was no written communication from the Assessing Officer even rejecting the prayer. The petitioner, in the meantime, filed separate returns for the block period covered under the said search operation. For the assessment year 2012-13, during which such cash amount was seized, the petitioner filed the return of income on 20.08.2012 declaring total income of Rs. 70 lacs and tax liability on such income at Rs. 20,03,350/-. In such return itself, the petitioner sought adjustment of Rs. 70 lacs and claimed that the remaining amount of Rs. 49,22,530/- be refunded to the petitioner.

4. The Assessing Officer framed scrutiny assessment on the said return of income filed by the petitioner. By an order dated 24.02.2014, the Assessing Officer accepted the return of the petitioner and thereby accepted the petitioner’s income for the year under consideration at Rs. 70 lacs. He also instituted penalty proceedings under section 271 AAA of the Act.

5. It appears that after passing of this order of assessment, the Assessing Officer, on the amount of Rs. 20,03,350/- of tax payable, levied interest of Rs. 74,122/- under section 234C of the Act. He also passed a separate order of penalty under section 271AAA of the Act levying penalty of Rs. 7 lacs. Such total sum of Rs. 27,77,472/- (which included the basic tax, interest under section 234C and penalty under section 271 AAA of the Act) was adjusted from the seized cash of Rs. 70 lacs. The petitioner does not dispute these computations and adjustments of course subject to the petitioner’s pending appeal on the question of penalty. The petitioner would contend that, out of the total sum of Rs. 70 lacs, after adjusting the said sum of Rs. 27,77,472/-, the department had to refund a sum of Rs.42,22,528/- to the petitioner instead of which, the department refunded a sum of Rs. 37,61,760/- on 24.11.2015. The petitioner believes that the shortfall of Rs. 4,60,768/- would be the interest charged by the department under section 234B of the Act for defaults in payment of advance tax.

6. In view of such facts, the petitioner’s claims are two fold. Petitioner’s first contention is that having conveyed to the Revenue Authorities almost immediately that the said sum of Rs. 70 lacs be treated as petitioner’s income and advance tax may be adjusted out of such sum, the department could not have charged interest on defaults in payment of advance tax. The second contention of the petitioner is that the refunded amount of Rs. 37,61,760/- carried no interest which is contrary to the statutory provision.

7. As is well known, section 132 of the Act pertains to search and seizure. Sub section (1) of section 132, under specified circumstances, authorizes the Revenue officers to carry out search operation and during such search, inter alia to seize such books of account or other documents, money, bullion, jewellery or other valuable articles or things found as a result of such search. It was in exercise of such powers that the Revenue authorities had seized unaccounted cash of Rs. 70 lacs from the possession of the petitioner. Section 132B of the Act pertains to application of seized or requisitioned assets. Sub section (1) of section 132B lays down the manner, in which, the assets seized under section 132 would be applied. As per clause (i) of sub section (1) of section 132B, such asset would be adjusted against the amount of existing liability under the Act or other Tax Act such as Wealth Tax etc and also the amount of liability determined on completion of the assessment under section 153A of the Act. Under sub section (4) of sub section 132B, the Central Government is required to pay interest at the prescribed rate on the seized amount or part there of which has been refunded later.

8. To complete recording of the statutory provision, we may note that Explanation 2 is added to section 132B by Finance Act of 2013 w.e.f. 01.06.2013 which reads as under:—

‘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.’

9. It can thus be seen that in terms of sub section (1) of section 132B, the existing liability of an assessee could be adjusted against the amount seized under section 132 of the Act. It was on this background, the assessee has requested for such adjustment concerning his advance tax liability. We may recall, soon after the search was carried out, the assessee conveyed to the Revenue that he admits the cash seized as his income, surrenders it for the purpose of tax and requests for appropriation of advance tax payable on such income from out of the seized amount. The Revenue, however, contended that the stand of the assessee was inconsistent and, in any case, the advance tax would not fall within the meaning of term ‘existing liability’.

10. As pointed out by the counsel for the petitioner, a Division Bench of this Court had an occasion to deal with a somewhat similar issue in a tax appeal. By a judgement dated 26.11.2014 in case of Kamlesh Bhogilal Kandoi v. ACIT in Tax Appeal No. 55 of 2002, the Court considered following question of law:—

“(2) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the cash seized cannot be adjusted against the advance liability as requested by the appellant.”

11. The Court after referring to the judgment of the Delhi High Court in case of CIT v. K.K. Marketing [2005] 278 ITR 596 observed as under:—

“6.4 In the present case, we do not find that assessee had any intention of shirking its advance tax liabilities and considering the provisions of law, the revenue ought to have considered the assessee’s application which was made well in point of time subject to provisions of sections 234 (B) and (C ) of the Act. We therefore answer question no. 2 in favour of the assessee and against the revenue.”

12. We may notice that the Delhi High Court in K.K. Marketing’s case (supra) had occasion to tackle such an issue. The Court made following observations:—

“11. We are of the view that the present appeals do not arise any question of law, much less any substantial question of law. There is no dispute that the offer for adjustment of the seized cash was made by the assessees before the advance tax liability became due. Therefore, it is not as if the assessees had any intention of shirking their advance tax liabilities. In similar circumstances, the Tribunal had taken the view that the adjustment of the cash recovered could be made against advance tax liability and the Revenue in the grounds of appeal has not disputed this. The orders passed by the Tribunal in this regard, which have been referred to in paragraph 9 of the impugned order, appear to have been accepted by the Revenue.”

13. We may recall, the Explanation 2 to section 132B was introduced w.e.f. 01.06.2013. This explanation provides that for removal of doubts, it is declared that the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII. Counsel for the Revenue, therefore, submitted that this explanation being clarificatory in nature, amendment should apply to pending cases as well. It is well settled principle that an amendment in the nature of a clarification could have retrospective operation. However, whether such amendment is clarificatory or declaratory as opposed to creating new rights and liabilities is always open to judicial interpretation. Mere words used by the legislature as a title to such an amendment would not be conclusive. In this context, we may notice that in the memorandum explaining the statute, following background for bringing about the amendment was given:—

‘Application of seized assets under section 132B

The existing provisions contained in section 132B of the Income Tax Act, inter alia, provide that seized assets may be adjusted against any existing liability under the Income Tax Act, the Wealth-tax Act, the Expenditure tax Act, the Gift tax Act and the Interest tax Act and the amount of liability determined on completion of assessments pursuant to search, including penalty levied or interest payable and in respect of which such person is in default or deemed to be in default.

Various courts have taken a view that the term “existing liability” includes advance tax liability of the assessee, which is not in consonance with the intention of the Legislature. The legislative intent behind this provision is to ensure the recovery of outstanding tax/interest/penalty and also to provide for recovery of taxes/interest/penalty, which may arise subsequent to the assessment pursuant to search.

Accordingly, it is proposed to amend the aforesaid section as to clarify that the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII of the Act.

This amendment will take effect from 1st June, 2013.’

14. It can thus be seen that the amendment occasioned due to various courts taking a view that the term ‘existing liability’ includes advance tax liability of the assessee also. The legislature was of the opinion that such interpretation was not in consonance with the intention of the legislature. Thus, the amendment was necessary because of the judicial interpretation. Amending the statute to overcome adverse decision is a well- known legislative device often employed by the legislature in tax statutes. By such explanation introduced specifically with prospective effect therefore, would not override or overrule the past decisions at least for the past period before the amendment was brought into effect.

15. In view of the discussion, considering the decision of Division Bench of this Court in case of Kamlesh Bhogilal Kandoi (supra) we find that the Assessing Authority was in error in not permitting adjustment of the assessee’s advance tax liability against the seized cash. Learned counsel Mr. Bhatt for the Revenue, however, drew our attention to the two decisions one of Delhi High Court in case of CIT v. Chand Gupta [2015] 64 taxmann.com 108 and another of Madhya Pradesh High Court in case of Ramjilal Jagannath v. Asstt. CIT [2000] 241 ITR 758. The decision of Delhi High Court in case of Chand Gupta (supra) of course is on this very issue and supports the Revenue’s stand. In this judgement, the Court did not notice the earlier decision of the same High Court in case of K.K. Marketing (supra). The decision of Madhya Pradesh High Court was rendered by the learned Single Judge and has also been noticed our High Court decision in case of Kamlesh Bhogilal Kandoi (supra). Thus, the issue is debatable and a contrary view is imminently possible. Nevertheless, when we have the judgement of our High Court, we would follow the same and would not deviate merely because another view is also possible.

16. Coming to the question of non-payment of interest on realizing the remaining amount of seized cash, sub section (4) of section 132B of the Act is amply clear and mandates the Central Government to pay interest at the prescribed rate for the prescribed period when the amount is so withheld.

17. The petition is, therefore, allowed. The Revenue shall adjust the advance tax liability on the income of Rs.70 lacs of the petitioner as requested by him in the letter dated 29.03.2012. Resultantly, the liability to pay interest on the premise that such advance tax was paid late, would not arise. The Revenue shall also pay interest in terms of sub section (4) of section 132B of the Act on the remaining amount from out of Rs. 70 lacs after making adjustments as permissible under sub section (1) of section 132B which will include the advance tax, interest under section 234C of the Act and the penalty under section 271AAA of the Act. The petition is disposed of.

[Citation : 398 ITR 307]