2004 (12) TMI 38 - HC - Income Tax

Seizure of cash of around Rs. 6 lakhs, Indra Vikas Patras (IVPs) for Rs. 6 lakhs and promissory note for the value of Rs. 3 lakhs. - main issue raised by the petitioner is that were not entitled to encash IVPs and adjust the proceeds towards income-tax liability and so much so, their actions have to be declared as unauthorised and illegal. Consequently, the petitioner prays for a direction from this court to the respondent to treat the entire tax and interest liability for the assessment years 1990-91 to 1995-96 as outstanding as on the date of making the applications under the KVSS and to grant the benefit of the scheme on the entire tax and interest dues - whether the encashment of IVPs and recovery towards tax for the year 1995-96 and earlier years, pursuant to the petitioner s request or authorisation as found above, are permissible under the Act or illegal to be treated as no recoveries of tax at all as claimed by the petitioner.

Issues Involved:
1. Legality of encashment and adjustment of Indra Vikas Patras (IVPs) towards tax liability.
2. Denial of benefits under the Kar Vivad Samadhan Scheme (KVSS) for the assessment years 1994-95 and 1995-96.
3. Procedural compliance under sections 132(9A) and 132B(1) of the Income-tax Act.
4. Validity of tax recovery prior to assessment completion and notice of demand issuance.

Detailed Analysis:

1. Legality of Encashment and Adjustment of IVPs:
The petitioner, a homoeo doctor, challenged the encashment of IVPs and their adjustment towards his tax liability, claiming it was unauthorized and illegal. The court found that the petitioner had indeed authorized the encashment and adjustment through various correspondences, particularly exhibit R3(A) dated March 13, 1995, where he requested the adjustment of cash and IVPs towards advance tax for 1995-96. The court held that the actions of the respondents were consistent with statutory provisions and the petitioner's authorizations, thus rejecting the petitioner's contention.

2. Denial of Benefits under KVSS for 1994-95 and 1995-96:
The petitioner challenged the denial of KVSS benefits for these years. The Commissioner had allowed benefits for 1990-91 to 1993-94 but denied them for 1994-95 and 1995-96 due to no subsisting demand at the time of application. The court noted that the petitioner had requested the adjustment of IVPs towards tax liabilities, which was done by the respondents. Since the applications for KVSS benefits were filed after the petitioner became a defaulter, the court held the recoveries valid from the date following the last date provided for payment under the notices of demand.

3. Procedural Compliance under Sections 132(9A) and 132B(1):
The petitioner alleged non-compliance with sections 132(9A) and 132B(1) of the Income-tax Act, arguing that only the second respondent had the authority to appropriate retained assets towards tax liability. The court found this allegation factually incorrect, as the second respondent had indeed credited the amounts after encashment. The involvement of the first respondent in encashment was deemed consistent with the Act's provisions, aiming to recover tax from seized assets.

4. Validity of Tax Recovery Prior to Assessment Completion and Notice of Demand Issuance:
The petitioner contended that tax recovery before assessment completion and notice of demand issuance was unauthorized. The court acknowledged that while section 132B(1) allows adjustment of seized assets only after assessment completion, the petitioner's authorizations justified the adjustments. The court found that the encashment of IVPs and recovery of tax for 1995-96 were in line with statutory requirements, but adjustments for 1994-95 before assessment completion were technically against section 132B(1)(i). However, this technical violation did not affect the overall validity of the recoveries due to the petitioner's authorizations and subsequent default status.

Conclusion:
The court concluded with several declarations and directions:
1. The encashment of IVPs by the second respondent in coordination with the first respondent was authorized by the petitioner and consistent with statutory provisions.
2. Recovery of advance tax for 1995-96 from retained assets was duly authorized and valid.
3. Recovery of tax under section 140A for 1995-96 from retained assets was authorized and in accordance with the statute.
4. Recovery of balance assessed tax for 1995-96 before the expiry of the payment due date was against section 132B(1)(i).
5. Recovery of tax for 1994-95 before the expiry of the payment due date was against section 132B(1)(i), despite being authorized by the petitioner.
6. Since the petitioner became a defaulter after assessment, recoveries by adjustment were valid from the date following the last payment date.
7. Recoveries from encashed IVPs for other years before the due date for payment were in violation of section 132B(1).
8. The respondents were directed to reconsider credits under all assessments and grant relief by modifying exhibit P5, treating any reversed credits as available in the PD account for KVSS benefit purposes.

The court emphasized that IVPs matured and encashed after the payment time under exhibit P5 should not be treated as credit available for adjustment. If the exercise of reversing credits did not benefit the petitioner under the KVSS scheme, the postponement of credit should not be done to the petitioner's detriment.

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