2008 (7) TMI 610 - AT - Income Tax

Summary

Issues Involved:

1. Entitlement to interest under section 132B(4) of the Income Tax Act.
2. Applicability of section 132B(4) provisions post-amendment.
3. Validity of seizure and retention of assets.
4. Calculation and period for interest payment.

Detailed Analysis:

1. Entitlement to Interest under Section 132B(4):

The revenue's appeal contested the CIT(A)'s direction to the Assessing Officer to grant interest under section 132B(4) for the period after the expiry of 120 days from the date of seizure to the date of completion of the search assessment. The CIT(A) held that the assessee is entitled to interest prescribed in section 132B(4) on the assets seized and appropriated by the department. The department argued that the provisions of section 132B(4) were not applicable because the tax demand was Rs. 2.96 crores, and the balance of Rs. 96,02,200 was adjusted on 1-1-2004.

2. Applicability of Section 132B(4) Provisions Post-Amendment:

The Tribunal considered whether the provisions of section 132B, as substituted by the Finance Act, 2002 w.r.e.f. 1-6-2002, were applicable. It concluded that the provisions as they stood prior to the amendment would be applicable because the block assessment order was passed on 31-10-2003. Therefore, the Assessing Officer was required to pass the order under section 132(5), which was not done in this case.

3. Validity of Seizure and Retention of Assets:

The Tribunal noted that the assessee had furnished the source of the FDRs seized during the search, which were duly recorded in the books of account. It emphasized that the seizure itself was not in accordance with law because the FDRs were disclosed in the regular return. The Tribunal referred to various case laws, including decisions of the Hon'ble Allahabad High Court and the Hon'ble Bombay High Court, which supported the assessee's entitlement to interest on the seized amount where such seized amount is in excess of the tax payable by the assessee.

4. Calculation and Period for Interest Payment:

The Tribunal upheld the CIT(A)'s direction to calculate interest from 18-7-2002 to 31-12-2003, as per section 132B(4)(b), after the expiry of 120 days from the date of seizure to the date of completion of the search assessment. The Tribunal agreed that the existing liability was only Rs. 3,97,800, and after adjusting this amount, the balance should have been released, entitling the assessee to interest for the specified period.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order that the assessee is entitled to interest under section 132B(4) for the period from 18-7-2002 to 31-12-2003. The Tribunal emphasized that the seizure of disclosed assets was not warranted, and the interest should be calculated as per the provisions of section 132B(4)(b).