2001 (3) TMI 37 - HC - Income Tax

Summary

Issues Involved:
1. Challenge to the order passed by the Commissioner of Income-tax dated November 18, 1998.
2. Direction to redeposit the sum of Rs. 24,25,810 in the P.D. account.
3. Challenge to the order dated January 12, 1999, under the Kar Vivad Samadhan Scheme (KVS Scheme).
4. Legality of the adjustment of seized cash towards tax arrears.
5. Interpretation of sections 158BC and 132B of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Challenge to the order passed by the Commissioner of Income-tax dated November 18, 1998:
The petitioner challenged the order dated November 18, 1998, passed by the Commissioner of Income-tax, which was a pivotal issue because the petitioner sought the advantage of the KVS Scheme. The court noted that the petitioner's tax liability for the assessment year 1994-95 was determined by the Assessing Officer, and subsequent appeals were dismissed. The petitioner's request for a stay of tax collection was also denied.

2. Direction to redeposit the sum of Rs. 24,25,810 in the P.D. account:
The petitioner sought a direction to the Commissioner of Income-tax to redeposit Rs. 24,25,810 in the P.D. account. The court observed that the cash seized during a search was deposited in the P.D. account and later adjusted towards the petitioner's tax arrears for the assessment years 1993-94 and 1994-95. This adjustment was contested by the petitioner, who argued that the seized cash should be appropriated towards the tax liability arising from the block assessment under section 132 of the Income-tax Act.

3. Challenge to the order dated January 12, 1999, under the Kar Vivad Samadhan Scheme (KVS Scheme):
The petitioner challenged the rejection of his declaration under the KVS Scheme for the assessment year 1994-95. The court noted that the petitioner's declaration was rejected on the ground that there were no arrears of tax for the assessment year 1994-95, as the Department had already adjusted the seized cash. The petitioner argued that the adjustment was invalid and sought the benefits of the KVS Scheme.

4. Legality of the adjustment of seized cash towards tax arrears:
The court examined whether the adjustment of Rs. 24,25,810 from the seized cash towards the petitioner's tax arrears for the assessment years 1993-94 and 1994-95 was valid. The learned single judge held that the adjustment was improper, as the seized cash should be used to cover the tax liability arising from the block assessment under Chapter XIV-B of the Income-tax Act. The court agreed with this interpretation, emphasizing that the seized assets should be dealt with according to the provisions of Chapter XIV-B.

5. Interpretation of sections 158BC and 132B of the Income-tax Act:
The court analyzed the provisions of sections 158BC and 132B of the Income-tax Act. It noted that section 158BC provides a complete code for block assessment following a search under section 132. The court emphasized that the assessment of undisclosed income and the handling of seized assets must follow the procedures outlined in Chapter XIV-B. The court rejected the Department's argument that section 132B allowed for the adjustment of seized assets towards existing tax liabilities before completing the block assessment.

Conclusion:
The court upheld the judgment of the learned single judge, agreeing that the adjustment of Rs. 24,25,810 towards the petitioner's tax arrears for the assessment year 1994-95 was invalid. Consequently, the petitioner was entitled to the benefits of the KVS Scheme. The appeals were dismissed, and the court closed C.M.P. Nos. 8508 to 8510 of 2000.