2011 (10) TMI 648 - AT - Income Tax

Levy of interest under sec. 234B and 234C without allowing credit of the amount of cash seized during the course of search - Held that - When advance tax is to be payable by an assessee by virtue of the operation of Income-tax Act 1961 and the department is already possessing money belonging to the assessee and assessee made a prayer for adjusting such amount against the advance tax payment or any tax required to be paid by the assessee then credit ought to be given because the department has deprived the assessee of his money by seizing the cash otherwise assessee would have paid the tax on 12.4.2006 and 12.09.2006. We allow the appeal of the assessee and direct the department to give credit of 60, 40, 000 to the assessee from the date when assessee made application for treating the cash as payment of advance tax/fare while computing the interest chargeable under sec. 234B and 234C of the Incometax Act 1961

Summary

Issues:
Levy of interest under sec. 234B and 234C without allowing credit of seized cash against tax liability.

Analysis:
1. The assessee appealed against the order confirming the interest levy under sec. 234B and 234C without crediting the amount of cash seized during a search. The department seized a total of &8377; 60.40 lacs, and the assessee requested to adjust this amount against the tax liability arising from the surrendered income for the assessment year.

2. The Assessing Officer and CIT(Appeals) denied the credit, stating that there was no existing liability against which the seized cash could be adjusted. They argued that ownership of the seized cash remained with the assessee until a tax demand was created, and the liability was crystallized. The dispute centered on the interpretation of sec. 132B of the Income-tax Act, 1961.

3. The ITAT analyzed sec. 132B(1)(i) which allows adjusting seized assets against existing liabilities under the Act. The ITAT disagreed with the CIT(Appeals), emphasizing that when an assessee requests to adjust seized cash against advance tax or any tax due, credit should be granted. The ITAT cited the case of Nikka Mal Babu Ram, highlighting that advance tax liability is part of the existing liability under the Act.

4. The ITAT applied a purposive construction approach, noting that the seized cash could be adjusted towards advance tax liability. It distinguished the case law cited by the Revenue, stating that the relevant provisions had changed post-amendment in 2002. The ITAT found no prohibition in adjusting seized assets towards advance tax liability and directed the department to credit the seized amount against the tax liability for interest calculation under sec. 234B and 234C.

5. The ITAT allowed the appeal, following the precedent set by a Co-ordinate Bench and the principles of law discussed in the Nikka Mal Babu Ram case. The department was instructed to credit the seized amount against the tax liability from the date of the assessee's application for treating the cash as payment of advance tax. The decision was pronounced on 14.10.2011.