2011 (9) TMI 97 - HC - Income Tax

Adjustment of seized cash towards Advance Tax Liability - held that - once the assessee offers to tax the undisclosed income including the amount seized during the search, then the liability to pay advance tax in respect of that amount arises even before the completion of the assessment. Section 132B(1)(i) of the Act does not prohibit utilization of the amount seized during the course of search towards the advance tax payable on the amount of undisclosed income declared during the course of search.

Summary

Issues:
1. Whether seized cash and deposited amount can be adjusted against Advance Tax liability for interest computation under sections 234B and 234C of the Income Tax Act, 1961?

Analysis:

The judgment involved a dispute regarding the adjustment of seized cash and a deposited amount against Advance Tax liability for interest computation under sections 234B and 234C of the Income Tax Act, 1961 for Assessment Year 2007-2008. During a search and seizure action, cash of Rs. 18,00,000 was found and seized from the Assessee. The Assessee offered to tax undisclosed income, including the seized cash, and paid Rs. 1.98 Crores towards the additional income declared during the search. The Assessee requested to adjust these amounts against the Advance Tax liability. The Assessing Officer, however, declined to consider these amounts for interest computation under sections 234B and 234C.

Upon appeal, the CIT (A) directed the Assessing Officer to include the seized cash and the deposited amount towards the Advance Tax liability for interest computation. The Revenue challenged this decision before the ITAT, which was dismissed, leading to the present appeal before the High Court.

The Revenue contended that the seized amount can only be used to discharge existing liabilities after the assessment is completed, and thus, the request for adjustment towards Advance Tax liability was premature. However, the High Court disagreed, stating that once the Assessee declares undisclosed income, the liability to pay Advance Tax arises immediately. The Court noted that Section 132B(1)(i) does not prohibit using seized amounts for Advance Tax payment on declared undisclosed income. The Assessee had requested the adjustment before the last date for the final Advance Tax installment, complying with the Act's provisions.

Ultimately, the High Court ruled in favor of the Assessee, upholding the ITAT decision that the seized cash and deposited amount were rightly adjusted towards the Advance Tax liability. The appeal was disposed of with no costs awarded.