2014 (4) TMI 247 - HC - Income Tax

Adjustment of tax liability u/s 132B post search to save interest liability - undisclosed income - request made by the petitioners for the sale of gold bars weighing 6 kilograms seized on 10 December 2013 for adjustment towards the automatic tax liability of the first petitioner has been rejected. Assessee contended that once they have disclosed an undisclosed income of ₹ 12.01 crores, the tax liability would work out to ₹ 3.60 crores being 30% of the surrender amount and after adjusting the value of the gold bars a balance of ₹ 1.78 crores would be the balance and payable to the revenue towards tax and undisclosed income - Held that - The conditions specified in the first proviso, are clearly not attracted - The AO was justified in his conclusion that it is only when the liability is determined on the completion of the assessment that it would stand crystallized and in pursuance of which a demand would be raised and recovery can be initiated - the application filed by the assessee was throughly misconceived and unsustainable with reference to the provisions of Section 132B(1) of the Act - Any action which the Court may direct in respect of an asset, which has been seized, has to be strictly in compliance of Section 132B of the Income Tax Act - Where a case has not been made out within the four corners of Section 132B, the Court would not be justified in passing a general order of a nature that is sought, beyond the scope and purview of the statutory provision thus, there is no need for interference in the order of the Tribunal Decided against Assessee.

Summary

Issues:
Challenge to the legality of order dated 1 January 2014 passed by Assistant Director of Income Tax (Investigation), Allahabad regarding the sale of seized gold bars for tax liability adjustment.

Analysis:
The petitioners sought to challenge the legality of an order rejecting their request to sell 6 kilograms of gold bars seized for adjustment towards the tax liability of the first petitioner. The Assessing Officer stated that such action can only be taken after assessment completion and demand quantification. The petitioners disclosed an income of Rs.12.01 crores during a search, with gold bars worth Rs.1.81 crores seized. They applied for the sale of gold bars to adjust tax liability, claiming a balance of Rs.1.78 crores payable to revenue post-adjustment. The Assessing Officer dismissed the application, citing the need for completed assessment to initiate recovery through gold bar sale.

The petitioners argued that under Section 132B of the Income Tax Act, they were entitled to asset release if the nature and source of acquisition were explained. However, the Assessing Officer dismissed the application, emphasizing that recovery could only occur post-assessment completion. Section 132B allows seized assets to be used towards existing liabilities or liabilities determined post-assessment completion. The first proviso requires the applicant to explain asset acquisition to the Assessing Officer's satisfaction for liability recovery from the asset.

In this case, the conditions of the first proviso were not met, justifying the Assessing Officer's decision to await assessment completion for liability crystallization. The application was deemed misconceived and unsustainable under Section 132B(1) of the Income Tax Act. An alternate argument for selling the asset and keeping proceeds in Fixed Deposit was based on a previous judgment, but the court emphasized strict compliance with Section 132B for any action regarding seized assets.

The court dismissed the writ petition, stating that any action on seized assets must align with Section 132B of the Income Tax Act. Judicial intervention must adhere to statutory provisions, and Article 226 jurisdiction should be exercised within legal boundaries. The court found no reason to interfere with the Assessing Officer's decision, leading to the dismissal of the writ petition.