2017 (9) TMI 1884 - AT - Income Tax

Levy of interest u/s. 234B and interest u/s. 234C - search and seizure action on the assessee u/s. 132 - Revenue adjusted the seized cash against the regular tax demand - inclusion of the advance tax liabilities within the meaning of the 'existing liabilities' as used in the provision to section 132 B of the Act read with its Explanation- 2 to said section for the period prior to the amendment - HELD THAT - Assessee has taken this issue to the judicial forum which eventually decided issue in favour of the assessee, and the judgment in the case of Spaze Towers (P.) Ltd. 2016 (11) TMI 1401 - PUNJAB AND HARYANA HIGH COURT has brought requisite clarity on the issue. Therefore, for the period prior to the amendment, the 'existing liability' includes the advance tax liability in accordance with the provisions of part C of chapter XVII of the Act. Subsequently, accepting the above judgment, the CBDT issued direction to Field Officers by way Circular No.20/2017 dated 12/06/2017. Therefore, the issue is now settled and the expression 'any existing liabilities' does include the advance tax liabilities prior to 01.06.2013. The case of the assessee falls prior to the said date of 01.06.2013. The cash was seized in the search initiated on 06.01.2010. Assessee requested for adjustment of the same towards the advance tax liabilities vide his letter dated 11.03.2010. Considering the above legal position in the matter and facts of the present case, we are of the opinion, the Ground Nos. 1 to 3 raised by the assessee have to be decided in his favour and against the Revenue.

Summary

Issues:
Appeal against order of CIT (A) for A.Y. 2010-11 regarding levy of interest u/s. 234B and 234C of the Act.

Detailed Analysis:

1. Grounds of Appeal:
The assessee raised grounds against the levy of interest u/s. 234B and 234C, challenging the correctness of the AO's computation. The contention was that seized cash during search action should have been adjusted against advance tax liability. The CIT (A) upheld the AO's decision, citing Explanation 2 to section 132B inserted w.e.f. 01.06.2013 as retrospective, thus disallowing the adjustment.

2. Facts and Rectification Application:
The builder and developer assessee's cash seizure during a search led to a tax liability calculation by the AO, including interest u/s. 234B & 234C. The assessee's rectification application for adjusting seized cash against advance tax was rejected by the AO, relying on Explanation 2 to sec 132B. The CIT (A) dismissed the appeal, considering the amendment as clarificatory and applicable to pending cases.

3. Appellate Arguments:
The assessee contended that the seized cash was timely requested for adjustment against advance tax liability, supported by relevant letters. The prospective applicability of Explanation 2 to sec 132B was emphasized, citing a Punjab Haryana High Court judgment. Circular No.20/2017 by CBDT affirmed the prospective nature of the amendment.

4. Judicial Interpretation and Decision:
The ITAT analyzed the relevant provision of sec 132B and Explanation 2, concluding that the amendment was clarificatory and not retrospective. Citing the judgment of Punjab & Haryana High Court, the ITAT held that advance tax liabilities were part of existing liabilities before 01.06.2013. The CBDT circular further confirmed this interpretation, directing field officers not to file appeals on this issue for cases prior to 01.06.2013.

5. Conclusion and Decision:
Considering the legal position and facts of the case, the ITAT decided in favor of the assessee, allowing the appeal partially. Grounds 1 to 3 were decided in favor of the assessee against the Revenue. Ground 4, raised without prejudice, was dismissed as academic. The decision aligned with the settled interpretation that advance tax liabilities were included in existing liabilities before 01.06.2013.