2016 (6) TMI 380 - HC - Income Tax

Unexplained cash - release of seized articles (cash) belonging to the petitioner - Held that - It is not in dispute that the seized articles (cash) belong to the petitioner, who has also disclosed the unexplained cash of ₹ 21,73,000/- for taxation in the year under consideration, and in fact, the respondent, in the assessment proceedings, has also accepted such fact and has given credit of ₹ 8,84,040/- to the petitioner against the seized amount. The person from whom the cash had been seized namely, Shri Vinod Sen has also admitted that such cash belongs to the petitioner. Evidently therefore, there is no dispute as regards the title of the seized assets (cash). The respondent is, therefore, not justified in not releasing the balance amount to the petitioner on the ground that the cash had been seized from Shri Vinod Sen. Nonetheless, since the respondent has voiced an apprehension that the cash having been seized from Shri Vinod Sen, in case Shri Vinod Sen stakes a claim to the seized amount, the Department would be put in a precarious situation, the court is of the view that the said apprehension can be allayed by calling upon the petitioner to file an undertaking to the effect that in case Shri Vinod Sen stakes such claim, the petitioner would indemnify the Department. The respondent is directed to forthwith refund the balance amount after adjusting the tax dues of the petitioner with interest (if any) in accordance with law subject to the petitioner filing an undertaking before this court that in the event Shri Vinod Sen stakes a claim to the seized amount, the petitioner should indemnify the Department in respect thereof - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of withholding excess cash by the respondent.
2. Applicability of Section 132B(3) of the Income Tax Act, 1961.
3. Ownership and title of the seized cash.
4. Legal provisions for adjusting tax liability from seized assets.
5. Procedural compliance and rectification under Section 154 of the Act.
6. Potential claims by third parties (Shri Vinod Sen) on the seized cash.

Issue-wise Detailed Analysis:

1. Legitimacy of withholding excess cash by the respondent:
The petitioner contended that the respondent's refusal to release the excess cash after adjusting the tax liability was arbitrary. The petitioner argued that once the assessment and penalty proceedings were completed and the liability determined, the excess cash should be returned per Section 132B(3) of the Act. The court noted that the petitioner had already discharged the liability, which the respondent acknowledged in the order under Section 154 of the Act.

2. Applicability of Section 132B(3) of the Income Tax Act, 1961:
The petitioner argued that Section 132B(3) mandates the return of excess cash after adjusting the tax liability. The respondent, however, cited Section 132B(3) to justify withholding the cash, arguing that the assets should be returned to the person from whom they were seized (Shri Vinod Sen). The court disagreed, noting that the petitioner’s ownership of the cash was undisputed, and thus, the provisions of Section 132B(3) could not be applied to withhold the cash from the petitioner.

3. Ownership and title of the seized cash:
The court observed that both the petitioner and Shri Vinod Sen had admitted that the cash belonged to the petitioner. The petitioner had disclosed the cash in his tax return, and the respondent had accepted this in the assessment proceedings. The court referenced the Punjab & Haryana High Court decision in Rajinder Kumar Verma v. Union of India, which held that procedural provisions should not defeat substantive rights when the title is undisputed.

4. Legal provisions for adjusting tax liability from seized assets:
The petitioner requested the adjustment of the tax liability from the seized cash. The court noted that the respondent had already adjusted ?8,84,040 from the seized amount against the petitioner’s tax liability. The court found that the respondent’s claim that the demand remained unpaid was incorrect, as the credit had already been given to the petitioner.

5. Procedural compliance and rectification under Section 154 of the Act:
The court noted that the respondent had passed an order under Section 154, rectifying the tax liability and giving credit to the petitioner for the seized amount. This indicated that the respondent had accepted the petitioner’s ownership of the cash and adjusted it against the tax demand.

6. Potential claims by third parties (Shri Vinod Sen) on the seized cash:
The respondent expressed concerns about potential claims by Shri Vinod Sen, from whom the cash was seized. The court addressed this by requiring the petitioner to file an undertaking to indemnify the Department if Shri Vinod Sen claimed the cash. This condition aimed to protect the Department from any future claims while ensuring the petitioner’s rights were upheld.

Conclusion:
The court ruled in favor of the petitioner, directing the respondent to refund the balance amount after adjusting the tax dues with interest, subject to the petitioner filing an undertaking to indemnify the Department against any claims by Shri Vinod Sen. The petition was allowed, and the rule was made absolute, with no order as to costs.