2017 (8) TMI 1297 - HC - Income Tax

Adjustment of seized cash during searh opeartion u/s 132B against advance tax payment that was due - benefit of the Circular No. 20/2017 - Held that - Circular No. 20/2017 makes clear that to grant the benefit of adjustment of seized cash against advance tax liability to all Assessees in default of payment of advance tax.The Court, therefore, sees no justification in the Department for not granting the benefit of the Circular No. 20/2017 to the two Assessees in appeal Direction issued to the Department to give the benefit of Circular No.20/2017 to both Assessees which in effect would mean that their requests for adjustment of the seized cash against their respective advance tax liability would stand allowed with effect from the date of the first request made by the Assessees, i.e. 13th December, 2011.- Decided in favour of assessee.

Summary

Issues:
Whether the Income Tax Department is obliged to adjust the cash seized during a search operation against the advance tax payment due from the petitioners?

Analysis:
The case involved two petitioners who had cash seized during a search operation under the Income Tax Act. The petitioners requested adjustment of the seized cash against their advance tax liability for the relevant assessment year. However, the Department adjusted the seized cash against the tax demand resulting in the petitioners being liable to pay interest under Section 234A, 234B, and 234C of the Act. The petitioners argued that the Department should have adjusted the seized cash towards the advance tax liability to avoid interest payment.

The Central Board of Direct Taxes issued Circular No. 20/2017 clarifying that the insertion of Explanation 2 to Section 132B of the Act, stating that advance tax payable is not part of existing liability, would have prospective application. The circular also mentioned that the Department would withdraw or not press appeals where adjustments against advance tax had been allowed by High Courts.

The Court considered the circular and held that the Department should grant the benefit of the circular to the petitioners. It was deemed discriminatory to deny the benefit to defaulting assesses who had requested adjustment of seized cash against advance tax dues before the circular's effective date. The Court directed the Department to allow the petitioners' requests for adjustment against their advance tax liability from the date of their initial requests, i.e., December 13, 2011. The petitions were allowed without costs, and pending applications were disposed of accordingly.