2024 (2) TMI 1148 - AT - Income Tax

Adjustment of seized asset against existing liability and levy of interest u/s 234B - outer time period of 120 days - HELD THAT - It is undisputed fact that the AO accepted the returned income as the Assessed income of the respective assessees. The seized Cash and FDRs are from the disclosed source of income from the respective assessees only and therefore no addition or disallowance made by the AO while framing scrutiny assessments u/s. 143 3 of the Act. As the AO has not acted upon the Application for release/adjustment of Cash and FDRs, there was no occasion for him to record his satisfaction and prior approval from the Competent Authority for release of seized goods. The second proviso to section 132B(1)(i) makes it clear that the assets are required to be released within a period of 120 days from the date on which the last of the authorizations for search under section 132 or for requisition under s. 132A, as the case may be, was executed. In the present cases last date of search action concluded on 15-05-2010 and the outer time period of 120 days expired on 15-09-2010, but the Ld AO has not acted upon the Application for release of the seized goods and thereby retained the seized Cash and FDRs beyond the period of 120 days prescribed in the 2nd Proviso to section 132B(1)(i) of the Act. Coming to the main section 132B(1) of the Act, which prescribes that the assets seized u/s. 132 can be adjusted against any existing liability as per IT, WT or the amount of liability determined on the completion of regular assessment or reassessment including any penalty levied or interest payable in connection with such assessment or reassessment. As per this sub- section, AO ought to have adjusted against the tax liability of Rs. 6,39,620/- while framing the regular assessment as against the seized Cash of Rs. 5,39,000/- and FDRs of Rs. 99,99,999/-. In that event also, the assessee is entitled for release of surplus FDRs seized by the Department as per section 132B 3 of the Act and therefore there is no question of levy of interest u/s 234B and C of the Act. Thus in our considered view, the Ld AO miserably failed to adhere to the provisions of section 132B 1 and the CIT A is not justified in confirming the interest charged u/s. 234B of the Act for the period up to 15-09-2010. Therefore we direct the Ld AO to rework the computation in accordance with the provisions of law after providing proper opportunity of hearing to the assessees. Appeals filed by the assessees are allowed for statistical purpose. Non granting of Interest u/s 132B(4) on seized asset viz. FDR - CIT(a) held that mere seizure of the FDs, the appellant has not suffered any pecuniary loss by way of loss of interest, therefore, no interest u/s. 132B(4) can be granted to the assessee - HELD THAT - Section 132(1)(c) of the Act reads Any person is in possession of any Money, Bullion, Jewellery or Other Valuable Article or Things . Hence, Money is different from bullion, jewellery or other valuable article or things. Seized FDRs cannot be treated as Money , but only as Other Valuable Article or Things . As per section 132B 4 a of the Act, the assessee is entitled to interest on the amount by which the aggregate amount of Money seized after 120 days. Thus the arguments of the assessee are not in consonance to the provisions of law and the same is liable to be rejected. The case law of Ajay Gupta-Vs-CIT 2007 (4) TMI 42 - HIGH COURT, NEW DELHI relied by the assessee is not relating to seizure of FDRs but of Money and hence not applicable to the facts of the present case. Whereas the Madras High Court judgment in the case of Anil Kumar Kedia 2011 (1) TMI 1171 - MADRAS HIGH COURT which was relied by the Ld. CIT(A) is squarely applicable to the facts of the present case. Thus we do not any infirmity in the orders passed by the lower authorities and the same does not require any interference and the assessee appeals are hereby dismissed.

Summary

Issues Involved:
1. Legality of the search and seizure operation under section 132 of the Income Tax Act.
2. Adjustment of seized Cash/FDRs against tax liability and charging of interest under section 234B.
3. Release of seized Cash/FDRs.
4. Granting of interest under section 132B(4) on seized FDRs.

Summary:

1. Legality of the search and seizure operation under section 132 of the Income Tax Act:
The appellants contended that the search and seizure operation conducted on 18.03.2010 was illegal as no warrant of authorization was furnished. They argued that the search did not reveal any unaccounted or undisclosed income, and thus the assessment order under section 143(3) should be quashed. However, the appellants did not press this ground during the hearing, and it was dismissed.

2. Adjustment of seized Cash/FDRs against tax liability and charging of interest under section 234B:
The appellants requested the release or adjustment of seized Cash and FDRs against their tax liability. The CIT(A) held that the appellants were entitled to the adjustment of seized Cash/FDRs against the self-assessment tax liability from the date when the period of 120 days from the last date of authorization for search was over, as per section 132B of the Act. The AO's failure to adjust the seized assets within the prescribed period was against the principles of natural justice. The ITAT upheld this view, directing the AO to rework the computation in accordance with the law.

3. Release of seized Cash/FDRs:
The appellants argued that the seized Cash/FDRs should be released as the assessment and penalty proceedings were concluded. The CIT(A) and ITAT directed the AO to release the seized assets after making the necessary adjustments against the tax liability.

4. Granting of interest under section 132B(4) on seized FDRs:
The appellants claimed interest under section 132B(4) on the unutilized seized FDRs after 120 days. The CIT(A) denied this, stating that FDRs are not considered "money" under section 132B(4), and the appellants did not suffer any pecuniary loss as the FDRs continued to earn interest from the banks. The ITAT upheld this view, rejecting the appellants' claim for interest on seized FDRs.

Conclusion:
The ITAT allowed the appeals for statistical purposes regarding the adjustment of seized Cash/FDRs against tax liability and directed the AO to release the seized assets. However, the appeals for granting interest under section 132B(4) on seized FDRs were dismissed.