2003 (9) TMI 334 - AT - Income Tax

Summary

Issues Involved:
1. Adjustment of seized assets against admitted tax liability.
2. Compliance with Section 249(4)(a) of the IT Act for admitting appeals.
3. Levy of penalty under Section 221(1) r/w Section 140A of the IT Act.

Issue-wise Detailed Analysis:

1. Adjustment of Seized Assets Against Admitted Tax Liability:
The assessees, Shri Suresh Chand Verma and Shri Satish Chand Verma, were subjected to a search and seizure operation under Section 132(1) of the IT Act, 1961, leading to the recovery of significant amounts of silver and gold ornaments. Both assessees filed returns declaring undisclosed income and requested the CIT, Kanpur, to appropriate the seized assets against their admitted tax liabilities. Despite multiple applications to various authorities, no action was taken to adjust the seized assets against the tax liabilities. The Tribunal noted that the provisions of Section 158BC(d) and Section 132B of the Act mandate the adjustment of seized assets against the tax liability determined under block assessment. The Tribunal cited the case of K.T. Kunjumon vs. CIT, where the Madras High Court held that assets seized during a search must be adjusted against the tax liability for the block period.

2. Compliance with Section 249(4)(a) of the IT Act for Admitting Appeals:
The CIT(A) refused to admit the appeals filed by the assessees on the grounds of non-compliance with Section 249(4)(a), which requires the payment of tax due on the income returned by the assessee at the time of filing the appeal. The assessees argued that they had requested the authorities to adjust the tax liability from the seized assets, but no action was taken. The Tribunal observed that the Department's failure to act on the assessees' reasonable requests to adjust the seized assets against the tax liability effectively prevented the assessees from complying with Section 249(4)(a). The Tribunal referred to similar cases, such as Divine Holidays (P) Ltd. vs. Dy. CIT and Ravinder Singh vs. Asstt. CIT, where the Tribunal allowed relief to the assessees under similar circumstances.

3. Levy of Penalty under Section 221(1) r/w Section 140A of the IT Act:
The AO levied penalties of Rs. 15,000 each on both assessees for non-payment of admitted tax under Section 221(1) r/w Section 140A. The CIT(A) deleted these penalties, noting that the seized assets outweighed the total tax liability and that the Department already possessed liquid assets more than adequate for making the payment under Section 140A. The Tribunal upheld this view, agreeing that the non-payment of admitted tax liability was not due to any lapse on the part of the assessees but due to the non-action of the Departmental authorities.

Conclusion:
The Tribunal concluded that the CIT(A) was not justified in refusing to admit the appeals for non-compliance with Section 249(4) of the Act. The Tribunal set aside the orders of the CIT(A) and restored the matters to the file of the CIT(A) for a decision on the merits after providing an opportunity of being heard to the assessees. The Tribunal emphasized that the Department's failure to adjust the seized assets against the tax liabilities, despite multiple requests from the assessees, constituted a reasonable cause for non-compliance with Section 249(4).