2025 (1) TMI 1227 - AT - Income Tax

Cash seized during a search operation adjustment against the advance tax liability of the assessee - HELD THAT - The section 132B of the Act prescribes as how the cash seized should be adjusted against the tax liability including existing tax liability and liability determined on completion of the search assessments orders / penalty order etc i.e. regular tax demand. Given that the search action in this case occurred in the financial year 2014 subsequent to the insertion of Explanation 2 its provisions are applicable to the facts of this case. Thus the prayer of the assessee for adjustment of the seized case against advanced tax liability is not permissible and accordingly relevant prayer of the assessee is rejected. Adjusting the seized case against the self-assessment tax liability - It is evident that self assessment tax liability could be treated as part of the existing liability but in the instant case the assessee has apparently not included the said amount of the cash seized as part of his total income and computed the self-assessment tax liability corresponding to said income. Assessee communicated to the AO for offering of cash seized as income and requested for adjusting the tax due from the cash seized as the assessee did not have liquidity to discharge the tax liability. In the instant case before us the learned counsel could not readily substantiate evidences in support of existence of identical circumstances therefore we feel it appropriate to set-aside the finding of the CIT(A) on issue in dispute and restore the matter back to the file of the AO for determining the issue of adjustment of self-assessment tax liability after verification of application filed by the assessee seeking such adjustment other documentary evidences to support that circumstances identical to the case of Arun Banal 2023 (6) TMI 39 - ITAT DELHI existed in the case and then decide the issue in accordance with law. Interest charged u/s 220 in respect of regular tax demand consequent to assessment order - The assessee cannot be held as assessee in default for non-payment of the tax on time and no interest under section 220 can be charged from the assessee in such circumstances. Accordingly we direct the AO to adjust the seized cash against the tax liability raised in notice for demand dated 30/12/2016 as said cash was already available with the Department for adjustment within the period of 30 days provided under said notice. We may clarify that this issue of adjustment against regular demand is to be considered by the AO if the assessee does not get relief on the issue of adjustment of cash seized against self assessment tax while verification of the issue self-assessment tax liability adjudicated by us in preceding paragraphs.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

1. Whether the cash seized during a search operation should be adjusted against the advance tax liability of the assessee.

2. Whether the seized cash can be adjusted against the self-assessment tax liability.

3. The appropriateness of charging interest under Section 234B and Section 234C of the Income Tax Act for non-payment of advance tax.

4. The legitimacy of interest charged under Section 220 of the Income Tax Act due to the delay in adjusting the seized cash against the regular tax demand.

ISSUE-WISE DETAILED ANALYSIS

1. Adjustment of Seized Cash against Advance Tax Liability

The relevant legal framework involves Section 132B of the Income Tax Act, which prescribes how seized cash should be adjusted against tax liabilities. The Court referenced the Explanation 2 to Section 132B, introduced by the Finance Act 2013, which explicitly states that 'existing liability' does not include 'advance tax' payable. This amendment renders the decision of the Punjab and Haryana High Court inapplicable, as it was based on a legal framework prior to this amendment. The Court concluded that the adjustment of seized cash against advance tax liability is not permissible.

2. Adjustment of Seized Cash against Self-Assessment Tax Liability

The Court examined the possibility of adjusting seized cash against self-assessment tax liability, which is computed upon filing the return of income. The Court referred to precedents, including a decision by the coordinate bench in the case of Arun Bansal, which held that self-assessment tax becomes an existing liability on the first day of April following the financial year. The Court noted that the Kolkata bench of the Tribunal in ACIT vs Narendra N Thacke supported the adjustment of seized cash against self-assessment tax. However, the Court found that the assessee in this case had not included the seized cash in the total income for self-assessment purposes. Consequently, the matter was remanded to the Assessing Officer for verification of the circumstances and determining the appropriateness of the adjustment.

3. Interest under Section 234B and Section 234C

The interest under Sections 234B and 234C was charged due to non-payment of advance tax on the undisclosed income. Given the Court's conclusion that seized cash cannot be adjusted against advance tax liability, the interest charges under these sections were upheld, subject to the outcome of the remand regarding self-assessment tax adjustment.

4. Interest under Section 220

The Court addressed the issue of interest charged under Section 220 due to the delay in adjusting the seized cash against the regular tax demand. The delay in adjustment was attributed to the Assessing Officer, as the cash was available for adjustment, and the assessee had made timely requests for such adjustment. The Court ruled that the assessee should not be penalized with interest under Section 220 for this delay, and directed the Assessing Officer to adjust the seized cash against the tax liability raised in the demand notice within the prescribed period.

SIGNIFICANT HOLDINGS

The Court preserved several key legal principles:

- Explanation 2 to Section 132B explicitly excludes advance tax from 'existing liability,' thus prohibiting the adjustment of seized cash against advance tax liability.

- Self-assessment tax liability can be considered an 'existing liability' for adjustment purposes, provided the seized cash is included in the total income for self-assessment.

- The Revenue cannot delay the adjustment of seized cash against tax liabilities and subsequently charge interest for such delays.

Final determinations included the rejection of the adjustment of seized cash against advance tax liability, remanding the issue of self-assessment tax adjustment for further verification, and directing the adjustment of seized cash against regular tax demand without interest under Section 220.

← Previous Next →