2012 (4) TMI 121 - HC - Income Tax

Search and seizure of 4136.83 grams of gold from the business premises - Following the search and seizure, by Exts.P2 to P2(f) orders issued on 31/12/2010, assessment for the years 2003-04 to 2009-10 was completed under Section 153C of the Income Tax Act - Penalty u/s 271(1)C - the correctness of the stand taken by the respondents in refusing to release the gold to the petitioner has to be decided with reference to the pendency of the penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961 - the respondents do not contend that the petitioner had any existing liability and therefore, the first part of section 132B(1)(i) of the Act does not have any relevance - the contention of the petitioner is that the section entitles the respondents to apply the assets seized only towards existing liability, liability determined, penalty levied and interest payable - These orders itself stated that penalty proceedings under section 271(1)C of the Act are being initiated and accordingly such proceedings have been initiated and are pending - When statute recognizes the entitlement of the respondents to apply the asset seized towards the tax liability determined,which includes penalty, it is puerile to contend that the statute obliges the respondents to return the same on determination of the tax liability and before levying the penalty - Held that the section entitles the respondents to retain the gold in question with them until penalty is levied and apply the same towards the liability so determined, provided the petitioner is in default or deemed to be in default

Summary

Issues involved:
1. Refusal to release seized gold by the Income Tax Department.
2. Liability for tax, penalty, and interest under the Income Tax Act.
3. Interpretation of Section 132B(1) of the Income Tax Act regarding seized assets.

Detailed Analysis:
1. The petitioner, a partnership firm engaged in refining gold bars, had gold seized during a search conducted by the Income Tax Officer. The petitioner sought the release of the gold, claiming to have discharged tax liabilities under assessment orders. The Income Tax Department refused, citing pending penalty proceedings as the reason for withholding the gold.

2. The Income Tax Department contended that penalty proceedings had been initiated against the petitioner, along with rectification orders for certain assessment years and an interest liability. The petitioner argued that they had paid the tax and interest due, and the pendency of penalty proceedings should not justify withholding the seized gold. The petitioner relied on legal judgments to support their claim.

3. The court analyzed Section 132B(1) of the Income Tax Act, which allows seized assets to be applied towards existing liabilities, determined liabilities, penalties, and interest. The court clarified that liability determined includes penalties to be levied. The court rejected the petitioner's argument that assets seized should be returned before the penalty is levied, stating that the statute permits retention until the penalty is determined. Legal precedents cited by the petitioner were deemed irrelevant to the current case.

In conclusion, the court dismissed the writ petition, upholding the Income Tax Department's decision to withhold the seized gold until the penalty is levied and applied towards the determined liability.