2013 (7) TMI 14 - AT - Income Tax

Seizure of cash in the course of search proceedings - Assessee submitted that out of the total cash seized, ₹ 10 lacs be treated towards payment of advance tax in the case of assessee and similarly balance of ₹ 33 lacs be treated towards payment of advance tax in case of family members/group companies - rejection of rectification application u/s 154 - charging interest u/s 234B and 234C - Held that - It is an undisputed fact that during the course of search at the residence of directors on 8.2.2007 and locker on 7.3.2007 aggregate cash of ₹ 43 lacs was seized. It is also an undisputed fact that Assessee vide his letter dated 13.3.2007 submitted that out of the cash seized, ₹ 10 lacs be treated towards payment of advance tax in the case of assessee and similarly balance of ₹ 33 lacs be treated towards payment of advance tax in case of family members/group companies. It is also a fact that vide aforesaid letter, the Assessee had requested that cash of ₹ 8 lacs be considered as advance tax in the case of Shreeji Prints P. Ltd. 2013 (7) TMI 19 - ITAT AHMEDABAD . Thus on interpretation of applicability of explanation, and amendment made by Finance Bill 2013 the amended Explanation cannot be applied in present case. Therefore allow the appeal of the Assessee and direct the AO to give credit of ₹ 10 lacs as advance tax. Thus the appeal of the Assessee is allowed.

Issues Involved:
1. Adjustment of seized cash towards advance tax.
2. Charging of interest under sections 234B and 234C.
3. Applicability of the amendment to section 132B by Finance Bill 2013.

Issue-wise Detailed Analysis:

1. Adjustment of Seized Cash Towards Advance Tax:
The Assessee argued that Rs 10 lacs out of the seized cash should be adjusted as advance tax against their tax liability, as stated in a letter dated 13.3.2007. The Assessing Officer (AO) and CIT(A) rejected this request, citing section 132B, which allows adjustment of seized amounts against existing demands and demands raised after assessment, but not against advance tax payable. The AO referred to conflicting court decisions and held that the seized amounts could not be treated as advance tax, thus rejecting the rectification application under section 154.

However, the Assessee relied on precedents from the Mumbai Tribunal (Sudhakar Shetty v. ACIT) and Delhi High Court (CIT v. Kesr Kimam Karyalaya), which supported the adjustment of seized cash towards advance tax from the date of seizure. The Tribunal noted that the co-ordinate Bench in the case of Shreeji Prints had ruled in favor of the Assessee, allowing the adjustment of seized money towards advance tax liability.

2. Charging of Interest Under Sections 234B and 234C:
The AO charged interest under sections 234B and 234C, arguing that the Assessee could not escape liability for interest on unpaid advance tax, despite the seizure of cash. The CIT(A) upheld this view, stating that there was no apparent mistake in the AO's order. The Assessee contended that the interest should not be levied as the seized cash should be considered as advance tax payment from the date of seizure.

The Tribunal, considering the precedents and the facts of the case, found that the seized cash could indeed be treated as advance tax, thus negating the need for interest under sections 234B and 234C. The Tribunal directed the AO to give credit of Rs 10 lacs as advance tax.

3. Applicability of the Amendment to Section 132B by Finance Bill 2013:
The AO and CIT(A) referenced the Finance Bill 2013, which inserted an Explanation to section 132B, clarifying that "existing liability" does not include advance tax payable. This amendment was to take effect from 1st June 2013. The Tribunal noted that the amendment was prospective and could not be applied retrospectively to the Assessee's case for the assessment year 2007-08.

The Tribunal cited legal interpretations stating that statutes, particularly those with specified effective dates, should be construed prospectively. Therefore, the amendment to section 132B could not impact the Assessee's case, and the seized cash should be adjusted against the advance tax liability.

Conclusion:
The Tribunal allowed the Assessee's appeal, directing the AO to treat the seized Rs 10 lacs as advance tax and not to levy interest under sections 234B and 234C. The amendment to section 132B by Finance Bill 2013 was deemed inapplicable to the present case. The decision was pronounced in open court on 21/06/2013.

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