2013 (12) TMI 1110 - AT - Income Tax

Rectification of mistake Held that - If the concerned person/assessee makes an application during the course of assessment proceedings to adjust the remaining amount towards his future liability, the Assessing Officer after passing of 120 days from the last date of execution of search and seizure operation is liable, either to return the remaining amount to the assessee/concerned person and or to adjust the same towards his future liability if a specific request has been made by the assessee in this respect - If the amount remains with the Assessing Officer/tax authority after 120 days then the Central Government is liable to pay interest @ one half percent per month on the remaining amount - No automatic duty or liability has been prescribed under section 132B to adjust cash seized towards future liability of the assessee Appeal is partly allowed in favour of assessee for reworking of interest liability.

Summary

Issues Involved:
1. Interpretation of provisions of Income Tax Act regarding adjustment of seized cash against tax liability.
2. Whether interest on seized cash should be calculated from the date of seizure or completion of assessment.

Analysis:

Issue 1: Interpretation of provisions of Income Tax Act regarding adjustment of seized cash against tax liability

The appellant appealed against an order by the CIT(A) confirming the Assessing Officer's decision to charge interest under section 234B of the Income Tax Act. The appellant argued that the interest should be calculated at a lower rate as the interest on the seized cash available to the appellant was lower than the rate charged. The case involved a search and seizure operation where Rs. 42 lakhs was seized, and the appellant requested the Assessing Officer to adjust it against tax liability. The Assessing Officer allowed the adjustment towards existing liabilities but rejected the request for reworking/deletion of interest under sections 234B & 234C. The CIT(A) dismissed the appeal, stating that the issue was debatable and not a mistake apparent from the record. However, the ITAT found that since the Assessing Officer did not address the appellant's application for appropriation of seized cash, the issue was not decided, making the application under section 154 maintainable.

Issue 2: Calculation of interest on seized cash

The ITAT analyzed the provisions of section 132B of the Income Tax Act to determine the correct method of adjusting seized cash against tax liabilities. Section 132B allows for seized assets to be applied towards existing tax liabilities of the assessee. The ITAT highlighted that the provision does not automatically require adjustment towards future liabilities unless specifically requested by the assessee. The ITAT emphasized that after 120 days from the search and seizure operation, the Assessing Officer is required to return the remaining amount to the assessee or adjust it towards future liabilities upon request. The ITAT concluded that interest should be reworked after adjusting the excess amount towards future tax liability from the relevant date based on the timing of the application for adjustment. If no application is made, the Assessing Officer is not obligated to make any adjustment. The ITAT partly allowed the appeal, directing the Assessing Officer to rework the interest accordingly.

In conclusion, the ITAT's judgment clarified the interpretation of the Income Tax Act regarding the adjustment of seized cash against tax liabilities and the calculation of interest on seized cash, providing a detailed analysis of the relevant provisions and the obligations of the Assessing Officer in such cases.