2014 (11) TMI 906 - HC - Income Tax

Liability for interest u/s 139(8)/217 and 234A, 234B, 234C - Whether the Tribunal was justified in holding that the assessee was liable for interest u/s 139(8)/217 for the AY 1988-89 and interest u/s 234A & 234B for the AY 1989-90 upto 26.3.91 the due date when the return was filed without giving credit of the amount retained by the department u/s 132(5) for meeting future tax liability which was seized on 7.7.1989 Held that - The scheme of the Act clearly suggests that the money seized during the course of the search is retained by the Revenue for the liability of the assessee which may be determined finally by the assessment or re-assessment or by final order of assessment or re-assessment, the existing liability of a previous time is only quantified and not a creation of liability on the date of passing of the assessment order - the retained amount also required to be given adjustment against the then liability of the assessee, which has been quantified subsequently by the order of assessment and re-assessment - This fact finds support of sub-section (4) of Section 132B, which for excess amount retained by the revenue, the Central Government shall pay the interest thus, the Tribunal was not justified in holding that the assessee was liable for interest u/s 139(8)/217 for the AY 1988-1989 and interest u/s 234A & 234B for the AY 1989-1990 up-to 26.3.91 Decided in favour of assessee.

Summary

Issues:
Interpretation of liability for interest under various sections of the Income Tax Act based on the retention of seized money by the Revenue.

Analysis:
The case involved a question referred to the High Court by the Income Tax Appellate Tribunal regarding the liability of the assessee for interest under different sections of the Income Tax Act. The facts of the case revolved around the seizure of a specific amount from the petitioner during a search operation under Section 132 of the Act. The Assessing Officer provisionally determined the tax liability and retained a portion of the seized amount. Subsequently, final assessments were made, creating liabilities against the assessee and imposing interest under various sections for different assessment years. The CIT(A) initially held that the amount retained by the department should be adjusted against the assessed liability from the date of seizure, relieving the assessee from paying interest from that date. However, the Income Tax Appellate Tribunal reversed this decision, leading to the reference to the High Court.

The senior counsel for the assessee argued that the seized amount was retained by the Revenue for the tax liability of the assessee and should be adjusted against the liability even before the assessment order. The counsel relied on various judgments to support this argument. On the other hand, the counsel for the Revenue contended that adjustment could only be made after the assessment order.

Upon considering the submissions and relevant provisions of the law, the High Court analyzed Section 132(5) and 132B of the Income Tax Act. The Court noted that the assets retained under Section 132(5) were required to be dealt with as per specific clauses and adjusted against the liabilities of the assessee. The scheme of the Act indicated that the seized money was retained by the Revenue for the liability of the assessee, which would be determined through assessment or reassessment. The Court highlighted that the retained amount needed to be adjusted against the assessed liability, as quantified by the assessment or reassessment order. The Court also pointed out that for any excess amount retained by the Revenue, the Central Government was liable to pay interest.

In conclusion, the High Court held that the Tribunal was not justified in holding the assessee liable for interest under specific sections for the respective assessment years, up to a certain date. The reference was answered accordingly, clarifying the interpretation of liability for interest under the Income Tax Act based on the retention of seized money by the Revenue.