2019 (2) TMI 418 - HC - Income Tax

Seeking interest on return of seized cash after adjustment of tax - assessee shown the amount of cash seized as advance tax in the ITR which was not accepted and an independent demand of tax was raised - Held that - Admittedly, the assessment for the Assessment Year 2015-16 has not been done under Section 153(A) or Chapter XIV-B of the Act. It has been done under Section 143(3) of the Act. Therefore, on a plain and strict reading of Section 132B(4) of the Act, no interest can be granted under Section 132B(4) of the Act, as it only provides for grant of interest by fixing the termination date for it as the date of completion of the assessment under Section 153A or Chapter XIV-B of the Act i.e. special provision for assessment to be done on account of search proceedings. The grant of interest under the provision of Section 132B of the Act even where assessment is completed under Section 143(3) of the Act should have been explicitly provided therein. It is not permissible for us to read something into the statutory provision, which is not there. However, though the Revenue did not accept the declaration made by the petitioner in its return of advance tax, the fact is that the petitioner claimed it to be tax. Therefore, on the date the demand notice under Section 156 of the Act was issued, there was an excess amount with the Revenue which the Petitioner was claiming to be tax. Therefore, in terms of the Explanation to Section 244A(1)(b) of the Act the amount of ₹ 35 lakhs was the excess tax (on change of its character from seized amount to tax paid), the petitioner is entitled to interest of ₹ 35 lakhs w.e.f. 16th December, 2016 on the passing of assessment order. - Interest @6% allowed. - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Entitlement to interest on cash seized during a search operation.
2. Applicability of Sections 132B(4) and 244A of the Income Tax Act, 1961.

Detailed Analysis:

1. Entitlement to Interest on Cash Seized During a Search Operation:
The petitioner sought relief under Article 226 of the Constitution of India, requesting the court to set aside the order dated 28th June 2018, which rejected their claim for interest on ?35 lakhs seized on 9th October 2014. The petitioner also requested directions for the respondents to grant interest on the seized amount for specific periods.

2. Applicability of Sections 132B(4) and 244A of the Income Tax Act, 1961:
The facts of the case reveal that a search was conducted on 9th October 2014, and ?35 lakhs were seized. The petitioner included this amount in their income for the Assessment Year 2015-16 and requested it to be treated as advance tax, which the Assessing Officer did not accept. The petitioner paid the additional tax demand raised by the Assessing Officer but sought a refund of the seized amount along with interest.

The Revenue's position was that since the assessment was completed under Section 143(3) and not under Section 153A, interest under Section 132B(4) was not applicable. Additionally, the Revenue argued that Section 244A(1)(b) did not apply as the ?35 lakhs was seized and not paid as tax or penalty by the petitioner.

The court examined Sections 132B and 244A of the Income Tax Act. Section 132B(4) provides for interest payment on seized assets if the assessment is made under Section 153A or Chapter XIV-B. Since the assessment in this case was under Section 143(3), the court held that no interest could be granted under Section 132B(4).

However, the court noted that the petitioner had shown the seized cash as advance tax in their return, and the Assessing Officer's failure to adjust this amount as advance tax was unjustified. Consequently, the court held that the character of the seized cash changed to advance tax, making the petitioner eligible for interest under Section 244A(1)(b) from the date of the assessment order.

The court referred to the Supreme Court's decision in M/s. K. Lakshmanya Co. Vs. CIT, 299 ITR 657, which supports the interpretation that interest is payable on refunds of excess tax retained by the Revenue.

Judgment:
The court set aside the impugned order dated 28th June 2018 and directed the respondent to pay interest at 6% per annum from 16th December 2016 to 31st May 2017 on ?35 lakhs (before adjustment of penalty) and on ?31.50 lakhs from 1st June 2017 to 7th March 2018. The payment was to be made within 12 weeks from the date of the judgment. The petition was allowed in these terms.