2023 (11) TMI 238 - HC - Income Tax

Invocation of 153A 153C - cash seized during assembly election - entitlement to exception u/rule 112F(ii) of the Income Tax Rules, 1962 - after the Tamil Nadu State Assembly Election Model Code of Conduct was in force, the Tamil Nadu State Survelliance Team (SST) intercepted two persons, working at the Bank of Baroda as Joint Manager and as correspondent, who were found carrying cash in a vehicle As on the date when the cash was seized Tamil Nadu State Assembly Model Code was in operation and therefore AO cannot issue notice for assessing and reassessing the total income for six assessment years immediately preceding the assessment - HELD THAT - A reading of the facts and statement given by the petitioner and the statements of Bank Officer, Joint Manager, Mr.Unnikrishnan, makes it clear that the practice of the petitioner as the president of the Trust running the college was to credit the salary of staffs/employees into their personal savings account and thereafter withdraw the same by collecting self drawn cheques duly signed by them. The statement that was given by the petitioner was retracted only at a later point of time. The seizure of cash on 10.03.2021 from the possession of Mr.Unnikrishnan and Mr.Swaminathan merely coincided with the implementation of the Tamil Nadu State Assembly Model Code for the ensuring Tamil Nadu Assembly Election. The exception under Rule 112 F (ii) of the Income Tax Rules, 1962 will apply only where the assets so seized or requisitioned are in any manner connected with the ongoing election in an assembly or Parliamentary constituency. This exception is not applicable to the facts of the case, as records indicate that it was the practice of the petitioner to withdraw the cash of staffs/employee atleast from January 2021, if not before as is evident from the statement of Mr.Unnikrishnan on 10.03.2021. Merely because, search was conducted or requisition was made when the Tamil Nadu State Assembly Model Code of Conduct from the State Assembly Election in Tamil Nadu was in force could not mean the issuance of notice u/s 153 A or Section 153C would be automatically excluded and exception under Rule 112F(ii) of the Income Tax Rules, 1962 would get triggered. Unless, the cash that was seized was in connection with the assembly election, question of excluding the petitioners from the purview of proceeding under Section 147, 153A/153C of the Income Tax Act, 1961 cannot be countenanced. Decided against assessee.

Summary

Issues Involved:
1. Validity of the impugned orders passed under Rule 112(F) of the Income Tax Act, 1962.
2. Applicability of the CBDT Circular No.10/2012 in the context of the seized assets and ongoing election process.
3. Jurisdictional challenge to the invocation of Section 153A and 153C of the Income Tax Act, 1961.

Summary:

Issue 1: Validity of the impugned orders passed under Rule 112(F) of the Income Tax Act, 1962

The petitioner society and its president filed writ petitions aggrieved by the impugned orders dated 26.03.2022 passed by the Director General of Income Tax (Investigation), Chennai, under Rule 112(F) of the Income Tax Act, 1962. The orders were based on applications by the petitioners dated 25.02.2022. The orders stated that evidence was found showing that salary expenses paid to the employees of the Trust were inflated and received back in cash by the assessee, requiring investigations for preceding assessment years, thus not covered by the CBDT Circular dated 31.12.2012.

Issue 2: Applicability of the CBDT Circular No.10/2012 in the context of the seized assets and ongoing election process

The petitioners argued that the exemption under Rule 112F should apply as the cash was seized during the Tamil Nadu State Assembly Model Code operation. The respondents countered that the exemption applies only if the assets are connected to the ongoing election process, which was not the case here. The court noted that the petitioners' practice of withdrawing cash from employees' accounts predated the election period, and the seized cash was not connected to the election.

Issue 3: Jurisdictional challenge to the invocation of Section 153A and 153C of the Income Tax Act, 1961

The petitioners contended that the conditions under Rule 112(F) were met, and thus, the invocation of Sections 153A and 153C for assessing and reassessing was without jurisdiction. The court found that the cash seizure coinciding with the election code did not automatically trigger the exception under Rule 112F(ii). The seized cash was not connected to the election, and thus, the proceedings under Sections 153A and 153C were valid.

Conclusion:

The court dismissed the writ petitions, stating that the impugned orders did not warrant interference as the conditions for exemption under Rule 112F were not met. The petitioners' practices and the timing of the cash seizure did not justify excluding them from proceedings under Sections 153A and 153C of the Income Tax Act, 1961. The petitions were dismissed with no costs, and connected miscellaneous petitions were closed.