2023 (11) TMI 810 - HC - Income Tax

Interest liability u/s 234A, 234B, and 234C - Treatment to amount seized during the search - as argued that amount seized has not been treated as advance tax and have treated as having been paid towards self-assessment tax - HELD THAT - The record which is available to the court clearly shows that the petitioner had offered Rs. 50 lakhs seized in search to be treated as advance tax. This endorsement is found both in the ROI as well as in the computation sheet accompanying the ROI. The respondents/revenue cannot but accept that at the relevant point in time i.e., before 01.06.2013, Section 132B of the Act did allow for the person from whom cash was seized to offer the same for adjustment of tax liability. It is important to note that the expression existing liability on which stress was laid by Mr Singh, finds mention in Explanation 2 appended to Section 132B. Explanation 2 which was inserted in the Act via FA 2013 albeit w.e.f. 01.06.2013 is a clear indicator that the expression existing liability did include advance before its insertion. Therefore, this argument of Mr Singh/respondent does not find favour with us. As decided in in Latika Datt Abbott case 2017 (8) TMI 1297 - DELHI HIGH COURT the court in no uncertain terms held that the assessees in the said case were entitled to the benefit of Circular No.20 of 2017 and that their request for adjustment of tax liability would have to be allowed w.e.f. from the date when the request was first made. Therefore, in our view, the stand taken on behalf of the petitioner by Mr Sharma/petitioner would have to be accepted for the reasons given above. The respondents/revenue ought to have treated the cash seized as advance tax and accordingly passed the assessment order. Section 234A of the Act imposes a liability on the assessee for payment of interest where there is default in filing the ROI. Likewise, Section 234B of the Act imposes a liability on the assessee for payment of interest where there is default in payment of advance tax. As far as Section 234C is concerned, it adverts to the liability of the assessee to pay interest where there is a deferment of advance tax. In this case, as ROI was filed, though after the search. The seized cash was offered by the assessee, under the regime which was prevailing then, to be treated as the advance tax and thus there was no default in payment of advance; although its payment /adjustment was triggered due to a search action. Lastly, for the same reason, it cannot be said there was a deferment of payment of advance tax. Thus, in sum, the liability imposed on the petitioner while framing the assessment order dated 29.12.2010 with regard to interest under the aforesaid provision was wrong. The respondents/revenue would be required to excise the imposition of interest made under the aforesaid provisions and thereafter calculate what would have been the refund payable to the petitioner. Once the respondents/revenue arrived at that figure, the same would be adjusted from the refund already paid to the petitioner, which, as noted above, is Rs. 20,73,340/-. The respondents/revenue would, after making the adjustment, pay interest @ 6% from the date of filing the return i.e., 15.03.2010. Besides this, interest will also have to be paid on Rs. 32,65,210/-, which is the refund amount shown in the ROI filed by the petitioner after adjusting the aggregate tax liability amounting to Rs. 31,58,127/-, the advance tax of Rs. 50 lakhs and tax deducted at source amounting to Rs. 14,23,332/-. Thereto, interest will also be paid on the interest wrongly imposed under Sections 234A, 234B, and 234C of the Act.

Summary

Issues Involved:
1. Treatment of the amount seized during the search action as advance tax.
2. Levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.
3. Truncation of refund for the Assessment Year 2009-10.

Issue 1: Treatment of Seized Amount as Advance Tax
The petitioner contended that the amount seized during the search action under Section 132 of the Income Tax Act, 1961, should be treated as advance tax. Despite representations made by the petitioner, the respondents/revenue treated the seized amount as self-assessment tax. The court noted that the search and seizure action was carried out on 15.01.2009, and the petitioner filed the Return of Income (ROI) on 15.03.2010, explicitly stating that the seized cash of Rs. 50 lakhs should be treated as advance tax. The court observed that before the amendment via Finance Act, 2013, Section 132B allowed the adjustment of seized cash as advance tax.

Issue 2: Levy of Interest Under Sections 234A, 234B, and 234C
The respondents/revenue imposed interest under Sections 234A, 234B, and 234C of the Act, which the petitioner argued was incorrect as the seized cash should have been treated as advance tax. The court agreed with the petitioner, noting that the ROI was filed after the seizure and the cash was offered to be treated as advance tax. Consequently, there was no default in payment of advance tax, and the imposition of interest under the aforesaid sections was deemed incorrect.

Issue 3: Truncation of Refund for AY 2009-10
Due to the respondents/revenue treating the seized amount as self-assessment tax and imposing interest under Sections 234A, 234B, and 234C, the refund for AY 2009-10 was reduced. The court ruled that the respondents/revenue should have treated the cash seized as advance tax and recalculated the refund accordingly. The court directed the respondents/revenue to excise the imposition of interest and compute the correct refund amount, adjusting it against the already paid refund of Rs. 20,73,340/- and paying interest at 6% from the date of filing the ROI.

Conclusion
The court concluded that the respondents/revenue should have treated the seized cash as advance tax and not imposed interest under Sections 234A, 234B, and 234C. The respondents/revenue were directed to recompute the refund and pay the petitioner the due amount with interest at 6% from 15.03.2010. The writ petition was disposed of with the expectation that the amount due would be remitted within six weeks.