2024 (9) TMI 220 - HC - Income Tax

Adjustment of seized cash against tax liability - Application of seized or requisitioned assets u/s 132B - HELD THAT - The appellants claim that cash seized from the possession of Sarup Chand should be treated as cash seized from the possession of appellants and it should be adjusted against their tax liability under Section 140A read with Section 153A of 1961 Act. Section 132B provides for application of seized or requisitioned assets. It provides that assets seized under Section 132 or requisitioned u/s 132A shall be dealt with in the manner prescribed therein. From the conjoint reading of Sections 140A, 132B and 234B, it is evident that while determining tax liability, the tax deducted or collected at source as well as advance tax is deducted from the total liability. The appellants have not paid advance tax and they are wrongly claiming that in view of Section 132B the amount recovered from the possession of Sarup Chand should be treated as advance tax payable by them. The alleged amount was concededly lying deposited in the bank account of Sarup Chand and till the determination of liability of all the parties, there was no question of adjustment of seized cash against the liability of appellants. They were liable to pay interest in terms of Section 234B on account of delayed payment on advance tax. In the wake of above discussion and findings, we are of the considered opinion that amount seized from the possession of Sarup Chand could not be treated as cash belonging to appellants from the date of seizure and it could not be adjusted on the said date against their tax liability. Revenue has correctly adjusted seized cash from the date of framing of assessment and charged interest u/s 234B on delayed payment of advance tax. As we are of the considered opinion that amount seized from the possession of Sarup Chand could not be treated as cash belonging to appellants from the date of seizure and it could not be adjusted on the said date against their tax liability. The Revenue has correctly adjusted seized cash from the date of framing of assessment and charged interest u/s 234B on delayed payment of advance tax. Decided in favour of assessee.

Issues Involved:
1. Adjustment of seized cash against tax liability.
2. Treatment of seized cash as advance tax.
3. Charging of interest under Section 234B for delayed payment of advance tax.
4. Entitlement to interest on seized funds.

Detailed Analysis:

1. Adjustment of Seized Cash Against Tax Liability:

The appellants argued that the cash seized from Sarup Chand's bank account should be treated as belonging to them and adjusted against their tax liability under Section 140A read with Section 153A of the Income Tax Act, 1961. However, the Tribunal and the High Court held that the mere filing of an affidavit by Sarup Chand, claiming that the cash belonged to the appellants, was insufficient to establish ownership. The cash was seized from Sarup Chand's bank account, and until the assessment was completed, it was treated as his asset. The Assessing Officer (AO) rightly adjusted the seized cash against the appellants' tax liability only after confirming that there was no tax liability for Sarup Chand.

2. Treatment of Seized Cash as Advance Tax:

The appellants contended that the seized cash should be treated as advance tax paid by them. However, Section 132B of the Income Tax Act specifies that seized assets can be adjusted against the existing liabilities of the person from whom they were seized. The court clarified that the explanation to Section 132B, inserted w.e.f. 01.06.2013, states that "existing liability" does not include advance tax. Therefore, the appellants' claim that the seized cash should be treated as advance tax was deemed misconceived.

3. Charging of Interest Under Section 234B for Delayed Payment of Advance Tax:

The appellants argued that interest under Section 234B should not be charged for the period between the seizure of cash and the assessment order. The court held that interest under Section 234B is payable on the delayed payment of advance tax. Since the appellants did not pay advance tax, they were liable to pay interest from the first day of April following the financial year until the date of regular assessment. The court emphasized that the adjustment of seized cash against their tax liability could only occur after the assessment was completed, and thus, interest was correctly charged for the intervening period.

4. Entitlement to Interest on Seized Funds:

The appellants claimed that they should be granted interest on the seized funds retained by the Revenue. The court noted that Section 132B(3) provides that any remaining assets or proceeds after discharging liabilities should be returned to the person from whose custody they were seized. However, the court did not find any provision entitling the appellants to interest on the seized funds during the period they were retained by the Revenue.

Conclusion:

The High Court dismissed the appeals, holding that:
- The cash seized from Sarup Chand's bank account could not be treated as belonging to the appellants from the date of seizure.
- The seized cash could not be adjusted against the appellants' tax liability until the assessment was completed.
- Interest under Section 234B was correctly charged for the delayed payment of advance tax.
- The appellants were not entitled to interest on the seized funds retained by the Revenue.

All questions raised in the appeals were answered in favor of the Revenue, and the appeals were dismissed.

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