Release of assets held as disclosed - order u/s.132(5). - Income Tax - 1180/CBDT

INSTRUCTION NO. 1180/CBDT Dated : June 1, 1978 Section(s) Referred: 132(5) Statute: Income - Tax Act, 1961 Several issues have come to the notice in connection with the orders passed by ITOs u/s.132(5). The following instructions are issued for the necessary clarification:- 1) Release of assets held as disclosed - order u/s.132(5): Some times the person from whom assets are seized at the time of search as being undisclosed, is able to produce sufficient evidence in the course of proceedings u/s.132(5) to show that the seized assets or a part thereof are duly disclosed for the purposes of the I.T.Act. Such seized assets which are held, in the order u/s.132(5) as disclosed may be retained and adjusted against the existing tax liabilities as referred to in clause (iii) of sec.132(5) and the balance should be released to the person from whom the seizure was made, unless he gives his consent in writing to its retention for adjustment against the liability which may be determined on completion of the regular assessment or reassessment. It is clarified that the assets held as disclosed should not be retained against the liabilities determined under clauses (ii) and (iia) of section 132(5). In a case where the seized assets are held to belong to a third person, the ITO may proceed against the real owner of seized assets u/s.132(7) in accordance with the instructions contained in para 37 of Board's circular No.25-D of 1965. If no proceeding is taken u/s.132(7) the assets in question should be released immediately as they cannot be retained against any liability of the person from whom the seizure is made. Thus when seized cash/jewellery etc. are claimed to belong to ladies of the family acquired from some independent source and accepted as such by the ITO the assets in question should be released forthwith. 2) Title deeds of immovable properties. There is no need for passing an order u/s.132(5) unless valuable assets are seized. In cases where only books of account and other documents like title deeds of immovable properties are seized their retention will be governed by the provisions contained in sub-sec.(8) of sec.132 and not sub-sec(5) . A title deed of immovable property is not a valuable article or thing within the meaning of sub-sec.(5), but a document within the meaning of sub-sec.(8) of section 132. A title deed of immovable property can be retained under sub-section(8), but its retention itself will not confer any special right on the Department unless simultaneous action is taken by exercising the powers of provisional attachment of the property in question u/s.281 B of the I.T.Act. The ITOs may therefore have to take appropriate action for protecting the interests of the revenue in such cases on the basis of the seized documents, with the prior approval of the Commissioner. 3) Tax liabilities in a firms case. In the case of a search in a firm's case it has been noticed that the liabilities of the partners are occassionally being included by the ITOs in determining the total liability of the assessee firm u/s.132(5) which envisages an estimate of the undisclosed income of the person concerned. The total liability in the case of an unregistered firm will be the tax on such undisclosed income plus interest payable penalty imposable and existing liability if any of the firm alone. In the case of a registered firm, taxes are charged not only in the hands of the firm but also in the hands of the partners. The amount of tax on the estimated undisclosed income of the firm will, therefore be borne in the case of a registered firm, by the firm as also by its partners. Hence while calculating the tax on the amount of undisclosed income u/s.132(5)(ii), besides the tax if any on the undisclosed income in the hands of the firm proportionate tax on the share of undisclosed income in the hands of the partners should also be taken into account. The existing liability as per section 132(5)(iii) will be that of the firm alone and not of the partners. 4). Determination of tax liability under the first proviso to section 132(5) The first proviso to section 132(5) provides that if after taking into account the material available the ITO cannot ascertain the previous year to which the concealed income relates, the tax should be calculated on such income at the rates in force in the financial year of seizure as if such income were the total income. The interest or penalty if any payable or imposable should also be determined accordingly. In such an eventuality, there is no scope for the ITO estimating the current income from known sources and adding the same to the undisclosed income estimated by him. 5). Release of seized valuable assets under second proviso to section 132(5) Under the second proviso to sec.132(5) the ITO may with the previous approval of the CIT release seized assets, if the assessee has paid or made satisfactory arrangements for payment of tax, interest, and penalty liabilities referred to in clauses (ii) (iia) and (iii) of sec.132(5). There may be hard cases in which the entire business of an assessee may get paralysed by reason of the seizure of assets. Prompt action should be taken on requests for release of seized assets in such cases so as to eliminate avoidable complaints of delay and harassment, without prejudice to the interest of the revenue. A question has been raised as to whether an offer of security of immovable property by way of deposit of title deeds constitutes satisfactory arrangements for payment of the amount due under the Act. The Ministry of law have advised that by merely offering immovable property as security for payment, it cannot be said that satisfactory arrangements for the payment of the amount are made by the person concerned under the second proviso to sec.132(5). 6) Jurisdiction over applications u/s.132(11) on transfer of cases to other Commissioner's Charges. A question has been raised as to whether an application u/s.132(11) pending with the Commissioner from whose charge the file has been transferred after the passing of order u/s.132(5) stands automatically transferred to the other Commissioner. The Ministry of Law have pointed out that cases pending for disposal with a court or a Tribunal continue to be disposed of by them unless such Tribunal or authority is expressely divested of its jurisdiction by law. As such the Commissioners whom applications u/s.132(11) are pending will continue to exercise jurisdiction over such applications even after the transfer of the cases to other Commissioners charges. 7) Reference to the valuation cell in search seizure cases. Some of the search and seizure operations have revealed considerable understatement of the value of immovable properties that the full investment in immovable properties, plant and machinery have not been disclosed by the assessees. Commissioners should get immovable properties etc. valued in appropriate cases wherever there is a reasonable ground for suspecting substantial under valuation / understatement of investment in accordance with the guidelines contained in Instruction No.365.