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TMI Blog2015 (8) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... e are not appropriated towards payment of tax. Section 132(5) of the Act does not contemplate appropriation of assets towards any liability, whether existing or in future, but is limited to permitting the ITO to retain the seized assets to be applied as provided under the Act.The expression “existing liability” as used in Section 132(5) of the Act would mean a liability which has been determined and crystallized and, thus, is capable of being specified in an order under Section 132(5) of the Act. In absence of any return filed, any assessment made or any determinative process undertaken, the question of the ITO specifying a liability under clause (iii) of Section 132(5) of the Act does not arise. Thus, plainly, the reference to an “existing liability” as used in Section 132(5)(iii) of the Act would mean such liability that has already been determined and crystallized such demands outstanding in respect of prior years where assessment have been made for or any other liability that stands crystallized by any determinative process under the Act. In view of the aforesaid, the conclusion of the CIT(A) as well as the Tribunal that liability of the Assessee would stand discharged to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e operations conducted under Section 132 of the Act. The Assessees claim that the amounts seized during the search ought to be accounted for as payment of advance tax on the date of seizure and interest chargeable under Section 234A, 234B and 234C of the Act ought to be computed accordingly. The Revenue disputes this contention. According to the Revenue, the currency seized during the search operations under section 132 of the Act, cannot be treated as payment of tax till the filing of the return by the Assessee surrendering the seized amount as payment of tax or a demand being raised pursuant to a regular assessment. 3. In view of the above controversy, this Court, by an order dated 12th February, 2004 framed the following question of law for determination:- Whether the Tribunal was right in holding that amount retained u/s 132(5) of the Income-tax Act, 1961 amounts to payment of taxes and should be taken into consideration while calculating interest payable u/s 234A, 234B and 234C of the Income-tax Act, 1961? 4. It is relevant to note that all parties had agreed before the Tribunal that the facts and the questions of law involved in all the appeals were common and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x payment on the date of the seizure and, therefore, was adjusted towards the part payment of the demand finally raised pursuant to assessment under Section 143(1)(a) of the Act. 4.6 Aggrieved by the aforesaid order, the Assessee preferred an appeal before CIT(A) being Appeal No.461/1994-95. It was contended before the CIT(A) that the demand of tax would necessarily relate back to the relevant accounting year since the liability of income tax crystallises on the last date of the accounting year, which in this case was 31st March, 1991. Therefore, the amount seized by the Income Tax Authorities ought to be adjusted on the date of the seizure and if not so, at least on the last date of the accounting year. The Assessee further urged that he had surrendered income under Section 132(4) of the Act during the course of the search operations and, thus, had also not sought a refund of the amount seized. In the given circumstances, it was contended, that the Assessee s request for making the adjustment from the date of the search ought to be acceded to. The CIT(A) passed an order dated 23rd December, 1994 holding that the amount seized during the search, ought to be adjusted from the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing of the order under Section 132(5) of the Act and, therefore, it would be fair to hold that the adjustment of tax by the AO should relate back from the date of order under Section 132(5) of the Act. The Tribunal held that the liability to pay advance tax had occurred during the financial year 1991 and, therefore, had to be treated as an existing liability as mentioned in clause (iii) of Section 132(5) of the Act. 5. Mr Sahni, Sr. Standing Counsel appearing on behalf of the Revenue contended that an order under Section 132(5) of the Act did not permit appropriation of the assets seized but, only empowered the AO to retain the assets to be applied in a manner as provided under the Act. He further contended that the amount retained by the AO could only be appropriated towards the income tax liability once the Assessee had filed a return accepting the same as payment of tax or on a regular assessment being made. He emphasised that prior to the filing of the return, there was no determination of liability towards which the seized assets could be applied. He further submitted that the expression existing liability as used in Section 132(5)(iii) of the Act would refer to liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining the amount of interest payable and the amount of penalty imposable in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act, as if the order had been the order of regular assessment; (iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in clause (a) of subsection (1) of section 230A in respect of which such person is in default or is deemed to be in default. and retain in his custody such assets/or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in clauses (ii), (iia) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized: Provided that if, after taking into account the materials available with him, the Income-tax Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iabilities referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized. (4) (a) The Central Government shall pay simple interest at the rate of fifteen per cent. per annum on the amount by which the aggregate of money retained under section 132 and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (iii) of sub-section (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to in clause (i) of sub-section (1) of this section. (b) Such interest shall run from the date immediately following the expiry of the period of six months from the date of the order under sub-section (5) of section 132 to the date of the regular assessment or reassessment referred to in clause (i) of sub-section (1) or, as the case may be, to the date of last of such assessments or reassessments. 8. Section 132(4) of the Act enables an authorised officer to examine on oath any person who is found to be in possession or control of any books of accounts, documents or other assets. Any disclosure mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act does not contemplate appropriation of assets towards any liability, whether existing or in future, but is limited to permitting the ITO to retain the seized assets to be applied as provided under the Act. 9. In view of the aforesaid, the conclusion of the CIT(A) as well as the Tribunal that liability of the Assessee would stand discharged to the extent of cash seized from the date of the order under Section 132(5) of the Act is not sustainable as Section 132(5) of the Act does not deal with appropriation of the assets seized. 10. Clause (i) of Section 132B(1) of the Act as it existed in the statute book at the material time enables the Income Tax Authorities to apply the assets retained under Section 132(5) of the Act towards any existing liability as referred to in clause (iii) of Section 132(5) of the Act. By virtue of that clause, the ITO could specify any existing liability and retain assets sufficient to meet the same. The expression existing liability as used in Section 132(5) of the Act would mean a liability which has been determined and crystallized and, thus, is capable of being specified in an order under Section 132(5) of the Act. In absence of any return ..... 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