9911796707
TMI Blog2004 (12) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... achandran Nair J.- The petitioner is a reputed homoeo doctor with a homoeo clinic at Kottayam and is an assessee under the Income-tax Act being assessed by the second respondent. A search conducted by the first respondent in the residence and clinic of the petitioner at Kottayam on December 30, 1994, led to seizure of cash of around Rs. 6 lakhs, Indra Vikas Patras (IVPs) for Rs. 6 lakhs and promissory note for the value of Rs. 3 lakhs. Consequent on certain data collected during the search in the petitioner's premises, the first respondent arranged for search through his counterparts in Baroda in the residence of two sons of the petitioner, namely, Indravadan R. Patel, and Jawaharlal Patel, on January 4, 1995, which led to seizure of IVPs of the value of Rs. 66.7 lakhs and Rs. 2.46 lakhs, respectively. However, in view of the admission by the petitioner and his sons in the course of search, the IVPs seized from the petitioner's sons were also treated as undeclared income of the petitioner and proceeded with. In fact, in the course of search, the petitioner made a total disclosure of Rs. 1,46,78,980 for the financial years 1989-90 to 1994-95 under section 132(4) of the Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the value of IVPs encashed until then were credited and adjusted towards tax liability for the assessment years 1994-95 and 1995-96. The petitioner has stated in this court that the assessments are contested and appeals are pending. However, this O.P. is filed by the petitioner challenging exhibit P5 whereunder the Commissioner of Income-tax has granted limited benefit for 1990-91 to 1993-94 and completely denied the benefit for the assessment years 1994-95 and 1995-96 on the petitioner's applications filed under the Kar Vivad Samadhan Scheme, 1998. It is seen from exhibit P5 that the Commissioner allowed the claim for the years 1990-91 to 1993-94 on the outstanding demand, but declined relief for the years 1994-95 and 1995-96 on the ground that there was no demand subsisting as on the date of making the applications, which is the condition for granting the benefit under the scheme prescribed under section 90(1) of the Finance (No. 2) Act, 1998. It is the denial of benefit of the KVSS to the petitioner for the assessment years 1994-95 and 1995-96 and partial denial of the claim for the other years under exhibit P5 that is the challenge raised in this O.P. The main issue rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the petitioner after remittance of tax in the petitioner's account towards proof of recovery of tax. Moreover, it is specifically provided in section 292B of the Act that any assessment, notice, summons or other proceeding issued under the Act does not get invalidated on account of any mistake, defect or omission, if, there is substantial conformity with or is done in accordance with the intent and purpose of the Act. The very object of proceeding for retention of seized assets under section 132(5) of the Act is for appropriation towards tax liability as provided under section 132B after determination of liability. The scheme of the Act provides for the officer retaining seized cash and assets under section 132(5) to transfer the same to the Assessing Officer for effecting recovery after determination of liability. There is nothing in the Act prohibiting the officer seizing the cash and assets from co-ordinating with the Assessing Officer to effectively achieve the object of the Act, that is to recover tax from the seized assets. Therefore the continued involvement of the first respondent in encashment of IVPs and recovery of tax was not illegal or inconsistent with any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn for the assessment year 1995-96 and discharge of tax liabilities for earlier years. We are also enclosing herewith the copy of the letter dated January 16, 1996, with the relative annexures." Again after receipt of the section 143(1)(a) intimation for the assessment year 1995-96 dated November 20, 1995, based on the return filed by the petitioner, the petitioner filed a rectification application before the second respondent under section 154 wherein the petitioner has blamed the second respondent for non-adjustment by encashment of IVPs and consequent demand of interest under sections 234B and 234C of the Act and requested for revocation of interest by rectifying the order. The relevant extract of the letter dated November 27, 1995, produced by the petitioner himself as exhibit P9 is as follows: "Please refer to my letter dated March 13, 1995, in the matter of advance tax payment for 1995-96. As can be seen from the last para of the above said letter, I have promised all assistance for collecting the amount of IVPs after hearing from you for complying with the advance tax payment. After retaining the IVPs with you, you have encashed only Rs. 7,50,000. As explained in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocedural violation under section 132B(1)(iii) read with the Third Schedule to the Act-in the encashment of seized assets, namely IVPs also, does not arise. It is seen from exhibit P9 that the petitioner opposed the demand of huge interest liability under sections 234B and 234C of the Act consequent upon the second respondent's failure to comply with his request to adjust cash recovered on maturity of IVPs towards his tax liability. Therefore, I find contrary to the contention raised by the petitioner, the petitioner has in fact vide exhibits R(3)(A), R2(A) and P9 specifically authorized the second respondent to encash IVPs and adjust the recovered amount towards tax liability. The next issue is whether the encashment of IVPs and recovery towards tax for the year 1995-96 and earlier years, pursuant to the petitioner's request or authorisation as found above, are permissible under the Act or illegal to be treated as no recoveries of tax at all as claimed by the petitioner. The petitioner has contended that the adjustment of tax under section 132B of the Act arises only after completion of the assessment and after service of notice of demand and after the petitioner is declared as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IVPs in terms of the petitioner's request, but could not do so as the post office declined premature encashment of IVPs. Therefore, I find the encashment of PVPs on maturity and adjustment of recovered cash towards the petitioner's liability for advance tax and admitted tax for the assessment year 1995-96 based on the petitioner's request were done by the second respondent for the petitioner's benefit and are consistent with the statutory provisions. So far as the assessment year 1994-95 is concerned, I find the second respondent has credited tax after encashment of IVPs before completion of the assessment vide exhibit P4(d) on December 23, 1997. The petitioner has relied on various decisions of the Supreme Court reported in ITO v. Seghu Buchiah Setty [1964] 52 ITR 538; Manmohanlal v. ITO [1987] 168 ITR 616; Homely Industries v. Sales Tax Officer [1976] 37 STC 483; Indian Banks' Association v. Devkala Consultancy Service [2004] 267 ITR 179 and Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 and contended that no amount towards tax or any other demand could be recovered by adjustment from the retained amounts unless after service of notice of demand under section 156 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the money so applied. (iii) The assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the Assessing Officer or, as the case may be, Tax Recovery Officer under authorisation from the Chief Commissioner or Commissioner under sub-section (5) of section 226 and the Assessing Officer or, as the case may be, Tax Recovery Officer may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule. (2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid by any other mode laid down in this Act. (3) Any assets or proceeds thereof which remain after the liabilities 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 reta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability for the year 1994-95 or earlier years the petitioner in exhibit R2(A) requested the second respondent to adjust amounts and IVPs retained towards tax liability for the assessment year 1995-96 and to adjust the balance towards tax liability for earlier years. Even though recoveries towards tax from the retained assets for the assessment year 1994-95 though under authorisation from the petitioner was against section 132B(1)(i), as assessment was not completed at the time of recovery, I do not think this technical violation even when corrected will help the petitioner to avail of the KVSS benefit for 1994-95 because after the expiry of the time prescribed for payment in the notice of demand issued under section 156 of the Act, the second respondent was free under section 132B(1)(i) to adjust the cash available on encashment of the IVPs towards liability due for any other assessment years, including the year 1994-95. In other words, even if cash recovered by encashment of the IVPs was retained in the PD account without adjustment towards income-tax due for the year 1994-95, the second respondent would have had to recover by adjustment from the PD account on the expiry of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 995-96 is also held to be duly authorized and in accordance with the statute. 4. Recovery of balance assessed tax over and above the advance tax and tax due under section 140A of the Act for the year 1995-96 prior to the expiry of the last date for payment of tax under the notice of demand issued along with the assessment order is against section 132B(1)(i) of the Act. 5. Recovery of tax for the assessment year 1994-95 by way of adjustment from retained assets, namely, cash and encashed value of IVPs on maturity, prior to the expiry of the time provided for payment in the notice of demand accompanying exhibit P4(d) assessment, though authorised by the petitioner is found to be against section 132B(1)(i) of the Act. 6. However, since the applications for availing of the benefit under the KVSS scheme for the assessment years 1994-95 and 1995-96 were filed by the petitioner much after the petitioner became a defaulter for the tax and interest due based on assessment, recoveries by way of adjustment are held valid with effect from the date following the last date provided for payment under the notices of demand. 7. Recovery of tax and interest by way of adjustment from the enca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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