2010 (6) TMI 634 - AT - Income Tax

Tribunal adjusts seized cash against tax liability, recalculates interest charges, deletes penalty for extended filing deadline.

The Tribunal allowed the appeal of the assessee, directing the seized cash to be adjusted against the advance tax liability. It ruled that interest ... Liability to pay interest u/s 234A, 234B and 234C - cash seized ‘existing liability’ u/s 132B - HELD THAT:- In our considered opinion, the doctrine of purposive construction has to prevail in this situation. In the present situation, it is evident that cash was seized from the assessee during search operation and, assessee requested the Department to adjust a part of such cash receipts against the liability of advance tax which arose on account of the income surrendered during the search operation. The Department does not deny possession of the cash since the time of search. Thus, we find no justification for the Revenue to interpret the expression ‘existing liability’ in section 132B(1)(i ) as not referring to liability of advance tax. Under the Income-tax Act, liability towards advance tax is a part of the scheme of recovery of taxes and such liability definitely falls in the expression ‘existing liability’ used in section 132B(1)(i) in the facts and circumstances of the case. Therefore, we set aside the order of the CIT (A), and direct the AO to allow adjustment of seized cash against advance tax liability of the assessee as contended in the written communications dated 1-12-2006 and 15-3-2007 and thereafter recompute, if any, interest chargeable u/s 234B and 234C. In the result, appeal of the assessee is allowed. Issues Involved:1. Liability to pay interest under sections 234A, 234B, and 234C of the Income-tax Act, 1961.2. Adjustment of seized cash towards advance tax liability.3. Interpretation of 'existing liability' under section 132B of the Income-tax Act.4. Validity of interest charged under section 234A for delayed filing of return.Issue-Wise Detailed Analysis:1. Liability to Pay Interest Under Sections 234A, 234B, and 234C:The primary dispute revolves around the assessee's liability to pay interest under sections 234A, 234B, and 234C of the Income-tax Act, 1961. The assessee contended that the cash seized during a search should be adjusted against the advance tax liability, thereby negating the interest charges. The CIT (Appeals) had previously held that the cash seized could not be adjusted as it did not fall within the meaning of 'existing liability' under section 132B of the Act. The Tribunal considered the rival submissions and noted that the seized cash remained with the Department despite the assessee's requests for adjustment against advance tax liability.2. Adjustment of Seized Cash Towards Advance Tax Liability:The assessee argued that the seized cash should be adjusted against the advance tax liability arising from the income surrendered during the search. The Tribunal noted that the assessee made written requests on 1-12-2006 and 15-3-2007 to adjust Rs. 23,20,000 out of the seized Rs. 30 lakhs towards advance tax liability. The Department did not reject these requests through any speaking order. The Tribunal emphasized that the seized cash was in the Department's possession, and there was no justification for not adjusting it against the advance tax liability.3. Interpretation of 'Existing Liability' Under Section 132B:The Tribunal examined whether the term 'existing liability' under section 132B(1)(i) included advance tax liability. The CIT (Appeals) and the Revenue argued that it did not. However, the Tribunal found no reason to exclude advance tax liability from the term 'existing liability.' The Tribunal noted that advance tax liability is a statutory obligation under sections 208 to 210 of the Act and should be considered part of 'existing liability.' The Tribunal rejected the Revenue's interpretation as it would lead to absurd results.4. Validity of Interest Charged Under Section 234A for Delayed Filing of Return:The assessee filed the return on 2-11-2007, whereas the last date for filing had been extended to 15-11-2007. The Tribunal referred to the CBDT Notification dated 31-10-2007, which extended the filing deadline. Consequently, the Tribunal found no justification for charging interest under section 234A and directed its deletion.Conclusion:The Tribunal concluded that the seized cash should be adjusted against the advance tax liability, and the interest charged under sections 234B and 234C should be recomputed accordingly. The interest charged under section 234A was directed to be deleted based on the extended filing deadline. The appeal of the assessee was allowed, setting aside the order of the CIT (Appeals).