Seized cash as advance tax for interest computation, while Chapter VI-A deduction survived on proof of earlier-year taxable income.

Cash seized during search and retained by the Revenue, where adjustment against tax liability was requested, may be treated as advance tax for the limited purpose of computing interest under sections 234A, 234B and 234C; the levy was therefore to be recomputed on that basis. A Chapter VI-A deduction could not be denied merely because the investment was not made out of current-year income where the finding was that it came from earlier years' taxable income and no contrary material displaced that factual conclusion; the deduction was allowed.

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Issues: (i) whether cash seized during search and retained by the Revenue could be treated as advance tax for the purpose of computing interest under sections 234A, 234B and 234C; (ii) whether deduction under Chapter VI-A could be denied on the ground that the investment was not made out of income chargeable to tax of the current year.

Issue (i): Whether cash seized during search and retained by the Revenue could be treated as advance tax for the purpose of computing interest under sections 234A, 234B and 234C.

Analysis: The seized cash had been requested to be adjusted against the tax liability, and the Revenue had retained the assets under section 132(5) pending assessment. In such circumstances, the assessee could not be treated as having defaulted in payment of tax in respect of the retained cash. Following the earlier Tribunal view, the seized cash required to be adjusted towards taxes due was held to bear the character of advance tax for the limited purpose of interest computation.

Conclusion: The seized cash was to be treated as advance tax for computing interest under sections 234A, 234B and 234C, and the matter was sent back to the Assessing Officer to recompute the levy accordingly.

Issue (ii): Whether deduction under Chapter VI-A could be denied on the ground that the investment was not made out of income chargeable to tax of the current year.

Analysis: The finding that the investment was made out of income of earlier years chargeable to tax was not shown to be erroneous by any contrary material. The issue was treated as covered by the cited decisions supporting allowance of the deduction on such factual finding.

Conclusion: The deduction under Chapter VI-A was rightly allowed and the Revenue's objection failed.

Final Conclusion: The assessee succeeded on the legal treatment of seized cash for interest purposes, while the Revenue's challenge to the Chapter VI-A deduction was rejected, resulting in a partial allowance with remand for fresh computation on the first issue.

Ratio Decidendi: Seized cash retained by the Revenue and liable to be adjusted against assessed tax may be treated as advance tax for computing statutory interest, and a factual finding that investment was made from taxable earlier-year income can sustain deduction under Chapter VI-A.

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