Seized cash in s.132 search not treated as advance tax payment; interest u/ss234B/234C still applies

Seized cash during a search under s.132 could not be treated as payment or adjustment of advance tax so as to avoid interest under ss.234B and 234C. The HC held that seizure is an act in terrorem and not a voluntary remittance; assets seized cannot be appropriated or applied towards any liability unless and until the AO passes an order under s.132(5) and thereafter applies the retained assets in accordance with s.132B. Sections 132(5) and 132B contemplate retention only to the extent of tax liability and refund of excess with statutory interest, reinforcing that seizure does not constitute advance tax payment. Consequently, the assessee remained liable for interest under ss.234B/234C; the Tribunal's contrary view was set aside and the petitions were dismissed.

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Issues Involved:
1. Adjustment of seized amount towards advance tax.
2. Liability to pay interest u/s 234B and 234C of the Income-tax Act.

Summary:

Adjustment of Seized Amount Towards Advance Tax:
The petitioners sought adjustment of the seized amounts towards their advance tax liabilities for the financial year 1991-92. The court examined the provisions of sections 132, 132A, and 132B of the Income-tax Act. It was noted that the seized assets could only be dealt with after an order u/s 132(5) was made. The court emphasized that the process of search and seizure is not voluntary and cannot be equated with the voluntary payment of advance tax. The court held that the seized amount could not be adjusted towards the advance tax liability until a final order was made by the Income-tax Officer u/s 132(5) and the retained amount was applied or appropriated in accordance with section 132B.

Liability to Pay Interest u/s 234B and 234C:
The petitioners argued that they should not be liable to pay interest u/s 234B and 234C due to the seizure of their assets. The court rejected this argument, stating that irrespective of the seizure, the assessee was obliged to pay the advance tax in accordance with law. The court held that failure to pay advance tax would attract interest u/s 234B and 234C, and the seized amount could not be considered as payment towards advance tax. The court also disagreed with the Income-tax Appellate Tribunal's decision in Satpal D. Agarwal (HUF) v. Asst. CIT, which suggested that the assessee had not defaulted in payment of taxes due to the seizure of cash.

Conclusion:
The court dismissed the petitions, ruling that the petitioners were not entitled to any relief and were liable to pay interest u/s 234B and 234C. The seized amounts could not be adjusted towards advance tax until an order was made u/s 132(5) and the retained assets were dealt with as per section 132B.

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