2017 (4) TMI 1104 - HC - Income Tax

High Court upholds penalty decision under Income Tax Act, clarifies retrospective effect of statutory provisions

The Pr. Commissioner of Income Tax-1, Amritsar Versus Sh. Surinder Kumar Khindri

The High Court dismissed the revenue's appeal, affirming the lower authorities' decisions on penalty provisions under Section 271AAA and the ... Penalty under Section 271AAA - non payment of taxes on surrendered income under Section 132(4) - Seized cash of the assessee was adjusted against the regular taxes and interest payable - Held that:- This issue has already been decided by this Court against the revenue in Commissioner of Income Tax Vs. Ashok Kumar [2010 (9) TMI 771 - Punjab and Haryana High Court ] held that the assessee is entitled to adjustment of seized amount towards advance tax liability from the date of making the application in that regard. The Tribunal has rightly held that the assessee was entitled to adjustment of the said amount and no interest could be charged on that basis Also see Commissioner of Income Tax (Central), Ludhiana Vs. M/s Cosmos Builders and Promoters Limited [2015 (9) TMI 139 - PUNJAB & HARYANA HIGH COURT ] wherein held that the assessee was entitled to have the cash seized adjusted against its advance tax dues. Issues:1. Interpretation of penalty under Section 271AAA of the Income Tax Act, 1961.2. Application of Explanation 2 to Section 132B of the Income Tax Act, 1961.3. Retrospective effect of Explanation 2 to Section 132B of the Income Tax Act, 1961.Issue 1: Interpretation of penalty under Section 271AAA of the Income Tax Act, 1961:The appeal was filed by the appellant-revenue under Section 260A of the Income Tax Act, 1961, challenging the order passed by the Income Tax Appellate Tribunal. The primary question raised was whether the penalty under Section 271AAA was correctly imposed due to non-payment of taxes on surrendered income under Section 132(4) of the Act. The Assessing Officer initiated penalty proceedings under Section 271AAA as the conditions for non-application of penalty were not met. The appellant argued that the seized cash should have been adjusted against existing tax liability, not advance tax. However, the Assessing Officer held that the seized cash could not be adjusted against advance tax liability as it was not considered an existing liability. The Commissioner of Income Tax (Appeals) and the Tribunal both held that the Explanation 2 to Section 132B, inserted by the Finance Act, 2013, was clarificatory and did not have retrospective effect. The Tribunal upheld the decision of the CIT(A) and dismissed the appeal by the Department.Issue 2: Application of Explanation 2 to Section 132B of the Income Tax Act, 1961:The controversy revolved around the application of Explanation 2 to Section 132B of the Income Tax Act, 1961. The appellant-revenue contended that the Explanation, which clarified that advance tax does not constitute existing liability, should apply retrospectively. However, both the CIT(A) and the Tribunal held that the Explanation was clarificatory in nature and did not have retrospective effect. Citing previous judgments, including one by the Madhya Pradesh High Court, it was established that the assessee was entitled to adjust the seized amount against advance tax liability. The Tribunal emphasized that the Explanation 2 to Section 132B, effective from 01.06.2013, restricted the scope of adjustment of seized cash and should be treated as an advance to the assessee.Issue 3: Retrospective effect of Explanation 2 to Section 132B of the Income Tax Act, 1961:The argument regarding the retrospective effect of Explanation 2 to Section 132B was crucial in this case. The Tribunal, supported by previous judgments and the specific wording of the provision, concluded that the Explanation, introduced in 2013, did not have retrospective effect. The Tribunal highlighted the principle that legislative changes affecting accrued rights or imposing new duties are presumed to be prospective unless explicitly stated otherwise. The Tribunal's decision was further reinforced by the dismissal of a Special Leave Petition by the Supreme Court against a similar judgment. Consequently, the Tribunal declined to interfere with the CIT(A)'s decision, emphasizing the non-retrospective nature of the Explanation and the consistent application of legal principles in such cases.In conclusion, the High Court dismissed the appeal by the revenue, upholding the decisions of the lower authorities regarding the interpretation and application of penalty provisions under Section 271AAA and the non-retrospective effect of Explanation 2 to Section 132B of the Income Tax Act, 1961. The judgment provided clarity on the adjustment of seized cash against advance tax liability and emphasized the importance of legislative intent in determining the retrospective application of statutory provisions.