2017 (5) TMI 1423 - AT - Income Tax

Tax Tribunal allows adjustment of seized cash against tax liability under section 132B.

The Tribunal found that the authorities erred in not adjusting the seized cash against the tax liability as permitted under section 132B. Citing relevant ... Interest on Advanced Tax - Non grant of credit for cash seized during search - charge of Interest u/s. 234B and 234C - Held that:- We find that it is not disputed that assessee has offered the amounts seized as undisclosed income during search. The revenue has also accepted the same as assessee’s income. In such situation when assessee has requested to adjust the cash seized against the assessee’s liability towards tax the authorities below have erred a not adjusting the cash seized against the tax liability including of tax liability. In this regard we note that Hon'ble jurisdictional High Court in the case of CIT vs. Shri Jyotindra B. Mody [2011 (9) TMI 97 - BOMBAY HIGH COURT ] had held that once assessee offers to tax undisclosed income including the amounts seized during search, the liability to pay advance tax in respect of that amount arises even before completion of the assessment. The Hon'ble High Court further held that section 132 B(1) of the Act does not prohibit utilization of amounts seized during the course of search towards the advance tax liability. Provision of Explanation 2 to Section 132 (B) (4) which excludes advance tax from the ambit of existing liability is applicable from 1st June 2013 and not applicable to the assessment years involved in this appeal. Thus we find that assessee was entitled to adjustment of cash seized and offered for taxation towards its liability for taxes including advance tax. Hence in our considered opinion the authorities below have erred in charging interest u/s. 234 B and 234 C on the facts of the circumstances of the case. - Decided in favour of assessee. Issues Involved:1. Non-grant of credit for cash seized during search.2. Consequential charge of interest under sections 234B and 234C.Detailed Analysis:1. Non-grant of credit for cash seized during search:The appellant was subjected to a search and seizure action under section 132(1) of the Income Tax Act, 1961, on 11/05/2010. Cash amounting to Rs. 3.46 crores was seized from the appellant's residence and bank lockers. The appellant admitted that Rs. 2.28 crores of the seized cash was his undisclosed income from capitation fees collected from students seeking admission under the management quota in educational institutions run by SIES. The remaining Rs. 1.18 crores was acknowledged by SIES and credited in their case by the Department.The appellant filed returns for the assessment years 2007-08 to 2010-11, offering the seized cash as income and requested the adjustment of the seized cash against his tax liability. However, the Assessing Officer (AO) did not adjust the seized cash against the tax liability and levied interest under section 234B up to the date of the assessment order.2. Consequential charge of interest under sections 234B and 234C:The appellant argued that the interest under section 234B should be levied only up to the date of the request for adjustment of the seized cash (29.07.2010). The AO adjusted Rs. 1,13,38,628 from the seized cash against the total demands raised, including interest charged up to 19.03.2013.Before the CIT-A, the appellant contended that the cash seized under section 132 should be adjusted against the existing tax liability, citing several case laws. However, the CIT-A upheld the AO's action, stating that the existing tax liability cannot arise until a return is filed and processed under section 143(1). The CIT-A also noted that the AO cannot adjust the seized cash until the ownership of the cash is determined and the assessment order is passed.Tribunal's Judgment:The Tribunal found that the authorities erred in not adjusting the seized cash against the tax liability. It referred to section 132B, which allows the adjustment of seized assets against existing liabilities. The Tribunal noted that the Hon'ble jurisdictional High Court in CIT vs. Shri Jyotindra B. Mody held that once the assessee offers the undisclosed income, the liability to pay advance tax arises before the completion of the assessment. The High Court also held that section 132B(1) does not prohibit the utilization of seized amounts towards advance tax liability.Furthermore, the Tribunal cited the case of Principal CIT vs. S.K. Khindri, where the Hon'ble Punjab & Haryana High Court held that the assessee is entitled to adjustment of seized amounts towards advance tax liability from the date of the application. The Tribunal also noted that Explanation 2 to section 132B, which excludes advance tax from the ambit of existing liability, is applicable from 1st June 2013 and not to the assessment years involved in this appeal.In conclusion, the Tribunal held that the appellant was entitled to the adjustment of the seized cash towards his tax liability, including advance tax, and that the authorities erred in charging interest under sections 234B and 234C. The appeals by the assessee were allowed.Order Pronounced:The appeals by the assessee were allowed, and the order was pronounced in the Open Court on 30.05.2017.