2017 (6) TMI 178 - AT - Income Tax

Tribunal directs adjustment of seized cash against advance tax liability in favor of assessee

Shri Jivaram Magaji Chaudhary Versus The Dy. Commissioner of Income Tax, Central Circle – (1), Pune

The Tribunal allowed the appeal of the assessee, directing the AO to adjust the seized cash against the advance tax liability from the date of the ... Adjustment of cash seized at the time of search against the advance tax liability - Held that:- is an undisputed fact that cash of ₹ 2.55 crore was seized on 06/08/2010. It is also an undisputed fact that Assessee vide letter dtd 28/09/2010, addressed to CIT(C) had requested for adjusting of seized cash against the advance tax liability for AY 2011-12. It is Revenue’s case that the seized cash cannot be adjusted against advance tax liability in view of the amendment made to Section 132B by insertion of Explanation 2 by Finance Act 2013, wherein it is stated that “existing liability” does not include advance tax payable. On the issue as to whether the insertion of Explanation 2 to s.132B by Finance Act 2013, is prospective or retrospective, we find that the Co-ordinate Bench of Ahmedabad Tribunal in the case of Kanishka Prints(2013 (7) TMI 14 - ITAT AHMEDABAD ) has observed the amendment made of s.132B by insertion of Explanation 2 is prospective and is applicable from 1st June 2013. Thus cash seized at the time of search be adjusted against the advance tax liability and as per ld. Authorised Representative submission the credit for it be given from the date of its request made to CIT(C) for adjustment of cash. We thus direct accordingly. In the result, the grounds of Assessee are allowed. Issues Involved:1. Adjustment of seized cash against advance tax liability.2. Retrospective application of Explanation 2 to Section 132B.3. Validity of rectification under Section 154 for apparent mistakes.Issue-wise Detailed Analysis:1. Adjustment of Seized Cash Against Advance Tax Liability:The core issue revolves around whether the cash seized during a search operation under Section 132 can be adjusted against the advance tax liability of the assessee. The assessee had requested the adjustment of Rs. 2,55,00,000 seized on 06/08/2010 against his advance tax liability for AY 2011-12. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] denied this adjustment, citing that under Section 132B, seized assets can only be adjusted against existing liabilities, which do not include advance tax as clarified by Explanation 2 inserted by the Finance Act 2013.2. Retrospective Application of Explanation 2 to Section 132B:Explanation 2 to Section 132B, inserted by the Finance Act 2013, states that 'existing liability' does not include advance tax payable. The CIT(A) held that this explanation is declaratory and thus retrospective. However, the assessee argued that the amendment is prospective, effective from 1st June 2013, and should not apply to the assessment year 2011-12. The Tribunal referred to various judicial precedents, including the Ahmedabad Tribunal in Kanishka Prints Pvt. Ltd. vs. ACIT and the Punjab and Haryana High Court, which held that the amendment is prospective and not applicable to periods before 1st June 2013.3. Validity of Rectification Under Section 154 for Apparent Mistakes:The assessee filed an application under Section 154 seeking rectification of the AO’s order for not adjusting the seized cash against the advance tax liability, arguing it was an apparent mistake. The AO and CIT(A) rejected the application, stating that the issue is debatable and not a clear mistake apparent from the record. The Tribunal, however, noted that as per the jurisdictional High Court's decision in Jyotindra B. Modi, the seized cash should be adjusted against advance tax liability, and not following this was an apparent error.Tribunal's Judgment:The Tribunal allowed the appeal of the assessee, directing the AO to adjust the seized cash against the advance tax liability from the date of the assessee’s request (28/09/2010). The Tribunal relied on the judicial precedents which held that the amendment by Finance Act 2013 is prospective and thus not applicable to the assessment year in question. Consequently, the interest calculated under Sections 234B and 234C should be recalculated considering the adjustment of seized cash.Conclusion:The Tribunal concluded that the seized cash should be adjusted against the advance tax liability as requested by the assessee, and the amendment to Section 132B by Finance Act 2013 is prospective. Hence, the AO's order was rectified under Section 154, and the assessee's appeal was allowed.