2021 (11) TMI 681 - HC - Income Tax

Court voids encashments made without authority, grants relief to assessee under KVS Scheme.

Dr. R.P. Patel, Mr. Indrakumar R. Patel, Dr. Jawaharlal R. Patel, Mrs. Jyotiben Versus The Asst. Director of Income Tax (Investigations), Kottayam, Asst. Commissioner of Income Tax Investigation Circle, Kottayam., Commissioner of Income Tax Trivandrum, Dr. Arun kumar R. Patel

The court found that the 1st respondent, not the 2nd respondent, encashed the seized IVP's without authority, acting contrary to law. The encashments were ... Benefit under the Kar Vivad Samadhan Scheme, 1998, ('KVS Scheme') denied - reason for denying the benefit was stated as the non-existence of tax liability for the said years on the date of application under the scheme - Appellant claimed in the writ petition that, tax arrears existed on the date of application and the encashments of the seized Indira Vikas Patras (IVP's) of the appellant were without authority and illegally adjusted against the tax liabilities of the appellant. Thus, the application of the appellant was rejected stating that there were no existing tax arrears - Whether the encashments of seized IVP's were carried out by the 1st respondent or the 2nd respondent? - HELD THAT:- It is evident from Ext.P2 series that 2nd respondent had no role at all in the encashment of IVP's. The contention that the 1st respondent sent the letters encashing the IVP's on behalf of the 2nd respondent, is on the face of the record, wholly untenable. Respondents 1 and 2 are independent statutory authorities. They perform functions that are distinct and separate. They can never be regarded as an agent of one another or as acting on behalf of another. Accordingly, the finding of the learned Single Judge that the encashments of IVP's were carried out by the 2nd respondent-assessing officer, while the 1st respondent had only co-ordinated in the collection and encashment of IVP's, is set aside. We, therefore, hold that the encashments of IVP's as per Ext.P2 series and Ext.P3 series were carried out by the 1st respondent. Whether the encashments of the seized IVP's were in accordance with law? - In the instant case, the search and seizure were conducted on 30.12.1994 till 07.01.1995. By 22.01.1995, the 1st respondent had become functus officio and ought to have handed over the documents and assets seized to the 2nd respondent. The fact that the order under section 132(5) was issued on 28.04.1995 presupposes that the 1st respondent had handed over the documents before that date. In the counter affidavits and the additional counter affidavit it is asserted that the seized documents and assets were handed over to the assessing officer on 10-01-1995. It is manifest that, the 1st respondent could not have exercised any power after 22.01.1995. He could also not have been in possession of any of the documents or assets from 22.01.1995 or thereafter. The first letter demanding encashment of IVP's is dated 29.03.1995, which was even before Ext.P1 order under section 132(5). All the remaining encashments were subsequent to 29.03.1995. It fails our comprehension as to how the 1st respondent could have encashed the IVP's when he was not legally entitled to be in possession of the seized documents. Therefore, no further elaboration is required to conclude that all encashments were done by the 1st respondent without authority or jurisdiction and that too after he had become functus officio. In view of our discussion as above, we are of the considered view that the encashments of the IVP’s were contrary to law and were void as having been carried out by a person without authority. Whether the encashed amounts under the IVP's were liable to be adjusted. If so, for which assessment years? - Since we have already found that the encashments of IVP's were bad in law, the consequent adjustment of the IVP's were also illegal. Even if it is assumed that the letter confers authority upon the respondents to encash the IVP's, the same has to be done in accordance with law. The officers empowered to act in the exercise of the statutory powers must conform to the statutory prescription in letter and spirit. If the letter Ext.R3(a) is assumed as the authority to encash the IVP's; it is evident that the same being addressed to the 2nd respondent and the encashment having been done by the 1st respondent, the respondents could not have relied upon Ext.R3(a) to justify their actions. In the above circumstances, we are of the view that the respondents could not have acted upon Ext.R3(a) to encash the IVP’s or to adjust the same contrary to the statutory prescriptions. Reliance upon section 292B of the Act is also of no avail to the department. The violation of mandatory conditions are not curable by recourse to section 292B. Further, the action complained of was not done in substance or effect, in conformity with the intent and purpose of the Act. What reliefs are the assessee entitled to? - As found the invocation of IVP's as without authority and the consequent adjustment as done contrary to the provisions of the Act, it is necessary that the status quo ante be restored as on the date of application under the KVS Scheme to meet the ends of justice. We set aside the judgment of the learned Single Judge. Ext.P2 series and Ext.P3 series produced in the writ petition are hereby quashed. Ext.P5, insofar as it relates to the assessment years 1991-92, 1992- 93, 1993-94, 1994-95 and 1995-96, is also quashed. Even though the KVS Scheme is not in existence now, the appellant ought not to be prejudiced on account of the long pendency of this writ appeal before this Court. As we have set aside the invocation of the IVP’s and the consequent adjustment of the amounts encashed and restored status quo ante, the application for the grant of benefit under the KVS Scheme shall stand revived. The 3rd respondent shall pass fresh orders on the application claiming benefit of the KVS Scheme, in accordance with law. Issues Involved:1. Whether the encashments of seized IVP's were carried out by the 1st respondent or the 2nd respondentRs.2. Whether the encashments of the seized IVP's were in accordance with lawRs.3. Whether the encashed amounts under the IVP's were liable to be adjusted. If so, for which assessment yearsRs.4. What reliefs are the assessee entitled toRs.Detailed Analysis:Issue 1: Whether the encashments of seized IVP's were carried out by the 1st respondent or the 2nd respondentRs.The main argument was that the IVP's were encashed by the 1st respondent without authority. The learned Single Judge found that the 2nd respondent-assessing officer carried out the encashments, with the 1st respondent only coordinating. However, documents (Ext.P2 and Ext.P3) clearly showed that the 1st respondent initiated and directed the encashment. The court concluded that the 1st respondent encashed the IVP's, setting aside the Single Judge's finding.Issue 2: Whether the encashments of the seized IVP's were in accordance with lawRs.Section 132(9A) of the Act mandates that the authorized officer must hand over seized assets to the assessing officer within 15 days. The 1st respondent, who conducted the search and seizure, should have handed over the assets by 22.01.1995. The first encashment request was made on 29.03.1995, indicating that the 1st respondent acted without authority as he was functus officio after 15 days. The court found the encashments were contrary to law and void.Issue 3: Whether the encashed amounts under the IVP's were liable to be adjusted. If so, for which assessment yearsRs.The court found that adjustments of IVP's were illegal as they were made before the determination of tax liability, contrary to Section 132B. The learned Single Judge's finding that adjustments were made before the assessee became a defaulter was upheld. The court also rejected the reliance on Ext.R3(a) letter, which was not a blanket authority for encashment and adjustment. The encashments and adjustments were not in accordance with statutory provisions.Issue 4: What reliefs are the assessee entitled toRs.The court set aside the learned Single Judge's judgment, quashed Ext.P2 and Ext.P3 series, and partially quashed Ext.P5. It restored the status quo ante as on the date of application under the KVS Scheme. The 3rd respondent was directed to pass fresh orders on the application for the benefit under the KVS Scheme, in accordance with law. The writ appeal was allowed.