Trust president fails to claim Rule 112F(ii) exemption for cash seizure during election period

The Madras HC ruled against the assessee regarding cash seizure during Tamil Nadu Assembly elections. Two bank employees were intercepted carrying cash while the election Model Code of Conduct was in force. The assessee, a trust president, claimed entitlement to exception under Rule 112F(ii) of Income Tax Rules, 1962, arguing the seizure occurred during election period. The HC held that the exception applies only when seized assets are connected with ongoing elections. Since evidence showed the practice of cash withdrawal predated the election period and was part of regular salary operations, the seizure merely coincided with election timing. The court found no connection between the cash and election activities, rejecting the claim for exemption from assessment proceedings under Sections 153A/153C.

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Issues Involved:
1. Validity of the impugned orders passed under Rule 112(F) of the Income Tax Act, 1962.
2. Applicability of the CBDT Circular No.10/2012 in the context of the seized assets and ongoing election process.
3. Jurisdictional challenge to the invocation of Section 153A and 153C of the Income Tax Act, 1961.

Summary:

Issue 1: Validity of the impugned orders passed under Rule 112(F) of the Income Tax Act, 1962

The petitioner society and its president filed writ petitions aggrieved by the impugned orders dated 26.03.2022 passed by the Director General of Income Tax (Investigation), Chennai, under Rule 112(F) of the Income Tax Act, 1962. The orders were based on applications by the petitioners dated 25.02.2022. The orders stated that evidence was found showing that salary expenses paid to the employees of the Trust were inflated and received back in cash by the assessee, requiring investigations for preceding assessment years, thus not covered by the CBDT Circular dated 31.12.2012.

Issue 2: Applicability of the CBDT Circular No.10/2012 in the context of the seized assets and ongoing election process

The petitioners argued that the exemption under Rule 112F should apply as the cash was seized during the Tamil Nadu State Assembly Model Code operation. The respondents countered that the exemption applies only if the assets are connected to the ongoing election process, which was not the case here. The court noted that the petitioners' practice of withdrawing cash from employees' accounts predated the election period, and the seized cash was not connected to the election.

Issue 3: Jurisdictional challenge to the invocation of Section 153A and 153C of the Income Tax Act, 1961

The petitioners contended that the conditions under Rule 112(F) were met, and thus, the invocation of Sections 153A and 153C for assessing and reassessing was without jurisdiction. The court found that the cash seizure coinciding with the election code did not automatically trigger the exception under Rule 112F(ii). The seized cash was not connected to the election, and thus, the proceedings under Sections 153A and 153C were valid.

Conclusion:

The court dismissed the writ petitions, stating that the impugned orders did not warrant interference as the conditions for exemption under Rule 112F were not met. The petitioners' practices and the timing of the cash seizure did not justify excluding them from proceedings under Sections 153A and 153C of the Income Tax Act, 1961. The petitions were dismissed with no costs, and connected miscellaneous petitions were closed.

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