2005 (10) TMI 254 - AT - Income Tax

Interest denied on seized amount refund due to completed assessment within specified period.

Deputy Commissioner Of Income-tax, Investigation Circle I, Tiruchirapalli. Versus M. Bansilal Jain.

Deputy Commissioner Of Income-tax, Investigation Circle I, Tiruchirapalli. Versus M. Bansilal Jain. - [2006] 284 ITR (A. T.) 165, ITD 99, 8, TTJ 101, 440, Issues Involved:1. Grant of interest on refund of Rs. 9,00,000 seized during a search operation.Detailed Analysis:1. Grant of Interest on Refund of Rs. 9,00,000 Seized During Search Operation:The appeal concerns the block assessment period from 1987-88 to 1997-98, focusing on whether interest should be granted on a refund of Rs. 9,00,000 seized during a search operation. The Departmental Representative (D.R.) argued that the first appellate authority incorrectly directed the Assessing Officer to allow interest at 15% on the refund. The D.R. highlighted that a search was conducted on 31-7-1997, resulting in the seizure of Rs. 12,00,000. A block assessment under section 158BC was completed on 17-3-1998, determining the tax payable at Rs. 3,00,000. After adjusting this amount, the remaining Rs. 9,00,000 was refunded. The CIT(A) directed interest from 1-8-1997 to 17-3-1998, but the D.R. contended that under section 132B(4)(b), interest is not required if the block assessment is completed within ten months from the search date. Since no order under section 132(5) was passed, the D.R. argued that no interest was due on the refunded amount.Conversely, the assessee's counsel argued that the assessee, a pawn-broker, had a search conducted on 31-7-1997, resulting in the seizure of Rs. 12,00,000. The assessee declared an undisclosed income of Rs. 5,00,000. The assessment was completed on 17-3-1998, determining a tax liability of Rs. 3,00,000, which was adjusted against the seized cash, and the balance of Rs. 9,00,000 was refunded. The CIT(A) allowed the claim for interest from 1-8-1997 to 17-3-1998 at 15%. The counsel argued that section 132(5) is not applicable for searches initiated after 1-7-1995, and under Chapter XIV-B, section 158BC(d) mandates the application of section 132B with necessary modifications, implying interest should run from the date of seizure to the date of block assessment.Upon reviewing the submissions and relevant sections, the Tribunal noted that section 158BC(d) requires the application of section 132B with modifications for block assessments. Section 132B(4)(b) indicates that interest should run from six months after the order under section 132(5) to the date of regular assessment. However, section 132(5) is not applicable for searches initiated after 1-7-1995. Therefore, the Assessing Officer must estimate the undisclosed income and tax liability while issuing a notice under section 158BC, and interest should run from six months after this notice.In this case, the notice under section 158BC was issued on 23-10-1997, and the six-month period expired on 22-4-1998. Since the block assessment was completed on 17-3-1998, before the expiry of the six-month period, the assessee is not entitled to interest on the refunded amount. Consequently, the Tribunal set aside the lower authority's order and restored the Assessing Officer's decision, denying the interest on the refund.In conclusion, the appeal filed by the revenue was allowed, and no costs were ordered.