TaxTMI 
TaxTMI 
2004 (12) TMI 38
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....tioner and his sons in the course of search, the IVPs seized from the petitioner's sons were also treated as undeclared income of the petitioner and proceeded with. In fact, in the course of search, the petitioner made a total disclosure of Rs. 1,46,78,980 for the financial years 1989-90 to 1994-95 under section 132(4) of the Income-tax Act. After conclusion of the search, the first respondent issued exhibit PI proceedings on April 28,1995, under the then existing section 132(5) of the Income-tax Act estimating the income-tax thereon, interest and penalty for the purpose of retaining the seized assets for appropriation after determination of liability. Since after the search, there was still time to remit the last instalment of advance tax for the assessment year 1995-96, the petitioner after referring to his statement furnished under section 132(4) on January 4, 1995, declared an income of Rs. 66,86,800 for the said assessment year and requested the second respondent to appropriate from the seized cash and IVPs, Rs. 26,74,720 towards advance tax vide exhibit R3(A) letter dated March 13, 1995. The petitioner maintained that the entire seizures are income relevant for the assessment....
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....or granting the benefit under the scheme prescribed under section 90(1) of the Finance (No. 2) Act, 1998. It is the denial of benefit of the KVSS to the petitioner for the assessment years 1994-95 and 1995-96 and partial denial of the claim for the other years under exhibit P5 that is the challenge raised in this O.P. The main issue raised by the petitioner is that respondents Nos. 1 and 2 were not entitled to encash IVPs and adjust the proceeds towards income-tax liability and so much so, their actions have to be declared as unauthorised and illegal. Consequently, the petitioner prays for a direction from this court to the third respondent to treat the entire tax and interest liability for the assessment years 1990-91 to 1995-96 as outstanding as on the date of making the applications under the KVSS and to grant the benefit of the scheme on the entire tax and interest dues. The respondents on the other hand contended that the encashment of IVPs and adjustments were done strictly in accordance with the provisions of the Act and particularly based on specific request by the petitioner vide exhibit R3(A) and subsequent letters and therefore the petitioner cannot demand, and is est....
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....Act prohibiting the officer seizing the cash and assets from co-ordinating with the Assessing Officer to effectively achieve the object of the Act, that is to recover tax from the seized assets. Therefore the continued involvement of the first respondent in encashment of IVPs and recovery of tax was not illegal or inconsistent with any of the provisions of the Act. This contention of the petitioner is therefore rejected. The next aspect of the question is whether encashment of FVPs and adjustment of proceeds towards tax liability is unauthorised. Even though the petitioner has denied having given any such authorisation to the Department, the correspondence produced in court and admitted by the petitioner proves to the contrary. The petitioner vide exhibit R3(A) dated March 13,1995, wrote to the second respondent requesting for adjustment of cash and IVPs towards advance tax for 1995-96 as follows: "By virtue of section 132(5) if it is not possible to ascertain to which previous year the investment relates to, the option given is to take the entire income as the income of the year in which the assets have been seized. So taking this provision into consideration and also the im....
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....arch 13, 1995, in the matter of advance tax payment for 1995-96. As can be seen from the last para of the above said letter, I have promised all assistance for collecting the amount of IVPs after hearing from you for complying with the advance tax payment. After retaining the IVPs with you, you have encashed only Rs. 7,50,000. As explained in the said letter, that was my only source to pay the advance tax. So you should have assisted me in raising the funds based on the said IVPs for the payment of the advance tax. The demand now raised is without taking into consideration the assets which I have already surrendered to you. So there is a mistake in arriving at the balance demand and in levying the interest referred to above. I, therefore, request you to kindly rectify the order and delete the interest levied under sections 234B and 234C and also to delete the additional demand of Rs. 13,01,029. I further agree to assist you in collecting the IVPs for settlement of the tax liabilities." Even though counsel for the petitioner with particular reference to exhibit R2(A) vehemently argued that the petitioner only requested adjustment of seized cash towards tax liabilit....
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....authorisation as found above, are permissible under the Act or illegal to be treated as no recoveries of tax at all as claimed by the petitioner. The petitioner has contended that the adjustment of tax under section 132B of the Act arises only after completion of the assessment and after service of notice of demand and after the petitioner is declared as an "assessee in default" in terms of section 220(4) of the Act. The petitioner has referred to the assessment orders for the years 1994-95 and 1995-96 showing credit of tax before assessment and refund of excess tax for those years while huge interest under sections 234B and 234C of the Act is demanded for the assessment years 1990-91 and 1993-94 on account of non-adjustment of any amount after encashment of IVPs towards tax liability for those years. According to the petitioner the recoveries, particularly excess tax for 1994-95 and 1995-96 are unauthorised and against section 132B(1)(i) of the Act. On the face of it, section 132B(1)(i) authorises appropriation of seized assets towards liability only after determination of liability through adjudication. However, it is to be seen that on March 13, 1995, the petitioner vide exhibit....
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..... Sales Tax Officer [1976] 37 STC 483; Indian Banks' Association v. Devkala Consultancy Service [2004] 267 ITR 179 and Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 and contended that no amount towards tax or any other demand could be recovered by adjustment from the retained amounts unless after service of notice of demand under section 156 and after the assessee becomes a defaulter. Further, relying on the decisions reported in K. V. Krishnaswamy Naidu and Co. v. CIT [1987] 166 ITR 244 (Mad); CIT v. K. V. Krishnaswamy Naidu and Co. [2001] 249 ITR 794 (SC) and Dr. C. Balakrishnan Nair v. CIT [1999] 237 ITR 70 (Ker), the petitioner has contended that the encashment of IVPs and adjustment of the same by the second respondent is also in violation of section 132(9A) of the Act read with rule 112 of the Income-tax Rules. According to the petitioner the seized assets remain that of the petitioner until adjustment after default and in support of this contention the petitioner has also relied on the decision in P. P. Kanniah v. ITO [1981] 129 ITR 414 (Mad). Relying on the decision reported in Rajiv Kumar Adukta v. Designated Authority, CIT [2001] 251 ITR 518 (Cal), the petiti....
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....ts or proceeds thereof which remain after the liabilities referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized. (4)(a) The Central Government shall pay simple interest at the rate of fifteen per cent, per annum on the amount by which the aggregate of money retained under section 132 and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (iii) of sub-section (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to in clause (i) of sub-section (1) of this section. (b) Such interest shall run from the date immediately following the expiry of the period of six months from the date of the order under sub-section (5) of section 132 to the date of the regular assessment or reassessment referred to in clause (i) of sub-section (1) or, as the case may be, to the date of last of such assessments or reassessments." From the above it is clear that the seized amount and assets retained under section 132(5) can be applied for setting off of existing liability under the Income-tax A....
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....encashment of the IVPs towards liability due for any other assessment years, including the year 1994-95. In other words, even if cash recovered by encashment of the IVPs was retained in the PD account without adjustment towards income-tax due for the year 1994-95, the second respondent would have had to recover by adjustment from the PD account on the expiry of the due date for payment provided in the notice of demand accompanying the assessment order for the year 1994-95, namely, exhibit P4(d). Therefore, no tax or interest in any case would have been outstanding on the date of application for 1994-95 to grant benefit under the KVSS scheme. However, I feel instead of crediting tax for the year 1994-95 in excess of what was required to meet the liability the second respondent should have made adjustment towards tax dues for earlier years which would have resulted in some reduction of interest for those years. In other words, the demand of interest under section 234A, 234B or 234C for any earlier year to the extent attributable to the refund granted for 1994-95 is wrong. This issue of course does not directly arise for decision. So far as recovery of tax by way of adjustment from....