TaxTMI 
TaxTMI 
2021 (11) TMI 681
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....he date of application and the encashments of the seized Indira Vikas Patras 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. The learned Single Judge held that the encashment was valid and disposed of the writ petition with directions most of which were contrary to the appellant's claim. Hence this appeal 2. The original appellant was a homoeopathic practitioner at Kottayam. The income tax department conducted a search at the residence and clinic of the Homeopath (for short 'the assessee') on 30.12.1994. Simultaneously, the Department conducted searches at the residence of his two sons at Baroda in Gujarat State. Various documents, cash and several Indira Vikas Patras ('IVP's' for brevity) were recovered during the search. After the seizure of those assets, the assessee disclosed an amount of Rs,1,46,78,980/- for the assessment years 1990-91 to 1995-96 under section 132(4) of the Income Tax Act,1961 ('the Act' for brevity). An order under section 132(5) of the Act was issued by the 2nd respondent on ....
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....t respondent requested the Post Master, Head Post Office, to encash IVP's amounting to Rs. 4,00,000/-. Similarly, between 30.3.1995 and 30.10.1997, IVP's worth Rs. 61,72,000/- were encashed by the 1st respondent. (c) According to the appellant/petitioner, instead of retaining or handing over the encashed IVP's, the same were all illegally adjusted against alleged advance tax for 1995-96 as well as for the tax and interest allegedly due for the earlier years. (d) The writ petition was filed alleging that the encashments of IVP's and consequent adjustments were all done without authority or jurisdiction and contrary to section 132(9A) of the Act. Apart from the lack of jurisdiction and authority, assessee pleaded that the mandatory notice under section 226(3) of the Act had never been given to the assessee before proceeding for recovery. Claiming that the adjustments were without authority or jurisdiction and in violation of the principles of natural justice, the appellant sought to quash the encashments of the IVP's. Ext.P5 was also challenged on the ground that had the illegal adjustments not been made, tax arrears would have been in existence ....
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....tment of the encashed value of IVP's for the years prior to the expiry of due dates for payment, all other issues were found against the assessee. It is in such circumstances that the assessee has preferred this appeal. 8. We heard Adv. Ramesh Cherian John learned counsel for the appellants and Adv. Jose Joseph learned Senior Standing Counsel for the Income Tax Department. 9. For easier assimilation, we formulate the following questions for our consideration. (i) Whether the encashments of seized IVP's were carried out by the 1st respondent or the 2nd respondent? (ii) Whether the encashments of the seized IVP's were in accordance with law? (iii) Whether the encashed amounts under the IVP's were liable to be adjusted. If so, for which assessment years? (iv) What reliefs are the assessee entitled to? 10. The above questions are considered in detail as below. Q.(i) Whether the encashments of seized IVP's were carried out by the 1 s t respondent or the 2 nd respondent? 11. The main argument raised by Adv. Ramesh Cherian John is that the IVP's were encashed by the 1st respondent who had no authority to do so as p....
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....tically worded as Ext.P2 except for the figures, while Ext.P3 series are letters addressed to the assessee and issued by the 1st respondent informing him of the encashment of the IVP's mentioned therein. The wordings in Ext.P2 series and those in Ext.P3 clearly show that the IVP's were tendered to the Post Master by the 1st respondent. The request for encashment originated from the 1st respondent, and the encashed amounts (proceeds) were directed to be paid to the 1st respondent (referred to as undersigned in Ext.P2 series). The words "I tender herewith" and "to the undersigned" in Ext.P2 are crucial while deciding the question raised. The first sentence of all the letters in Ext.P2 series is explicit that the IVP's were tendered for encashment by the 1st respondent. A glance at Ext.P2 and Ext.P3 will reveal that the IVP's were encashed by the 1st respondent and not by the 2nd respondent. By issuing Ext.P2 series letters and tendering the IVP's along with those letters and directing the proceeds to be paid to the 1st respondent, it cannot be assumed that 1st respondent was only co-ordinating the encashment. As a matter of fact, only copies of letters requesting the ....
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....ion (9) shall be exercisable by such Assessing Officer." 16. As per the above extracted provision, the authorised officer shall hand over all the seized assets, including documents, to the assessing officer within 15 days of seizure, and thereafter, the powers under sub-clause (8) and (9) of section 132 can be exercised only by such assessing officer. Thus after 15 days of seizure, the authorised officer cannot retain any of the seized documents or assets. Once the assessing officer comes into possession of the seized articles or documents, he is then obliged to pass an order under section 132(5) within 120 days of the seizure regarding five aspects. The five features to be dealt with in an order under section 132(5) are (a) to estimate the undisclosed income in a summary manner, (b) to calculate the amount of tax on the income, so estimated, (c) to determine the amount of interest payable and the penalty to be imposed, (d) to specify the amount required to satisfy any existing liability, and (e) to retain in his custody such assets as are in his opinion sufficient to satisfy the amounts determined as tax, interest, penalty and the defaulted amount till that date. 17. Section....
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....ere is a time limit of 120 days from the date of seizure for making an order. It is in order to enable the Income-tax Officer who has jurisdiction over the person to make an order under sub-section (5) within the period prescribed in cases where the authorised officer was directed to hand over the documents or assets seized to that Income-tax Officer within a period of 15 days from the date of seizure. In the circumstances, therefore, there could be no doubt that when sub-s.(9A) refers to an authorised officer having no jurisdiction over the person, it is a reference to an officer other than an Income-tax Officer having jurisdiction to make an order under subsection (5). Any other construction will make sub-section (5) unworkable. For the same reason, the authorised officer referred to in sub-section (8) is the same authorised officer referred to in sub-section (9A) as having no jurisdiction over the person. The net result, therefore, would be that if the authorised officer is an Income-tax Officer having jurisdiction over the person, he can retain the records himself for 180 days under sub-section (8). But, however, he will have to make an order under subsection (5) within 120 day....
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....earch and seizure cannot retain the documents or assets beyond 15 days. If the authorised officer cannot retain the assets or the documents, it is ineluctable that the said officer could not have encashed the IVP's. The authorised officer could not have been in de facto or de jure possession of the assets or documents seized under section 132(1) of the Act after 15 days of seizure. 22. 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. 23. The first letter demanding encashment o....
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.... Ext.P4(d) and Ext.P4(e) reveals that for those assessment years, i.e 1994-95 and 1995-96, covered by the said orders, the IVP's were adjusted by the department, even prior to the determination of liability. For the year 1995-96, the adjustments were effected on different dates between April, 1995 to January, 1997. For the year 1994-95, the adjustments were affected in August and October 1997. It is thus evident that the IVP's were adjusted against liabilities that were not determined on the date of such adjustments. The adjustments are therefore invalid under this count also. The procedure, the manner of adjustments and the steps adopted by the 2nd respondent were contrary to the provisions of the Act. 28. In this context, it is essential to refer to Ext.R3(a) letter written by the assessee. The learned Single Judge held the said letter to be an authorisation given to the 2nd respondent to encash the IVP's and to adjust the recovered amounts towards the tax liabilities. With respects, we find ourselves unable to agree to the said finding for more reasons than one. 29. Primarily, Ext.R3(a) cannot be regarded as a letter giving blanket authority to the respondents to encash th....