AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1062
X X X X Extracts X X X X
X X X X Extracts X X X X
....coordinate bench has accepted the request of the assessee for early hearing and case was fixed for hearing out of turn on 14.10.2025. On 14.10.2025, on the written request by the ld. CIT DR matter was adjourned to 15.10.2025. It was made clear by the bench to both the parties that being early hearing granted matter, no further adjournment was granted. Thus, the adjournment application filed by the ld. CIT DR is rejected and Sr. DR, Shri Rajesh Kumar Dhanesta was requested to assist the bench on behalf of the revenue. Case was heard and reserved for orders. 3. With this background, we proceed to decide the appeal of the assessee. 4. Brief facts of the case are that assessee is a company engaged in the business of manufacturing and export of fabric towels and filed its return of income on 28.10.2024 in ITR -6, declaring total income at Rs. 215,77,45,000/- on which total tax liability was worked out at Rs. 54,30,61,262/- and interest u/s 234 was calculated at Rs. 69,96,882/-. The CPC, Bengaluru while processing the return u/s 143(1) of the Act on 7.11.2024 has created the demand of Rs. 3,74,28,230/- by not allowing the credit of Rs. 17,66,50,000/- claimed by the assessee as paym....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... facts of the case coupled with the applicable law and the legal precedence in force. 7. That the order passed by the Ld. CIT(A) u/s 250 of the Act as well as the order passed by the CPC u/s 143(1) of the Act are absolutely wrong, void ab initio, bad on facts & in law (as elaborated above) and hence, the credit of Self-Assessment tax paid amounting to Rs. 17,66,50,000/- deserves to be allowed along with the issuance of due refund of Rs. 13,92,21,770/- as against erroneous demand created of Rs. 3,74,28,230/- vide order u/s 143(1) of the Act dated 07.11.2024. 8. That on the facts and circumstances of the case, the CPC has erred in law in levying wrong excess interest u/s 234B & 234C of the Act. 9. That the appellant craves to add, amend, alter or withdraw any Ground or Grounds of Appeal." 6. Before us, Ld. AR for the assessee submits that a search action was carried out by the Investigation Wing of department on South Delhi Vaults at W-113, Greater Kailash -2, New Delhi on 14.5.2024 wherein three lockers were found belonging to the assessee company. From these three lockers bearing Nos. 575, 576 and 587 cash amount of Rs. 7,34,00,000/- Rs. 6,85,00,000/- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....possession of the tax department at the time of filing of the return of income. v. That a search & seizure action was conducted u/s 132 of the Act at South Delhi Vaults, W-113, Greater Kailash -2, New Delhi in the month of May'2024 by Investigation Wing, New Delhi wherein five lockers under the signing authority of the director of the assessee company namely Mr. Ashish Kapoor, which were used by Kapoor Industries Group, were operated, the same are detailed hereunder: S. No. Locker No. Cash Found & Seized (in INR) Document s Found & Seized Seizure pertains to (A) (B) (C) (D) (E) 1 575 7,34,00,000 NA Kapoor Industries Ltd. (Appellant) 2 576 6,85,00,000 NA Kapoor Industries Ltd. (Appellant) 3 587 3,47,50,000 NA Kapoor Industries Ltd. (Appellant) 4 581 NA NA Found Empty 5 582 NA Documents seized (refer Page Nos. 436- 690 of PB) Kapoor Industries LLP (group entity of Kapoor Industries Group) Total 17,66,50,00 0 Copy of Panchnamas evidencing the aforementioned seizure are enclosed at Page Nos. 375-404 of PB. vi. That the afo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee company vide order u/s 250 of the Act dated 14.07.2025 and upheld the wrong demand of Rs. 3,74,28,230/- created by CPC vide order u/s 143(1) of the Act dated 07.11.2024 by resorting to erroneous interpretation of Sec. 132B of the Act against the legislative intent of the said provision of the statute. As a matter of fact, the Ld. CIT(A) misconstrued "the request of the appellant to adjust the seized cash towards Self-Assessment Tax Liability" wrongly as "Advance Tax Liability". xii. That the Ld. CIT(A) completely ignored the fact that under the Income Tax Act, 1961, provisions regarding payment of self assessment tax are contained in Chapter XIV u/s 140A while the provisions regarding payment of advance tax are contained in Part C of Chapter XVII under section 207 to Section 219. The requirement of payment of advance tax before the end of relevant Financial Year is on estimated income relating to that F.Y. while self assessment tax is paid after the end of the F.Y. at the time of filing of return of income for that F.Y. on the basis of actual tax liability determined by the assessee relating to the income earned during the previous year. Thus, the nature of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e made by the engineers to repair the said machines, however, even after number of efforts, the defect could not be removed completely. 3) That following multiple emails, calls & meetings raising concerns about continuous machine failures, satisfactory resolution was not found by Danitech & there were uneven dyeing results in the machines. Consequently, management decided to proceed with production w.e.f. April 2023 using the defective machines, considering that only by using the machine, the root causes of machine failures would be found & rectified for the long run. This decision was also based on the fact that no other competing technology offered 50% water reduction, hence the only solution was to learn by trial & errors. Therefore, the production was continued through the said new machines due to which defective goods were produced along the way which were not upto the international quality standards and thus, could not be exported. 4) In order to minimize the business losses, the company sold such defective goods in the domestic market in Cash through over the counter sales. The company has recorded the domestic sales of defective goods, as aforesaid, to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ize the business losses, the company had sold these defective goods in the open domestic market as surplus sales in cash amounting to Rs. 17,75,02,500/- in FY 23-24( Inclusive of GST), which was recorded in the Books of Accounts for the said year. The cash of Rs. 17,75,02,500/- was handed over by the Company periodically to the director Mr Ashish Kapoor for safe keeping purposes, as per the terms of the Board Resolution dated on 5th April 2023. Mr Ashish Kapoor had kept the cash in private lockers of South Delhi Vaults, New Delhi which were operated by him. The said private lockers were subjected to search and seizure action by the Investigation Wing of the Income Tax Department on 11th May 2024 to 14th May 2024 and cash amounting to Rs. 17,66,50,000/- stood seized by the Income Tax Department. 5) That the appellant company for the purpose of safe-keeping of cash generated through the afore-mentioned domestic sales, authorized its director, namely, Mr. Ashish Kapoor to keep the cash in his safe custody, who, in turn, kept the same in private vaults/ lockers under his signing authority maintained with South Delhi Vaults for safe- keeping purposes. Copy of Board Resolution d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 132A may be dealt with in the following manner, namely :- (i) the amount of any existing liability under this Act, the Wealth-tax Act, 1957 (27 of 1957), the Expenditure-tax Act, 1987 (35 of 1987), the Gift-tax Act, 1958 (18 of 1958) 79a[the Interest-tax Act, 1974 (45 of 1974) and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (22 of 2015)], .............................................................................. Explanation 2 .- For the removal of doubts, it is hereby declared that the "existing liability" does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII. 11) From the perusal of the aforesaid contents of Sec. 132B of the Act, it can be clearly seen that the amount of any existing liability under the Income Tax Act can be adjusted against seized assets. In the instant case, the assessee company has correctly adjusted its Cash Seized towards its liability for payment of Self-Assessment Tax which is a liability under the Act existing as on the date of seizure of Cash as the cash was seized in the Month of May 2024 and the Self-Assessment Tax Liability for FY 2023-24 ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax. It is beyond doubt that the terms ' advance tax' and 'self assessment tax' are distinct and separate." ⮚ Hon'ble ITAT, Delhi in case of Sh. Sajjan Singh vs ACIT in ITA no. 6440/DEL/2016 vide order dated 18.01.2018 held following the judgement of Narendra N. Thacker (supra) as under: "8. The ld DR could not controvert that how the above decision does not cover the issue in favour of the assessee. No other contrary decision was also brought to our notice. In view of this, we do not find any infirmity in the order of the ld CIT(A) in directing the ld Assessing Officer to give credit of seized cash toward self-assessment tax paid of Rs. 5371411/- as self-assessment tax and also not to charge interest u/s 234B of the Act from the date of seizure to the date of assessment. Accordingly, the appeal of the revenue is dismissed." ⮚ Hon'ble ITAT, Indore in case of Gaurav Ajmera vs DCIT [2024] 167 taxmann.com 293 vide order dated 10.06.2024 held: "6.4 Applying the decision of ITAT, Kolkata and Board Circular No. 2/2015 cited above, we find that the cash seized by department in present case on 14.11.2016 and agreed by ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere custodian and required to adjust against the taxes as and when requested for adjustment and any delay on the part of the Revenue, the assessee should not be penalized. 4.3 In view of the precedents discussed above, it is evident that self-assessment tax liability could be treated as part of the 'existing liability'." 12) In view of the above, it can be seen that the Ld. CIT(A) has erred in law in wrongly not allowing the Tax Credit of Self-Assessment Tax in the shape of cash seized by wrongly observing that the Cash Seized cannot be adjusted against Advance Tax Liability particularly when the assessee company has adjusted the Cash Seized towards the existing liability of Self-Assessment Tax and not for "Advance Tax Liability" for AY 2024-25. Thus, the Ld. CIT(A) has wrongly dismissed the appeal of the assessee company and wrongly upheld the demand created by CPC. Accordingly, keeping in view the aforesaid facts & settled law, it is undeniably clear that credit of Cash Seized amounting to Rs. 17,66,50,000/- towards the Self-Assessment Tax Liability deserves to be allowed to the appellant company and oblige. 13) Without prejudice to abo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he three assessment years under question. --------------------------- The assessing officer has the discretion to intimate the assessee about the defect(s) and it is only when the defect(s) are not rectified within the specified period that the assessing officer may treat the return as an invalid return. Ascertaining the defects and intimating the same to the assessee for rectification, are within the realm of discretion of the assessing officer. It is for him to exercise the discretion. The burden is on the assessing officer. If he does not exercise the discretion, the return of income cannot be construed as a defective return. As a matter of fact, in none of the three assessment years, the assessing officer had issued any declaration that the returns were defective." 17) Furthermore, in another case, the Hon'ble Supreme Court of India while dealing with SLP in the case of ACIT vs. Marico Ltd. [2020] 117 taxmann.com 244 (SC) confirmed the view taken by the Hon'ble Bombay High Court in Marico Ltd. v. Asstt. CIT [2019] 111 taxmann.com 253 (Bombay) that "The non-rejection of the explanation in the Assessment Order would amount to the Assessing Offic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....30/-, the assessee company is also facing difficulty in raising funds through banks & financial institutions as the banks / financial institutions are also reluctant to sanction the financial support which is required for up-keep of the financial buoyancy. The afore-mentioned circumstances have pushed the appellant company into serious financial crisis and genuine hardship and therefore, the appellant warrants urgent relief in the matter. D. PRAYER In view of the afore-stated facts, settled law and genuine financial hardship being faced by the appellant company, it is hereby most humbly prayed before your honor that requisite relief may kindly be granted by allowing the due adjustment of cash seized amounting to Rs. 17,66,50,000/- against the self-assessment tax liability for AY 2024-25 and quash the order passed u/s 143(1) of the Act by the CPC wherein an erroneous demand of Rs. 3,74,28,230/- has been created as against the returned refund of Rs. 13,92,21,770/- as well as quash the impugned order of the Ld. CIT(A) disputed in this appeal before your honors wherein the credit of seized cash towards self-assessment tax liability has not been allowed, keepi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... fact that while dismissing the appeal of the assessee, ld. CIT(A) has wrongly treated the claim of the assessee as towards advance tax. It is seen that the said cash was seized on 14.5.2024 i.e. after the expiry of the financial year relevant to assessment year under appeal and the assessee in its return claimed the said cash as payment u/s 140A of the Act as part of the self- assessment tax. The Ld. CIT(A) completely ignored the fact that under the Income Tax Act, 1961, provisions regarding payment of self-assessment tax are contained in Chapter XIV u/s 140A whereas the provisions regarding payment of advance tax are contained in Part C of Chapter XVII under section 207 to Section 219. The requirement of payment of advance tax is before the end of relevant Financial Year on estimated income of that year, whereas self- assessment tax is paid at the time of filing of return of income based on the tax liability computed on the income declared in the return of income which is going to be filed. Thus, the nature of self-assessment tax is different from advance tax and Explanation 2 to Section 132B specifically debars the adjustment towards advance tax liability only. Therefore, self-a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the self- assessment tax liability, the relevant observations of the bench are reproduced as under: "7. We find that the subsequent action of Learned AO in revoking the credit given for seized cash towards existing tax liability under proceedings u/s 154 of the Act is illegal. The provisions of section 132B of the Act makes it clear that the terms 'existing liability' does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII. But this amendment was brought in the statute by Finance Act 2013 with effect from 1.6.2013 only. Hence it can be safely concluded that what is precluded in the statute is adjustment of seized cash towards advance tax liability only and not self assessment tax or regular tax and that too only with effect from 1.6.2013. We hold that the action of the assessee in seeking to adjust the seized cash with self assessment tax payable along with the return of income is in order and in accordance with section 132B of the Act as admittedly self assessment tax payable becomes 'existing liability' on the part of the assessee to settle. Similarly, we hold that the action of the Learned AO in adjusting the se....