Income Tax Appellate Tribunal - Chandigarh
Assistant Commissioner Of Income Tax vs Raghu Nandan Lal, Muni Lal And Ram ... on 31 July, 2001
Equivalent citations: [2002]82ITD436(CHD)
ORDER
Vimal Gandhi, Vice-President
1. These three appeals by the Revenue and three cross-objections by the different assessees are directed against orders of CIT(A), Ludhiana, deleting interest charged under Sections 139(8) and 215/217 of the IT Act. The cross-objections have been filed by the assessee merely to support the orders of CIT(A). As common issues are involved in these appeals, these were heard together and are being disposed of through this consolidated order for the sake of convenience.
2. The facts of the case are that assessees/respondents are partners of M/s National Feed Store, Ludhiana. The premises of the firm as well as its partners were searched on 18th Sept., 1987, by the Revenue authorities. On search, a sum of Rs. 1,55,000 was found at the residential premises of Sh. Muni Lal, partner. The firm surrendered a sum of Rs. 6,02,000 in the statement of the partners recorded under Section 132(4) of the IT Act. The assessees also furnished guarantee as required by the Revenue authorities for the release of the stock, which was in excess of the stock disclosed in books of account. The bank guarantee was also requested to be realised by the Revenue before the second instalment of tax was payable by the firm and the partners. The assessee vide letter written on 2nd Dec., 1987, had requested that bank guarantee and cash seized from the assessee be adjusted toward the advance tax payable by the firm and the partners.
3. The AO did not adjust the seized amount or the bank guarantee realised as advance tax, as prayed for by the assessee and made adjustment of these amounts as paid on the date of assessment order. Accordingly, interest under Section 139(8) and 215/217 was charged both in the case of partners as well as that of firm M/s National Feed Store, Ludhiana. The assessees moved an application under Section 154 of the IT Act pointing out that in charging the aforesaid interest as according to the assessee, the learned AO had committed a mistake apparent from record. It was prayed that the above mistake be rectified under Section 154 of IT Act and the interest charged be deleted by treating above amounts as advance tax paid as prayed for by the assessee. The AO rejected this contention.
4. The assessee filed appeals against the above orders as also in case of the firm M/s National Feed Store, Bharat Nagar, Ludhiana. The appeal in case of the firm was taken by CIT(A), Ludhiana, and disposed of vide order dt. 22nd Nov., 1990. The learned CIT(A) on the question of interest observed as under :
"Since the Department had seized the cash of Rs. 1,55,000 and the bank guarantee amounting to Rs. 2,25,000 was with the Department and the assessee had made the request for the adjustment of the same towards the payment of advance tax. The Dy. CIT was not justified in charging interest by holding that the advance tax had not been paid. The interest charged is deleted."
5. Both the parties admitted that no further action was taken by the Revenue against the above order and the same has attained finality. Thus, no interest has been charged in the case of the firm.
6. In appeals by the partners, the learned CIT(A) applied the above order as also the order passed under Section 271(1)(c) in the case of Sh. Muni Lal and Sh. Ram Prakash, partners wherein penalties levied were cancelled for the same reason. The interest charged under the above referred to provisions was directed to be deleted. Strangely enough, above orders of CIT(A) have not been accepted and three appeals in case of three partners have been filed before the Tribunal by the Revenue. The assessee have filed C.Os.
7. We have heard both the parties in these appeals. The learned Departmental Representative submitted that seized amounts could only be adjusted in terms of Section 132B of IT Act and there was no other provision to adjust it as advance tax. It can only be adjusted at the time of making of regular assessment. The AO had adjusted it on regular assessment and as taxes were not paid in time, the interest under Section 139(8) and 215/217 was leviable. During the course of discussion, reference was made to decision of Hon'ble Madhya Pradesh High Court in the case of Ramji Lal Jagan Nath v. CIT (2000) 241 ITR 758 (MP). The learned Departmental Representative also relied upon the decision of Hon'ble Patna High Court in the case of Vinod Poddar & Anr. v. CIT (1994) 208 ITR 722 (Pat) to canvass that seized amount could not be adjusted as advance tax. The learned Departmental Representative further submitted that payment of tax has to be voluntary and any amount seized by the Revenue authorities in search cannot be treated as tax paid. Accordingly, the learned Departmental Representative supported the charging of interest.
8. Sh. Sudhir Sehgal, on the other hand, stated that search was carried on 18th Sept., 1987, when the first instalment of advance tax in all the cases stood paid. Before the payment of second instalment, Revenue had realised amount of bank guarantee and also adjusted the amount seized and, therefore, benefit of above was to be allowed to the assessee. Sh. Sudhir Sehgal also drew our attention to the order passed by the AO under Section 132(5), dt. 13th Jan., 1988, of IT Act computing tentative income and tax payable thereon by the firm and its partners. Sh. Sehgal further submitted that decisions relied upon by the learned Departmental Representative fully supported his assessee's case. He accordingly, prayed that the impugned order be upheld.
9. We have given careful thought to the rival submissions of the parties. As noted earlier, the search was carried by the Revenue at the business as well as residential premises of the partners of M/s National Food Store on 18th Sept., 1987. A sum of Rs. 1,55,000 was found and seized from the premises of Sh. Muni Lal, partner. The authorised officer also found some excessive stock and this position was accepted by the partners of the firm and accordingly surrender was made in terms of Expln. 5 to Section 271(1)(c) of the IT Act. In order to retain seized asset, the AO passed order under Section 132(5) of the IT Act in the hands of the firm as well as partners on 30th Jan., 1988, wherein incomes of firm and partners were estimated and tax and penalties payable thereon for the assessment year under consideration were computed. About the assets seized and retained, the AO observed as under at p. 3 of the said order :
"In view of the above discussion, the liability of the assessee and its partners (the assessee being registered firm) to tax, interest, etc. is worked out as under:
Rs.
Income of the assessee firm as per discussion 6,02,000 Less : R.P. Tax 1,30,480 Balance 4,71,620 Though the assessee has surrendered the undisclosed income in the shape of cash and excess stock etc. in the statement recorded under Section 132(4) of one of the partners, the issue as to whether penalty under Section 271(1)(c) is imposable or not would be decided at the time of regular assessment. However, here minimum penalty of 100 per cent under Section 271(1)(c) is imposable, which is at Rs. 1,30,480.
Total liability of the firm :
Rs Rs.
(i) R P. tax 1,30,480
(ii) Penalty as above Total 1,30,480 2.60,960 1 Share of Sh. Muni Lal, partner 35 per cent Tax 1.65,032 61,766 61,766
2.
Share of Sh. Ram Parkash, partner 35 per cent Tax 1,66,032 61,766 61,766
3. Share of Sh. Raghu Nandan Lal, Partner 30 per cent Tax 1,41,456 49,978 49,978 Total liability of the firm and its partners 4,34,470 Total liability to tax and penalty as per above order comes to Rs. 4,34,470 which is far in excess of the cash seized. The cash seized in the above case is therefore, hereby ordered to be retained.
This order has been passed with the prior approval of the IAC of Income-tax, Range-I, Ludhiana conveyed vide his office letter No. JB/4708, dt. 13th Jan., 1988."
10. As all the cases are identical, we may proceed to examine the case of Sh. Muni Lal, partner. In that case the assessee filed return declaring net income of Rs. 3,13,490 on which tax payable was worked out of Rs. 1,42,795. The assessee claimed to have paid the entire amount on the basis of seized amount of tax as also bank guarantee duly encashed by the Revenue. Detailed of encashment of bank guarantee is not available on record although order under Section 132(5) takes into account bank guarantee of Rs. 2,25,000. On above fact, we are to decide whether the assessee is liable to pay interest or we are to uphold the order of Revenue authorities.
11. The learned Departmental Representative contended that the seized amount could not be adjusted against advance tax payable by assessee as such adjustment is not permissible under Section 132B of IT Act. We, therefore, deem it appropriate at this stage to reproduce provision of Sub-section (5) of Section 132 of IT Act as also Section 132B.
Sub-section (5):
"Where any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in Sections 132A and 132B referred to as the assets) is seized under Sub-section (1) or Sub-section (1A), as a result of a search initiated or requisition made before the 1st day of July, 1995, the ITO, after affording a reasonable opportunity to the person concerned of being heard and making such enquiry as may be prescribed, shall, within one hundred and twenty days of the seizure, make an order, with the previous approval of the Jt. CIT.
(i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him :
(ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian IT Act, 1922 (11 of 1922), or this Act;
(iii) determining the amount of interest payable and the amount of penalty imposable in accordance with the provisions of the Indian IT Act, 1922 (11 of 1922), or this Act, as if the order had been the order of regular assessment;
(iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in Clause (a) of Sub-section (1) of Section 230A in respect of which such person is in default or is deemed to be in default, and retain in his custody such assets/or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in Clauses (ii), (iia) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized :
Provided that if, after taking into account the materials available with him, the ITO is of the view that it is not possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized and may also determine the interest or penalty, if any, payable or imposable accordingly :
Provided further that where a person has paid or made satisfactory arrangements for payment of all the amounts referred to in Clauses (ii), (iia) and (iii) or any part thereof, the ITO may, with the previous approval of the Chief CIT or CIT, release the assets or such part thereof as he may deem fit in the circumstances of the case.
Section 132B :
(1) The assets retained under Sub-section (5) of Section 132 may be dealt with in the following manner, namely :
(i) The amount of the existing liability referred to in Clause (iii) of the said subsection and the amount of the liability determined on completion of the regular assessment or reassessment for all the assessment years relevant to the previous year to which the income referred to in Clause (1) of that sub-section relates (including any penalty levied or interest payable in connection with such assessment or reassessment) and in respect of which he is in default or is deemed to be in default may be recovered out of such assets.
(ii) If the assets consist solely of money, or partly of money and partly of other assets, the AO may apply such money in the discharge of the liabilities referred to in Clause (1) and the assessee shall be discharged of such liability to the extent of the money so applied.
(iii) The assets other than money may also be applied for the discharge of any such liability referred to in Clause (1) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the AO or, as the case may be. TRO under authorisation from the Chief CIT or CIT under Sub-section (5) of Section 226 and the AO or, as the case may be, TRO may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule."
Further, the proviso to Section 211(1) says that any amount paid by way of advance tax on or before 31st day of March shall be treated as advance tax paid during the financial year ending on that day for purposes of this Act.
12. The learned Departmental Representative had placed strong reliance on decision of Hon'ble Madhya Pradesh High Court in the case of Ramji Lal Jagan Nath and Ors. v. Asstt. CIT (supra) wherein their Lordships had held that cash seized in search cannot be adjusted as advance tax. Their Lordships disagreed with the view of the Bombay Bench of Tribunal taken in the case of Satpaul D. Aggarwal (HUF) v. Asstt. CIT (1998) 62 TTJ (Mumbai) 98. It was held that the payment of tax has to be a voluntary action and, therefore, any amount seized in search cannot be treated as payment of advance tax unless order under Section 132(5) is passed. The learned Departmental Representative has argued on the above lines.
13. The other relevant provisions are that of Sub-section (3) of Section 132B of the IT Act, which provide how the retained assets are to be dealt with by the AO. Seizure of asset is certainly recovery from the assessee and the order under Sub-section (5) of Section 132 of IT Act furnishes to the assessee an account of liabilities and how seized assets are to be adjusted against the liabilities of the assessee for the current year or some other year. It is difficult to appreciate that despite the directions to adjust seized amount under Section 132(5) against the liabilities of the current year, the assessee cannot and should not take into account above adjustments and make payment otherwise due. The assessee should treat statutory provision and orders passed thereunder and the amount recovered and retained as of no consequences. This approach defies all logic and rationality. It is, therefore, only reasonable to allow the assesses to take credit for the seized amount as per recovery made by the Revenue authority and make payment accordingly. There is no basic difference between "payment" or "recovery" through seizure and other modes of recovery provided in the statute as far as discharge of liabilities of tax is concerned. This is amply demonstrated by several provisions of the IT Act. We may refer to Section 190 of the Act providing as under :
Deduction at source and advance payment-
Section 190(1). Not withstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction or collection at source or by advance payment, as the case may be, in accordance with the provisions of this Chapter. (2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of Sub-section (1) of Section 4."
In some cases the Act provides for payment, in other cases tax is recovered by deduction at source. Both would ultimately form part of consolidated fund of India.
14. The question here is how adjustments of recovered amount on the regular assessment is to be made ? Whether date of seizure or recovery is material ? What is the meaning of expressions "dealt with" "on completion of the regular assessment" used in Section 132B. As per the Revenue, it implies that date of assessment would be the date of recovery of assets, whatever may be the date of seizure or of order under Section 132(5). There is absolutely no justification for upholding above view. The authorities deprived the citizen of valuable assets on a specific date. Order under Section 132(5) is passed to determine liabilities in order to retain assets keeping in mind the date of seizure. Then how under the law, the date of recovery of amount can be different from the actual date of recovery. There is no statutory provision under which this date can be changed, "To be dealt with on the completion of regular assessment" only means that in the regular assessment adjustment should be made against finally determined liabilities and not on estimated liabilities. It does not mean that "recovered" amount be not treated as not recovered till the regular assessment is made.
15. In the case of Vinod Poddar and Anr. v. CIT (supra), a decision cited on behalf of the Revenue it was held by their Lordships as under:
"Jewellery and a sum of Rs., 20,800 in cash were seized from a bank locker of P&V on 4th Dec., 1979. Subsequently, the money and jewellery were retained by the ITO by his order passed on 18th Feb., 1980. In his order, the source of cash seized was accepted as explained but the explanation regarding acquisition of jewellery valued at Rs. 1,22,211 was rejected thereby treating the investment as income from undisclosed sources. The liability under the Act towards the tax, penalty and interest was estimated at Rs. 1,73,528. While making the regular assessment for the asst. yr. 1980-81, the AO valued the jewellery at Rs. 1,22,211. He accepted the explanation for jewellery worth Rs. 1,12,211 only. Accordingly, he added Rs. 20,800 being cash seized and Rs.
10,000 against jewellery as income from undisclosed sources under Section 69A of the Act to the assessed income. Finally, on appeal, the said additions were deleted. On finalisation of the regular assessment, the petitioners requested the respondents to release the jewellery. But the respondents did not accede to the prayer. On a writ petition against the order, a counter-affidavit was filed justifying the retention of the jewellery on the plea that demands under the Act were still outstanding against the petitioners for the asst. yrs. 1981-82 and 1982-83. Held, that 1980-81 was the only assessment year relevant for determining the rights and liabilities of the assessee under Section 132(5) r/w Section132B. Even according to the respondents, as stated in the counter-affidavit, the said liability had been found to be only to the extent of Rs. 670 and Rs. 339 towards tax and interest, respectively. The entire seized assets could not be retained on the ground that certain liabilities under the Act, had come into existence subsequent to the passing of the order under Section 132(5). The petitioners were entitled to get back the seized assets and also to interest at the rates applicable during the relevant period."
In our considered view aforesaid decision does not go against the assessee. The question raised in the case was little different but the assessee instead of getting the amount back may ask for adjustments with reference to the date of recovery.
16. In the case of Ramji Lal Jagan Nath v. CIT (supra) after considering Sub-section (1) and Sub-section (5) of Section 132 as also provisions of Section 132B, their Lordships observed as under :
"The right to receive the money would accrue in favour of an assessee only after a final order is made under Section 132(5) and if such an order is made, then only the assessee can make a request to the ITO that the amount which is sought to be released in his favour may be adjusted or appropriated towards the liability of the payment of advance tax. The scheme of Sub-section (5) of Section 132 clearly provides that the seized assets shall not be disposed of nor shall be dealt with in any manner unless after making an enquiry, an order is made by the ITO. The first proviso to Sub-section (5) further provides that if after taking into account the materials available with him, the AO is of the view that it would not be possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized and may also determine the interest or penalty, if any, payable or imposable accordingly.
In the opinion of this Court, unless a final order is made by the ITO under Sub-section (5) of Section 132, the seized assets cannot be dealt with in any manner except for their release in accordance with the second proviso to Sub-section (5)."
17. In the present case, we have already noted that in the order passed under Section 132(5), the AO specifically determined the liabilities of the assessees for the assessment year under consideration and retained the amount seized by the Revenue for adjustment against tax payable for the year under consideration. It is quite explicit in the order that amounts retained by the Revenue aggregating to Rs. 3,80,000 were to be adjusted in the asst. yr. 1991-92. No other liability is mentioned in the order under Section 132(5). Ultimately the aforesaid amounts have been adjusted against liabilities of current year. Now the AO is not ready to treat the amounts seized as paid by the assessee through bank guarantee as advance tax paid, the assessees should have separately paid the advance tax without considering order under Section 132(5). This is quite unreasonable. Supposingly, in a given case advance tax payable is Rs. 1 lac and seized amount from the assessee is more than Rs. 1 lac and the AO has passed the order under Section 132(5) passed much before the last instalment of advance tax payable, even then the assessee should pay advance tax. This, in our view, is not the scheme of the Act. Having determined the income and the tax payable and the finding that seized asset is to be retained in final adjustment against the income of the given year, the assessee can take benefit of finding recorded by AO under Section 132(5). This is what has been stated by their Lordships of Madhya Pradesh High Court in the case of Ramji Lal Jagannath and Ors. (supra). Their Lordships directed that the seized assets and cash about which order has been passed under Section 132(5) of IT Act can be adjusted against demand raised by the Revenue authorities.
18. In the present case, we find that in the order under Section 132(5) passed on 30th Jan., 1998, the AO had said that the total seized cash would be taken at Rs. 3,80,000 (2,25,000 + 1,55,000) and the same would be retained for adjustment against the current years liabilities. The liabilities of firm and partners were determined at Rs. 4,34,470. The entire amount was retained. The assessee did make an application for adjustment of retained assets against the advance tax payable by the firm and the partners. We are not concerned with the legality of order passed on such a request. The question, we are concerned with is whether having regard to Rs. 3,80,000 retained by the AO for adjustment against the liabilities of the current year, was the assessee required to pay the said amount all over again. The Revenue authority by charging interest is treating the assessee as a defaulter for non-payment of advance tax. In other words, the assessee should have paid the advance tax irrespective of what was retained by the Revenue. This approach, in our view, is not justified as it ignores the amount recovered retained with specific undertaking that it would be adjusted against the current liabilities. It totally ignores the amount recovered. The liabilities determined at the time of regular assessment are quite different from the liabilities taken in order under Section 532(5). In the present case, the AO took for purposes of adjustment Rs. 1,30,480 under Section 132(5) as "penalty" payable by the assessee, but ultimately no penalty has been levied. Likewise demands raised in the case of firm and partners are different and less than those mentioned in the summary assessment order. The adjustments are to be made having regard to the liabilities finally created in the hands of the firm and the partners. It is at that time that one has to take into account the amount paid as well as recovered from the assessee and also the date of recovery. The credit for the entire amount has to be given and interest can be calculated only with reference to the date on which the amount was paid or recovered. It being a compensatory levy and cannot ignore the date of recovery. There is no provision to take the date of recovery other than the date on which it was recovered. Again principles applicable to the cash amount seized in search not being a payment are not applicable to amount realised as a bank guarantee.
The assessee had specifically and voluntarily requested the tax authorities to realise the bank guarantee and, therefore, this amount has to be treated as payment by the assessee and accordingly, the credit for the same is to be given.
19. In the light of our above directions, the AO shall pass afresh order relating to interest charged under Sections 234A and 234B of the IT Act. The detail and date of the amount paid and recovered from each of the partners is not available on record and, therefore, the issue cannot be finally decided at the stage of the Tribunal and is required to be remitted back to the file of the AO. A fresh order be passed having regard to principles laid down in this order. In the result, all the appeals as well the cross-objections are disposed of as stated above. These be treated as allowed for statistical purposes.