The Central Board of Direct Taxes (CBDT) recently clarified that the amendment to Explanation 2 of the Income Tax Act, 1961 enabling adjustment of Seized Assets against advance tax has prospective effect only.
Section 132B of the Income Tax Act 1961, provides for adjustment of seized assets/requisitioned assets against the amount of any existing liability under the Income Tax Act, 1961, the Wealth-tax Act, 1957, the Expenditure-tax Act, 1987, the Gift-tax Act, 1958 and the Interest-tax Act, 1974, and the amount of the liability determined on completion of the assessment u/s 153A of the Act and the assessment of the year relevant to the previous year in which search is initiated or requisition is made, or the amount of liability determined on completion of the assessment under Chapter XIV -B for the block period, as the case may be (including any penalty levied or interest payable in connection with such assessment) and in respect of which such person is in default or is deemed to be in default, or the amount of liability arising on an application made before the Settlement Commission u/s 245C(1) of the Act.
Later, in the year 2013, Explanation 2 to Section 132B of the Act was inserted in the Act clarifying that “existing liability” does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII of the Act. However, the dispute continued on the issue as to whether the amendment was clarificatory in nature having retrospective applicability or it has only prospective applicability.
While dealing with the above issue, the Courts frequently took a view that on an application made by the assessee, the seized money can be adjusted against the advance tax liability of the assessee.
Recently, the Punjab and Haryana High Court and the ITAT Mumbai had held that cash seized during search proceedings can be adjusted towards assessee’ advance tax liability.
It is in the light of above decisions, the board has clarified that Explanation 2 to Section 132B of the Act shall have a prospective application. It further directed the Officials to withdraw appeals/cases prior to 01.06.2013 on the same issue.
Read the full text of the Circular below.
