The Delhi High Court in a recent case held that cash seized on search under section 132 of the Income Tax Act, 1961 can be treated as advance tax. The department had seized 50 Lakhs Cash from the premises of the assessee during the search.
Ashok Kumar Aggarwal, the petitioner challenged that the amount seized during the search action carried out under Section 132 of the Income Tax Act, 1961 [“the Act”] has not been treated as advance tax, although such representation was made by him from time to time. The respondents/revenue having treated the amount seized as money paid towards self-assessment tax has gone on to levy interest under Sections 234A, 234B and 234C of the Act.
During the search, cash amounting to Rs.50 lakhs was seized. The petitioner submitted that copies of the documents seized were made available to the petitioner only on 26.02.2010. The petitioner stated that the Return of Income (ROI) for the AY in issue could only be filed on 15.03.2010. The computation sheet appended to the ROI categorically stated that the cash seized i.e., Rs.50 lakhs should be treated as advance tax.
The record shows that the respondents/revenue while giving credit in respect of Rs. 50 lakhs seized during the search, have treated the said amount as having been paid towards self-assessment tax. Consequently, interest was imposed under Sections 234A, 234B, and 234C of the Act. The interest imposed under Section 234A of the Act was Rs.1,38,784/-. Insofar as the interest levied under Section 234B of the Act was concerned, the figure was pegged at Rs. 4,16,352/-.
Since the cash seized was treated as self-assessment tax and interest under Sections 234A, 234B, and 234C of the Act was imposed, the resultant figure concerning refund was scaled down. Before its amendment via Finance Act, 2013 [FA 2013], the petitioner was entitled to take a stand that the cash seized should be treated as advance tax and thus consequences as provided in law should follow.
It was argued that the amendment made in Section 132B of the Act by insertion of Explanation 2, which forbade the adjustment of cash seized as advance tax, has prospective effect i.e., from the date indicated in FA 2013, relied on Circular No. 20 of 2017 dated 12.06.2017 issued by the Central Board of Direct Taxes (CBDT).
In rebuttal, Mr Singh made a valiant attempt to persuade the court that adjustment could only be made against existing tax liability and since on the date of seizure of the cash no tax liability had been determined, the adjustment could not have been made otherwise than as self-assessment tax.
The respondents/revenue ought to have treated the cash seized as advance tax and accordingly passed the assessment order. Section 234A of the Act imposes a liability on the assessee for payment of interest where there is default in filing the ROI. Likewise, Section 234B of the Act imposes a liability on the assessee for payment of interest where there is default in payment of advance tax. As far as Section 234C is concerned, it adverts to the liability of the assessee to pay interest where there is a deferment of advance tax.
The division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that “seized cash was offered by the assessee, under the regime which was prevailing then, to be treated as the advance tax and thus there was no default in payment of advance; although its payment /adjustment was triggered due to a search action. Lastly, for the same reason, it cannot be said there was a deferment of payment of advance tax.”
Further held that “Since the petition has been pending for the last four years, we expect the amount due to be remitted to the petitioner, once computed as indicated above, at the earliest though not later than six (6) weeks from the date of receipt of a copy of the judgment by the respondents/revenue.”
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