2014 (11) TMI 1122 - HC - Income Tax

Entertaining the additional ground of appeal regarding the legality of intimation u/s. 143(1)(a) Held that - We do not find that the Tribunal has committed any error in entertaining the additional ground of appeal regarding the legality of intimation u/s 143 (1)(a) of the Act. We therefore answer question no. 1 against the assessee and in favour of the revenue. Cash seized adjustment against the advance liability - Held that - The cash seized from the assessee firm on an application given by the assessee before the end of the previous year relevant to the assessment year 1993-94 ought to have been adjusted against the liability of advance tax for the A.Y. 1993-94 by the revenue subject to payment under section 234(B) & (C) of the Act. In the present case we do not find that assessee had any intention of shirking its advance tax liabilities and considering the provisions of law the revenue ought to have considered the assessee s application which was made well in point of time subject to provisions of sections 234 (B) and (C) of the Act. We therefore answer question in favour of the assessee

Issues Involved:
1. Legality of intimation under Section 143(1)(a) of the Income Tax Act, 1961.
2. Adjustment of seized cash against advance tax liability.

Issue-wise Detailed Analysis:

1. Legality of Intimation under Section 143(1)(a):
The first issue revolves around whether the Tribunal was correct in law by not entertaining the additional ground of appeal regarding the legality of intimation under Section 143(1)(a) of the Income Tax Act, 1961. The assessee argued that the Tribunal erred in its judgment by not considering the letter dated 18.03.1993, which requested the adjustment of seized cash against the advance tax liability for the assessment year 1993-94. The Tribunal and CIT(A) did not accept the assessee's appeal. The court, after hearing both sides, concluded that the Tribunal did not commit any error in this regard and answered question no. 1 against the assessee and in favor of the revenue.

2. Adjustment of Seized Cash Against Advance Tax Liability:
The second issue pertains to whether the Tribunal was correct in holding that the cash seized could not be adjusted against the advance tax liability as requested by the appellant. The assessee had filed a return for the assessment year 1993-94 declaring a total income of Rs. 6,64,570, and during a search and seizure operation, Rs. 4,46,000 was seized. The assessee had addressed a letter dated 18.03.1993 requesting the adjustment of the seized cash against the advance tax liability, which the revenue did not accept.

The court examined Sections 234B and 234C of the Income Tax Act, which deal with interest for defaults in payment of advance tax and deferment of advance tax, respectively. The court also reviewed the application of seized assets under Section 132B, which clarifies that seized assets may be adjusted against existing liabilities but does not include advance tax payable.

The court noted that the Tribunal had erred by relying on the M.P. High Court's decision and should have considered the Delhi High Court's decision in the case of K.K. Marketing, which held that if an offer for adjustment of seized cash is made before the advance tax liability becomes due, the cash should be adjusted against the advance tax liability to avoid interest penalties.

The court concluded that the revenue should have considered the assessee's application for adjustment of the seized cash against the advance tax liability, subject to the provisions of Sections 234B and 234C. Therefore, question no. 2 was answered in favor of the assessee and against the revenue.

Conclusion:
The appeal was partly allowed. Question no. 1 was answered in favor of the revenue and against the assessee, while question no. 2 was answered in favor of the assessee and against the revenue. The impugned order passed by the Tribunal was modified accordingly.

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