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2015 (8) TMI 512 - DELHI HIGH COURT

2015 (8) TMI 512 - DELHI HIGH COURT - TMI - Treatment of the currency seized during the search and seizure operations conducted u/s 132 - Assessees claim that the amounts seized to be accounted for as payment of advance tax on the date of seizure and interest chargeable under Section 234A, 234B and 234C of the Act ought to be computed accordingly confirmed by Tribunal - according to the Revenue, it cannot be treated as payment of tax till the filing of the return by the Assessee surrendering the .....

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rds which, clearly, indicate that the ITO retains the assets in his custody and the same are not appropriated towards payment of tax. Section 132(5) of the Act does not contemplate appropriation of assets towards any liability, whether existing or in future, but is limited to permitting the ITO to retain the seized assets to be applied as provided under the Act.The expression “existing liability” as used in Section 132(5) of the Act would mean a liability which has been determined and crystalliz .....

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ct of prior years where assessment have been made for or any other liability that stands crystallized by any determinative process under the Act.

In view of the aforesaid, the conclusion of the CIT(A) as well as the Tribunal that liability of the Assessee would stand discharged to the extent of cash seized from the date of the order under Section 132(5) of the Act is not sustainable as Section 132(5) of the Act does not deal with appropriation of the assets seized. Although it cannot .....

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Assessee’s income for the Previous Year 1990-91 could not be specified under clause (iii) of Section 132(5) of the Act. - Decided in favour of the Revenue - ITA 18/2002, ITA 19/2002, ITA 20/2002 - Dated:- 31-7-2015 - Hon ble Dr. Justice S. Muralidhar And Hon'ble Mr. Justice Vibhu Bakhru,JJ. For the Appellant : Mr Kamal Sawhney, Sr. Standing Counsel with Mr Raghvendra, Jr Standing Counsel and Mr Shikhar Garg, Advocate For the Respondent : Through ORDER Vibhu Bakhru, J. 1. These appeals are f .....

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ively referred to as the Assessees ) respectively against separate orders passed by the Commissioner Income Tax (Appeals) [hereafter CIT(A) ] and ITA Nos. 1874/Del/1995, 6082/Del/1995 & 6084/Del/ 1995 were cross appeals preferred by the Revenue against the orders of CIT (A). The CIT(A) had by separate orders disposed of the appeals preferred by the Assessees against the orders passed by the Assessing Officer (hereafter the AO ) rejecting the respective applications filed by the said Assessee .....

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the Revenue, the currency seized during the search operations under section 132 of the Act, cannot be treated as payment of tax till the filing of the return by the Assessee surrendering the seized amount as payment of tax or a demand being raised pursuant to a regular assessment. 3. In view of the above controversy, this Court, by an order dated 12th February, 2004 framed the following question of law for determination:- Whether the Tribunal was right in holding that amount retained u/s 132(5) .....

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, for the purposes of addressing the disputes in the present appeal, the facts pertaining to the case of Sh. Gian Chand Gupta, (the Respondent/Assessee in ITA No. 20/2002) are briefly stated as under:- 4.1 The search and seizure operations were conducted under Section 132 of the Act at the premises of the Assessee on 14th January, 1991. During the course of the search, Indian currency amounting to ₹ 25,62,500/- was found and seized by the concerned officers. 4.2 On 10th May, 1991 an order .....

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(a) of the Act on 27th September, 1993 and a demand of ₹ 58,49,796/- was raised. This demand included interest payable under Section 234A, 234B & 234C of the Act. The cash seized during search operations was appropriated against the aforesaid demand. 4.4 Aggrieved by the same, the Assessee filed an application on 19th January, 1994 under Section 154 of the Act for rectification of the said demand. The Assessee contended that the cash seized on 14th January, 1991 ought to have been trea .....

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d to be dealt with in accordance with Section 132B of the Act and had to be applied towards regular demand raised on the assessment and other proceedings under the I.T Act. Thus, the seized cash could not be treated as advance tax payment on the date of the seizure and, therefore, was adjusted towards the part payment of the demand finally raised pursuant to assessment under Section 143(1)(a) of the Act. 4.6 Aggrieved by the aforesaid order, the Assessee preferred an appeal before CIT(A) being A .....

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under Section 132(4) of the Act during the course of the search operations and, thus, had also not sought a refund of the amount seized. In the given circumstances, it was contended, that the Assessee s request for making the adjustment from the date of the search ought to be acceded to. The CIT(A) passed an order dated 23rd December, 1994 holding that the amount seized during the search, ought to be adjusted from the date of the order under Section 132(5) of the Act, i.e., 10th May, 1991 and i .....

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amount seized. The CIT(A) directed the AO to re-compute the demand. 4.7 The aforesaid order dated 23rd December, 1994 passed by the CIT(A) was challenged by the Assessee as well as by the Revenue before the Tribunal. It was argued on behalf of the Assessee that during the course of the search, the Assessee had declared a sum of ₹ 25,62,500/- as additional income under Section 132(4) of the Act. Therefore, the tax on the income disclosed ought to have been treated as an existing liability .....

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venue, the amount retained under Section 132(5) of the Act could not be treated as payment of tax and, therefore, the said amount could not be adjusted against the advance tax payable by the Assessee. 4.9 The Tribunal upheld the contention of the Revenue that the seized cash could not be treated as payment of advance tax on the date of the seizure. However, the Tribunal held that the liability to pay advance tax by the Assessee stood discharged on the date of the order under Section 132(5) of th .....

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132(5) of the Act. The Tribunal held that the liability to pay advance tax had occurred during the financial year 1991 and, therefore, had to be treated as an existing liability as mentioned in clause (iii) of Section 132(5) of the Act. 5. Mr Sahni, Sr. Standing Counsel appearing on behalf of the Revenue contended that an order under Section 132(5) of the Act did not permit appropriation of the assets seized but, only empowered the AO to retain the assets to be applied in a manner as provided un .....

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to liability which was crystallized or determined under the provisions of the Act. He stated that unless an assessment had been framed, there would be no determination of any liability for the relevant year and, thus, the assets seized could not be applied towards any such liability. 6. We have heard the learned counsel for the Revenue, however none appeared for the Assessees. 7. Before proceeding to address the issue, it would be relevant to refer to the provisions of Sections 132(4), 132(5) &a .....

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or under this Act. Explanation.-For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of, 1922), or under this Act. 132(5) Where any money, bullion, jewellery or other valuable art .....

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Commissioner,- (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 Income-tax Act, 1922 (11 of 1992), or this Act; (iia) determining the amount of interest payable and the amount of penalty imposable in accordance with the provisions of the Indi .....

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s 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 Income-tax Officer 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 wer .....

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such part thereof as he may deem fit in the circumstances of the case. XXXX XXXX XXXX 132B. Application of retained assets.-(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 sub-section and the amount of the liability determined on completion of the regular assessment or reassessment for all the assessment years relevant to the previous years to which t .....

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harged 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 (i) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the Assessing Officer or, as the case may be, the Tax Recovery Officer under authorisation from the Chief Commissioner or Commissioner under subsection (5) of section 226 and the Asses .....

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orthwith made over or paid to the persons from whose custody the assets were seized. (4) (a) The Central Government shall pay simple interest at the rate of fifteen per cent. per annum on the amount by which the aggregate of money retained under section 132 and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (iii) of sub-section (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to i .....

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o be in possession or control of any books of accounts, documents or other assets. Any disclosure made by an Assessee with regard to its income under the aforesaid provision would only serve as evidence required for carrying out the assessment. Clearly, any declaration made under Section 132(4) of the Act is not a substitute for a return of income by an Assessee. In the present case, even though the Assessee had declared income under Section 132(4) of the Act during the course of the search and .....

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tions have been conducted and assets have been seized from the Assessee, the Income Tax Officer (ITO) has to estimate the amount/assets required to meet the Assessee s known and estimated liability and retain the same. By virtue of the provisions of Section 132(5) of the Act, the ITO is required to make an order within 120 days of the date of seizure with the prior approval of the Joint Commissioner. The ITO has to (a) estimate the undisclosed income to the best of his judgment on the basis of m .....

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st of the Revenue as well as the Assessee; whilst sufficient assets to meet the liability of the Assessee are retained in the custody of the Income Tax Authority, the concerned Authority is not permitted to retain assets in excess or what may be required to meet the Assessee s liability. The words retained in his custody are key operative words which, clearly, indicate that the ITO retains the assets in his custody and the same are not appropriated towards payment of tax. Section 132(5) of the A .....

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ppropriation of the assets seized. 10. Clause (i) of Section 132B(1) of the Act as it existed in the statute book at the material time enables the Income Tax Authorities to apply the assets retained under Section 132(5) of the Act towards any existing liability as referred to in clause (iii) of Section 132(5) of the Act. By virtue of that clause, the ITO could specify any existing liability and retain assets sufficient to meet the same. The expression existing liability as used in Section 132(5) .....

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