TMI Blog1999 (4) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... P. No. 1425 of 1999. The facts leading to the filing of the writ petitions are as under : The assessment of the petitioner for the assessment year 1994-95 was completed by the Assessing Officer, viz., the Income-tax Officer Film Ward II, Chennai, by his order dated March 29, 1996, as the said officer was having jurisdiction over the petitioner at that time. The order of assessment made on the petitioner resulted in a tax liability of Rs. 29,21,282 and consequential interest. The petitioner preferred an appeal challenging the order of assessment before the Commissioner of Income-tax (Appeals) and the Commissioner (Appeals) by order dated December 20, 1996, dismissed the appeal preferred by the petitioner. After the dismissal of appeal by the Commissioner (Appeals), the petitioner filed an application dated January 29, 1997, before the Commissioner of Income-tax, Tamil Nadu IV, who was having jurisdiction over the petitioner on that date for stay of collection of tax and that petition was rejected by the Commissioner of Income-tax, Tamil Nadu IV, on February 6, 1997. The Commissioner of Income-tax, Tamil Nadu IV, while dismissing the stay petition on February 6, 1997, observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor of Income-tax, Investigation, Chennai, with a request that a sum of Rs. 60 lakhs lying in his bank account may be appropriated towards ad hoc payment of tax liability that may arise out of the action under section 132 of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act"), both at Chennai and Ernakulam. The petitioner also sought for a direction to lift the order of attachment. As already stated, the Commissioner of Income-tax, the authorised representative of the Department, the Appellate Tribunal and also the petitioner proceeded on the basis that there were arrears of tax for the assessment year 1994-95. The petitioner filed a declaration under the Kar Vivad Samadhan Scheme, 1998, for the assessment year 1994-95, and his petition was rejected on the ground that there were no arrears of tax for the assessment year 1994-95. The first respondent, the Commissioner of Income-tax, Central-1, issued a letter stating that his petition dated October 21, 1998, seeking adjustment of a part of the seized cash towards the tax payable for the block assessment has no merits in view of the fact that a sum of Rs. 24,25,810 had already been adjusted towards the arrears of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax, Central-I, is the subject-matter of the writ petition, W. P. No. 1424 of 1999. The grounds raised in the writ petition are that it is not open to the Commissioner of Income-tax to adjust a sum of Rs. 24,25,810 against the tax arrears for the assessment year 1994-95 as the cash seized has to be adjusted towards the tax liability that may arise out of the block assessment under Chapter XIV-B of the Act which is a special provision for assessment of search cases. It is also stated that the adjustment has been made without giving any prior opportunity or notice to the petitioner and hence the adjustment is illegal. It is also stated that the petitioner, Commissioner of Income-tax, the Department personnel and the Appellate Tribunal have proceeded on the basis that the amounts have not been adjusted which is clear from the orders passed by the Commissioner of Income-tax as well as the Appellate Tribunal and the stand taken by the petitioner as well as by the Department before the authorities. It is there fore stated that the adjustment of a sum of Rs. 24,25,810 towards arrears of tax for the assessment year 1994-95 is illegal. It is also stated that once the adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be completed only in January, 1999, and it is not open to the respondents to adjust the seized cash towards the arrears of tax for the assessment year 1994-95. Learned counsel further submitted that once the court holds that the adjustment is not permissible under the provisions of the Act, the order rejecting the declaration filed by the petitioner under the Kar Vivad Samadhan Scheme is also liable to be set aside. Learned counsel submitted that the various orders passed by the Commissioner of Income-tax as well as the Appellate Tribunal on the petitions for stay filed by the petitioner and the stand taken by the Department show that they were of the opinion that the seized cash was not adjusted towards the tax arrears for the assessment year 1994-95. Learned counsel submitted that though there was a letter by the Assistant Commissioner of Income-tax, dated July 20, 1998, he did not inform that the adjustment of the seized cash of a sum for Rs. 23,40,525 was made towards the tax arrears for the assessment year 1994-95 and as soon as the petitioner became aware of the said illegal adjustment, he approached the Commissioner of Income-tax, Central-1, by filing a petition dated Octo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would govern the other writ petition W. P. No. 1424 of 1999. The facts are not in dispute that the order of assessment for the assessment year 1994-95 was made on March 29, 1996, and the petitioner was liable to pay a sum of Rs. 29,21,282 towards the balance of tax payable and interest also. An appeal against the order of assessment was filed by the petitioner before the Commissioner (Appeals) which went against him and the further appeal preferred by him before the Appellate Tribunal was pending on the date when the Kar Vivad Samadhan Scheme came into force. There is also no dispute that certain amount of cash and other assets were seized during the search operation conducted in the residence and business premises of the petitioner and at the request of the petitioner some amounts were paid, by the banker of the petitioner to the Income-tax Department by way of bankers' pay order on January 31, 1997. The petitioner also issued a letter on January 29, 1997, stating that the amount transferred from the Indian Bank, Rangarajapuram Branch, Chennai, may be adjusted towards ad hoc payment of tax liability that may arise on the action under section 132 of the Act both at Madras and Erna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act also provides that assets seized under section 132 or requisition under section 132A of the Act shall be retained to the extent necessary and the provisions of section 132B of the Act shall apply subject to certain modifications which are necessary. It is relevant to notice that under section 158BA of the Act, the provisions of Chapter XIV-B of the Act would overide all other provisions contained in the Act. In other words, the provisions of Chapter XIV-B will have overriding effect and would operate notwithstanding anything contained in all other provisions of the Act. In the context of making block assessment in search cases, the question whether the adjustment of a sum of Rs. 24,25,700 seized during the search against the existing tax liability for the assessment year 1994-95 by the Assessing Officer having jurisdiction over the assessee's case at that time is justified or not has to be considered. In my view, the adjustment made by the Assessing Officer of a sum of Rs. 24,25,700, in so far as it relates to the tax arrears for the assessment year 1994-95, is not justified or valid in the eye of law, As already held by me, the provisions of Chapter XIVB of the Act woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the person from whom the assets were seized. Under section 132B of the Act, after making a regular assessment, the Assessing Officer is empowered to adjust the amount seized against the tax liability that may arise on the basis of assessment or reassessment for all the assessment years relevant to the previous years to which the undisclosed income relates. Under the provisions of the Act then existing, the priority prescribed in section 132(5) of the Act is that the Assessing Officer was required to first adjust the amount seized against the tax liability determined in a summary manner and then adjust the balance if any against the existing tax liability that may arise on the basis of regular assessment. Since the Assessing Officer had already adjusted the amount seized against the existing liability after the completion of the assessment, he would not be required to make further adjustment towards existing liability as the liability had already been adjusted. Under section 132B of the Act, the Assessing Officer after making regular assessment or reassessment was required to determine the tax liability either in the assessment or in the reassessment, as the case may be, and adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it would in effect, reduce the ultimate tax liability of the petitioner the question that arises is whether it is possible to alter the priority. It is not a case of set off of refunds under section 245 of the Act against the tax remaining payable under the Act and under section 245 of the Act, an intimation in writing should be given of the proposed action. Though the provisions of section 245 of the Act do not in terms apply to the proceedings under section 132B of the Act, and section 132B of the Act does not expressly provide for an intimation to be given to the assessee of the proposed action to set off the cash seized against the existing liability, on the facts of the case, it is seen, no intimation was given by the Assessing Officer after adjustment of a part of cash against the existing liability for 1994-95 as was done by the Assistant Commissioner of Income-tax, Central Circle 1(5), Chennai, on July 20, 1998, enclosing challans and the mode of adjustment of P. D. account. Though the Assistant Commissioner of Income-tax by his letter dated July 20, 1998, informed that the amount adjusted out of the seized cash was only Rs. 23,40,525, the Assistant Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment and adjust the tax liability against the assets retained and if there is any surplus, the existing liability can be adjusted against such surplus. The Assessing Officer, in the instant case, has not adhered to the priority contemplated under the scheme of the Act and any interpretation de hors the scheme of block assessment, in my view, is not warranted. Therefore, I am of the view, section 158BC cannot be construed independent of the scheme of the Act, and it must be construed in the light of the scheme of block assessment. Therefore, the adjustment of sum of Rs. 24,25,700 made by the Assessing Officer against the, existing liability for the assessment year 1994-95 is not valid and justified in law. Though the Assistant Commissioner of Income-tax by letter dated July 20, 1998, merely informed the petitioner that adjustment of seized cash was made, since the adjustment was not made in accordance with the provisions of the Act, the adjustment has to be set aside. It is also relevant to notice that the petitioner was under the impression that adjustment had not been made towards the tax liability for the assessment year 1994-95, that is the reason for the petitioner to appro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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