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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri J.Sudhakar Reddy, AM]
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : KOLKATA [Before Hon’ble Sri N.V.Vasudevan, JM & Shri J.Sudhakar Reddy, AM] I.T.A No. 1282/Kol/2015 Assessment Year : 2012-13 D.C.I.T., Central Circle-2(3) -vs- Shri Vikash Jain Kolkata. Kolkata [PAN : ACTPJ 6174 D] (Respondent) (Appellant) I.T.A No. 1283/Kol/2015 Assessment Year : 2012-13 D.C.I.T., Central Circle-2(3) -vs- Shri Vivek Jain Kolkata. Kolkata [PAN : ACTPJ 6173 E] (Respondent) (Appellant) C.O.Nos.58&59/Kol/2015 (A/o ITA Nos.1282 & 1283/Kol/2015) Shri Vikash Jain & Shri Vivek Jain -vs- D.C.I.T., Central Circle-2(3) Kolkata Kolkata [PAN : ACTPJ 6174D & ACTPJ 6173 E] (Cross Objectors) (Respondent) For the Revenue : Shri Sallong Yaden, Addl. CIT For the Assessee : None Date of Hearing : 14.08.2017. Date of Pronouncement : 18.08.2017. ORDER Per N.V.Vasudevan, JM
ITA Nos.1282/Kol/2015 & 1283/Kol/2015 are appeals filed by the revenue against two orders both dated 28.08.2015 of CIT(A)-20, Kolkata relating to A.Y.2012- 13. ITA No.1282/Kol/2015 is in relation to an assessee by name Shri Vikash Jain. ITA No.1283/Kol/2015 is an appeal in relation to an assessee by name Shri Vivek Jain. Both the assessees have filed Cross Objection against the very same orders of CIT(A).
2 ITA No.1282 & 1283/Kol/2015 Shri Vikash Jain & Shri Vivek Jain A.Yr..2012-13 2. Grounds of appeal raised by the revenue in these appeals are common and they read as follows :- “ 1. Ld. CIT(A) erred in his order to treat the amount seized in course of search as Advance tax in contrary to provisions of 132 B of the I.T.Act.
That department craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing of the case.”
As far as the Cross Objection is concerned, the assessee has challenged the disallowance of expenses made u/s 14A of the Income Tax Act, 1961 (Act) on the ground that since there was no exempt income earned by the assessee during the previous year there cannot be any disallowance u/s 14A of the Act.
The grounds raised in the Cross Objections in case of Shri Vikash Jain read as follows :- “ 1. For that the Ld. C.1.T(A) erred in confirming the disallowance of Rs. 6000/- under sec. 14A of the 1. T. Act, 1961.
For that the Ld. C.I.T(A)'s order is otherwise in accordance with law except what has been stated in ground no. 1
For that the assessee craves leave to add, alter or amend any ground before or at the time of hearing.”
The grounds raised in the Cross Objections in case of Shri Vivek Jain read as follows :- “ 1. For that the Ld. C.1.T(A) erred in confirming the disallowance of Rs.156000/- under sec. 14A of the 1. T. Act, 1961.
For that the Ld. C.I.T(A)'s order is otherwise in accordance with law except what has been stated in ground no. 1
3 ITA No.1282 & 1283/Kol/2015 Shri Vikash Jain & Shri Vivek Jain A.Yr..2012-13 3. For that the assessee craves leave to add, alter or amend any ground before or at the time of hearing.”
We may clarify that ground no.2 raised by the assessee in both the cross objections are only supportive of the orders of CIT(A) on the question of levy of interest u/s 234B of the Act and therefore does not require any specific adjudication.
As far as the appeals by the revenue are concerned, the question is with regard to the adjustment of seized cash towards existing tax liability of the assessee and consequent determination of interest chargeable u/s 234B of the Act. As far as interest u/s.234-B of the Act is concerned, the starting point of time and the terminal point of time for levy of interest, as per the provisions of Sec.234B is the period from the 1st day of April next following such financial year to the date of determination of total income under sub- section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment. Interest has to be levied for both the A.Y.s u/s.234-B on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. Explanation 1 to Sec.234-B (1) lays down that "assessed tax" means,-
(a) for the purposes of computing the interest payable under section 140A, the tax on the total income as declared in the return referred to in that section;
(b) in any other case, the tax on the total income determined under sub-section (1) of section 143 or on regular assessment,
as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income.
4 ITA No.1282 & 1283/Kol/2015 Shri Vikash Jain & Shri Vivek Jain A.Yr..2012-13 8. The plea of the assessee was that the seized cash has to be adjusted and should be treated as advance tax on the date when the assessee gave a declaration of income and also gave a letter to the AO to treat the cash seized as advance tax and payment on the income declared in the declaration after the search. On the above issue the CIT(A) took a view that the adjustment of seized cash towards advance tax as claimed by the assessee ought to have been given by the AO. The following were the conclusions of CIT(A) on this issue (in the case of Vikash Jain) :-
“ An additional ground regarding charging of interest u/s 234B and 234C of the I T Act has been taken by the AR. During the appellate proceedings the AR has brought on record that a letter dated 24-11-2011 was given by the assessee to the AO to treat cash seized during the search and seizure operation as advance tax. The AR has further submitted that a sum of Rs.12 lakhs was paid by the assessee during the financial year itself as advance tax. The grievance of the assessee is that while calculating interest u/s 234B and 234C the AO has not taken into consideration this facts. The AO is directed to calculate interest u/s 234B and 234C a fresh after allowing credit of the said amount as advance tax on 24-11-2011.”
“ An additional ground regarding charging of interest u/s 234B and 234C of the I T Act has been taken by the AR. During the appellate proceedings the AR has brought on record that a letter dated 24-11-2011 was given by the assessee to the AO to treat cash seized during the search and seizure operation as advance tax. The AR has further submitted that a sum of Rs.13 lakhs was paid by the assessee during the financial year itself as advance tax. The grievance of the assessee is that while calculating interest u/s 234B and 234C the AO has not taken into consideration this facts. The AO is directed to calculate interest u/s 234B and 234C a fresh after allowing credit of the said amount as advance tax on 24-11-2011.”
Identical reasons have been given in the case of Vivek Jain by CIT(A). Aggrieved by the orders of CIT(A) the revenue has preferred the appeals before the Tribunal.
In the case of Mr.Vikash Jain, there was a search u/s.132 of the Act on 29.9.2011 at the residence of the Assessee. Cash of Rs.50 lacs was found. The Assessee filed a disclosure petition on 24.11.2011 offering undisclosed income of Rs.2,40,89,200 towards undisclosed loose diamonds and Rs.50 lacs cash in all totaling Rs.2,90,89,200. 4
5 ITA No.1282 & 1283/Kol/2015 Shri Vikash Jain & Shri Vivek Jain A.Yr..2012-13 The Assessee also requested in the said disclosure petition to adjust the sum of Rs.50 lacs cash seized towards the tax payable on the income disclosed in the disclosure petition. In the return of income filed on 30.9.2012 for AY 2012-13, the Assessee offered the sum disclosed in the disclosure petition dated 24.11.2011.
In the case of Mr.Vivek Jain, there was a search u/s.132 of the Act on 29.9.2011 at the residence of the Assessee. Cash of Rs.50 lacs was found. The Assessee filed a disclosure petition on 24.11.2011 offering undisclosed income of Rs.2,60,01,790 towards undisclosed loose diamonds and Rs.50 lacs cash in all totaling Rs.3,10,01,790. The Assessee also requested in the said disclosure petition to adjust the sum of Rs.50 lacs cash seized towards the tax payable on the income disclosed in the disclosure petition. In the return of income filed on 30.9.2012 for AY 2012-13, the Assessee offered the sum disclosed in the disclosure petition dated 24.11.2011.
The Hon'ble ITAT, E Bench, Kolkata, in ITA No. 101/Kol/2007 in the case of DC/T, CC-V Vs Sitaram Agarwal (HUF) held that no interest u/s 234A, 2348 & 234C can be levied, where seized cash was with Department and for their delay in applying the seized cash for tax dues of the Assessee, the Assessee cannot be held responsible. Hon'ble ITAT, ‘B' Bench, Kolkata, In IT(SS) A No. 1141Ko/12008 in the case of ACIT Vs Puranmal Agarwal for Asst. Year 2003-04 laid down similar proposition. The Hon'ble ITAT, Rajkot Bench in the case of Bachubhai S.Antrolia Vs ACIT (2006) 103 TTJ (Rajkot) 73 in the context of levy of interest u/s158BF(A) (1) held that such a levy was not justified when the fault is not relatable to the assessee. In the said judgment it was observed, "Penal provisions of the Act should not be construed in a manner to make them an instrument of oppression." Several decisions rendered by various Benches of ITAT also lay down identical proposition viz., Hon'ble ITAT, Amritsar Bench in the case of Jaswant Singh & Co. Vs ACIT (2003) SOT 545 (ASR)
6 ITA No.1282 & 1283/Kol/2015 Shri Vikash Jain & Shri Vivek Jain A.Yr..2012-13 Mesco Airlines Ltd. Vs ACIT (2008) 24 SOT-384 (Delhi). Therefore interest charged u/s 234B of the Act must be calculated by treating the Seized Cash as tax paid.
The procedure of treatment of a seized asset is described in section 132B of Income Tax Act. There was seizure of cash of Rs.50 lacs by Department during the search. Such seizure by itself cannot become payment of tax by the Assessee. The seized cash may represent the income or property of the Assessee but it can be appropriated only towards the existing tax liability under I.T. Act, or W.T.Act. The dispute in this regard poses two questions. The first question is whether any Income Tax liability can be said to be existing before the determination of such liability by the Assessing Officer in the assessment order. The second question is whether Assessing Officer is obliged to adjust the seized money against such existing liability. The Assessee submitted in his petition dated 24.11.2011 that the cash of Rs50 lacs found on the date of search may be adjusted against the tax liabilities payable on undisclosed income of the Assessee. The section 132B(l)(ii) of the I.T.Act gives a discretion to the Assessing Officer to adjust the seized cash against the existing tax liabilities. However, the court decisions on which the Assessee has relied, have opined that such adjustment cannot be left to the sweet will of the Assessing Officer beyond the date of existence of tax liabilities, when such delayed adjustment by the Assessing Officer is resulting in excessive charging of interest u/s 234B, for no fault of the assessee. CBDT in Circular No.20/2017 dated 12.06.2017 has made it clear that Explanation 2 to section 132B of the Act inserted by the Finance Act 2013 w.e.f. 01.06.2013 will have any prospective effect and therefore advance tax payable can also be considered as existing liability. We have given a very careful consideration to the issue and are of the view that the order of CIT(A) on this issue does not require any interference. It has been held in the decision rendered by various benches of the ITAT referred to in the earlier part of this order that advance tax liability can also be considered as existing liability. Therefore date adjustment of seized cash should be made before computing the liability of interest 6
7 ITA No.1282 & 1283/Kol/2015 Shri Vikash Jain & Shri Vivek Jain A.Yr..2012-13 u/s 234B of the Act. Following the said decisions, we uphold the conclusion of CIT(A) which are in accordance with the ruling of the Tribunal referred to above. Consequently the appeals by the revenue are dismissed.
As far as the Cross Objection of the assessee is concerned the CIT(A) in the case of Shri Vikash Jain sustained the disallowance u/s 14A of the Act in part for the following reasons :- “ 5. Appeal on grounds no.2 and 3 are against the addition u/s 14A of Rs.40,505/-. During the appellate proceedings the AR had submitted the available fund with the assessee is more than the amount of investment made. Thus the AR had argued that the disallowance of interest on account of investment is not justified. The AR has also brought on record that during the assessment year fresh investment was of Rs.250/- lakhs only and this amount was also invested by the assessee from its own available fund. So nothing was borrowed in order to make investment. I have considered the finding of the AO and the submissions made by the AR. I find there is no dividend income to the assessee during the year. However administrative expenses for the purpose of maintaining books etc cannot be denied of the ruled out. Accordingly Rs.6000 is confirmed for this purpose.”
In the case of Shri Vivek Jain sustained the disallowance u/s 14A of the Act in part for the following reasons :- “ 7. Appeal on grounds no.4 to 6 are against the addition u/s 14A of Rs.4,20,302/-. During the appellate proceedings the AR had submitted the available fund with the assessee is more than the amount of investment made. Thus the AR had argued that the disallowance of interest on account of investment is not justified. The AR has also brought on record that during the assessment year fresh investment was of Rs.24/- lakhs only and this amount was also invested by the assessee from its own available fund. So nothing was borrowed in order to make investment. I have considered the finding of the AO and the submissions made by the AR. I find there is no dividend income to the assessee during the year. However administrative expenses for the purpose of maintaining books etc cannot be denied of the ruled out. Accordingly Rs.15000 is confirmed for this purpose.”
Aggrieved by the orders of CIT(A) sustaining the disallowance u/s 14A of the Act in part the assessees have filed cross objections.
8 ITA No.1282 & 1283/Kol/2015 Shri Vikash Jain & Shri Vivek Jain A.Yr..2012-13 16. We have heard the rival submissions. It is not in dispute that both the assessees did not earn any exempt income during the relevant previous year. The CBDT Circular No.5 of 2014 dated 11.2.2014 has opined that the disallowance u/s 14A of the Act can be made even in the year where there is no exempt income earned or received by the assessee and the ITAT special decision in the case of Cheminvest Ltd. [2009] 121 ITD 318 (SB) (Delhi) also took the view that disallowance under Sec.14A of the Act can be made even when there is no exempt income. Before us it was not disputed by the revenue that the CBDT Circular on which has been referred to in the CBDT Circular and the decision of the Special Bench in the case of Cheminvest Ltd. (supra) is contrary to the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. Vs CIT 317 ITD 33 (Delhi) wherein it was held that there can be no disallowance of expenses u/s.14A of the Act, if there is no exempt income during the relevant previous year. It was brought to our notice that the Hon’ble ITAT Kolkata in the case of REI Agro Ltd. Vs. DCIT 144 ITD 141 (Kol-Trib) has held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon’ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra). In the light of the aforesaid decision of the Calcutta High Court in the case of REI Agro (supra), we are of the view that the directions given by the CIT(A) are contrary to the decisions rendered by the Hon’ble Delhi High Court in the case of Cheminvest Ltd. (supra). Therefore there cannot be any disallowance u/s.14A of the Act, if there is no exempt income.
Thus the relevant grounds of cross objections are allowed.
9 ITA No.1282 & 1283/Kol/2015 Shri Vikash Jain & Shri Vivek Jain A.Yr..2012-13 18. In the result the appeals by the revenue are dismissed and the Cross Objections by the assessees are partly allowed.
Order pronounced in the Court on 18.08.2017.
Sd/- Sd/- [J.Sudhakar Reddy] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 18.08.2017. [RG PS]
Copy of the order forwarded to:
1.Shri Vikash Jain, 39, Burtolla Street, Kolkata-700007. 2.Shri Vivek Jain, 39, Burtolla Street, Kolkata-700007. 3. A.C.I.T., Circle-37, Kolkata. 3. CIT(A)-20, Kolkata. 4. CIT-Central-I,, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.