M/S KALI COMMODITIES PVT. LTD.,KOLKATA vs. DCIT, CEN. CIR-XXVII, KOLKATA, KOLKATA

Brief facts of the case are that on 5.1.2010 and 26.2.2010, there were search and seizure operations on various bank accounts of the assessee by the Income tax department. In such search and seizure operations, the bank balance of the assessee to a tune of Rs.54,35,539/- was seized. Assessment orders u/s 153A/143(3) of the Act were passed for the Assessment Years 2004-05 to 2009-10.

On 30.03.2011 the assessee filed its return of income for AY 2010-11 assessing its liability to tax at Rs.14,40,862/- and on 30.03.2011 it submitted a letter to the AO requesting for adjustment of tax payable for the AY 2010-11 out of the cash seized. So also, on 27.04.2012 the assessee filed its return of income for AY 2011-12 declaring a total income

However, the AO added interest u/s. 234A, 234B and 234C of the Income-tax Act, 1961 (hereinafter referred as the “Act”) for all the three years. Challenging the action of the AO in adding the interest u/s. 234B and 234C of the Act without giving credit of the seized cash of Rs.54,35,539/- the assessee preferred appeals before the Ld. CIT(A). Ld. CIT(A) by way of impugned order turned down the contention of the assessee upheld the order of the AO and dismissed the appeals of the assessee. Challenging the same, the assessee came in appeals before us on the following effective sole ground: “That the Ld. CIT(A) erred in law as well on facts and circumstances in confirming the charging of interest u/s. 234B & 234C of the I. T. Act, 1961 without giving credit of seized amount.”

At the time of hearing, Ld. AR argued that when the seized amount is very much available in the hands of the department and when the assessee filed letters before the AO at the earliest possible time after filing of the return, the AO is not justified in ignoring the request of the assessee and not to adjust the tax payable out of the cash seized and to make additions. While admitting the liability of the assessee u/s. 234A of the Act, he vehemently disputed the addition u/s. 234B and 234C of the Act. He prayed to quash the orders of the authorities below in this regard. He placed reliance on the decision of Hon’ble jurisdictional High court in CIT Vs. M/s. BLB Securities Pvt. Ltd. ITAT No. 274 of 2012 in GA No. 3245 of 2012 dated 09.01.2013, CIT Vs. Amit Sersaria, ITA 360 of 2009 dated 23.02.2015 and a decision of Coordinate bench of this Tribunal in IT(SS)A No.01/Kol/2012, ACIT Vs. Narendra N. Thacker dated 28.09.2015.

On the other hand, Ld. DR vehemently opposed these appeals on the ground that under the Explanation u/s. 132B of the Act existing liability does not include any future liability at all, as such, the authorities below are justified in not considering the request of

Basing on the above factual matrix and contentions of the rival parties, the issue that arises for our consideration is whether the authorities below are justified in disallowing the adjustment of seized cash against the self assessment tax liability?

Facts are admitted. A total cash of Rs.54,35,539/- was seized on 05.01.2010 and 26.10.2010. Such cash was very much available in the hands of the department as on the date of passing the assessment orders in respect of the AYs 2010-11 to 2012-13. It is also an admitted fact that the assessee filed letters dated 30.03.2011, 10.05.2012, 14.01.2013 and 17.06.2013 requesting the AO to adjust the seized cash against the tax liability of the assessee for AYs. 2010-11 to 2012-13. However, such request was not considered by the AO and the Ld. CIT(A) referred to the explanation (2) inserted in section 132B of the Act by the Finance Act, 2013 which says “for removal of doubt, it is hereby declared that the ‘existing liability’ does not include advance tax payable in accordance with the provisions of Part-C of the Chapter-XVII” and held that as per such explanation, the seized cash lying with the department cannot be adjusted against the advance tax. On this premise, the Ld. CIT(A) proceeded to hold that the amendment in section 132B of the Act is clarificatory in nature and, therefore, applicable to all the pending proceedings and confirmed the order of the AO.

Now the question is the applicability of section 132B of the Act in the facts and circumstances of the case on hand to sustain the addition of interest u/s. 234B and 234C of the Act. In the case of M/s. BLB Securities Pvt. Ltd., supra the Hon’ble jurisdictional High Court has held as under: “Mrs. Ghutghutia submitted that under section 132B(i) of the Income Tax Act, 1961, the seized cash could be adjusted against an existing liability and could not have been adjusted against a liability which arose subsequent thereto. We are unable to accept this submission. If the seized cash can be adjusted against an existing liability, there is no reason why the seized cash cannot be adjusted against a liability which arose in future because in that case the seized cash would amount to some sort of advance payment. We are as such unable to find any merit in the contention of Mrs. Ghutgutia.”

In the case of Narendra N. Thacker, supra for AY 2006-07 the Coordinate Bench of this Tribunal while comprehensively dealing with this matter, vide para no. 7 has observed as under: “….. The provisions of section 132B of the Act makes it clear that the terms ‘existing liability’ does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII. But this amendment was brought in the statute by Finance Act 2013 with effect from 1.6.2013 only. Hence it can be safely concluded that what is precluded in the statute is adjustment of seized cash towards advance tax liability only and not self assessment tax or regular tax and that too only with effect from 1.6.2013. We hold that the action of the assessee in seeking to adjust the seized cash with self assessment tax payable along with the return of income is in order and in accordance with section 132B of the Act as admittedly self assessment tax payable becomes ‘existing liability’ on the part of the assessee to settle.…….”

On the other side, the Ld. DR placed reliance on a decision in the case of CIT Vs. Sri Chand Gupta (2015) CTR 342 (Del.) wherein vide para 10 to 12 it has held as under: “10. Clause (i) of Section 132B(I) 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) of the Act would mean a liability which has been determined and crystallized and, thus, is capable of being specified in an order under Section 132(5) of the Act. In absence of any return filed, any assessment made or any determinative process undertaken, the question of the ITO specifying a liability under clause (iii) of Section 132(5) of the Act does not arise. Thus, plainly, the reference to an "existing liability" as used in Section 132(5)(iii) of the Act would mean such liability that has already been determined and crystallized such demands outstanding in respect of prior years where assessment have been made for or any other liability that stands crystallized by any determinative process under the Act. 11. We are unable to accept the Tribunal's view that payment of advance tax was an existing liability as on the date of the order under Section 132(5) of the Act and, thus, seized assets could be applied towards the said liability as on that date. Although it cannot be disputed that the Assessee had the liability to pay the advance tax, nonetheless, this liability could not have been determined by the AO prior to the assessment under the Act. Advance tax is, essentially, to be paid by an assessee on the amount of taxable income estimated by it. The AO can determine whether payment of advance tax paid fell short of the required amount only when an assessee's income is assessed. Thus, at the stage of Section 132(5) of the Act, such liability in respect of the Assessee's income for the Previous Year 1990-91 could not be specified under clause (iii) of Section 132(5) of the Act.

He further relied on the decision in the case of Hemant Kumar Sindhi & Anr. Vs.CIT (2014) 364 ITR 555 (all), wherein it has held as under: “Under Clause (i) of sub-Section (I) of Section 132 B, assets which are seized under Section 132 or requisitioned under Section 132A can be dealt with towards the amount of any existing liability under the Income Tax Act, 1961 (and other stated legislations) and the amount of liability determined on completion of the assessment under Section 153A and the assessment of the year relevant to the previous year in which the search is initiated or the amount of liability determined on completion of the assessment under Chapter Xl V-B for the block period including penalty or interest. The crucial words which are used in Clause (i) are "the amount of any existing liability" and "the amount of the liability determined". The words "existing liability" postulates a liability that is crystallized by adjudication. Similarly, a liability is determined on completion of the assessment or as the case may be, the block assessment. Until the assessment is complete, it cannot be postulated that a liability has been crystallized. The first proviso to Clause (i) states that the assessee may make an application to the Assessing Officer for release of the asset which has been seized. However, the assessee has to explain the nature and source of acquisition of the asset to the satisfaction of the Assessing Officer. In other words, it is not the ipse dixit of the assessee but the satisfaction of the Assessment Officer on the basis of the explanation tendered by the assessee which is material. Moreover, in such a case the amount of an existing liability can be recovered from out of such asset; such asset being the asset which is referred to in the substantive part of Clause (i).”

Amendment of section 132B of the Act affects rights, liabilities and disabilities of the assessees because of substantive levy on the part of the government, as such, they cannot be stated to be the procedural law in essence it is substantive in nature. In view of the judgment of the Hon’ble Apex Court in the case of CIT Vs. Vatika Township P. Ltd. reported in 367 ITR 466 (SC), we are inclined to hold that the amendment brought in section 132B of the Act w.e.f. 01.06.2003 is only prospective in nature and it cannot be applied to the assessment years earlier thereto.

It is the argument of the Ld. AR that in view of the binding decisions of the jurisdictional High Court in M/s. BLB Securities Pvt. Ltd., supra and Amit Sersaria, supra the decisions of other High courts cannot be relied upon because those are only persuasive in nature. We find strength in the argument of the Ld. Counsel and are inclined to follow the decisions of, the decision of Hon’ble jurisdictional High court wherein Their Lordship held that if the seized cash can be adjusted against the existing liability the same can be

Decisions of Hon’ble jurisdictional High Court in M/s. BLB Securities Pvt. Ltd. and Amit Sersaria and the decision of the Tribunal in the case of Narendra N. Thacker, supra, are applicable to the facts and the decisions of Hon’ble jurisdictional High Court are binding on this Tribunal. Respectfully following the same we hold that the action of the authorities below in not adjusting the seized cash towards the tax liability of the assessee for AYs 2010-11 to 2012-13 and charging of interest u/s. 234B and 234C of the Act for non- payment or short payment of advance tax are bad in law. We consequently hold that no interest u/s. 234B and 234C of the Act shall be charged by the AO from the date of seizure of the cash till the date of completion of assessment in respect of AYs. 2010-11 to 2012-13. We answer the point accordingly in favour of the assessee and allow all these appeals of the assessee.

In the result, all the appeals of assessee are allowed.

Order is pronounced in the open court on 23.09.2016