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* IN THE HIGH COURT OF DELHI AT NEW DELHI
R-45
+ ITA 18/2002
COMMISSIONER OF INCOME TAX
CENTRAL 1 ..... Appellant
Through: Mr Kamal Sawhney, Sr. Standing
Counsel with Mr Raghvendra, Jr Standing Counsel
and Mr Shikhar Garg, Advocate.
versus
MR. SRI CHAND GUPTA ..... Respondent
Through:
WITH
R-46
+ ITA 19/2002
COMMISSIONER OF INCOME TAX
CENTRAL - 1 ..... Appellant
Through: Mr Kamal Sawhney, Sr. Standing
Counsel with Mr Raghvendra, Jr Standing Counsel
and Mr Shikhar Garg, Advocate.
versus
MRS. USHA RANI GUPTA ..... Respondent
Through:
AND
R-47
+ ITA 20/2002
COMMISSIONER OF INCOME TAX
CENTRAL 1 ..... Appellant
Through: Mr N.P. Sahni with Mr Nitin Gulati,
ITA 18, 19 & 20 of 2002 Page 1 of 17
Advocates.
versus
MR. GIAN CHAND GUPTA ..... Respondent
Through:
CORAM:
HON'BLE DR. JUSTICE S. MURALIDHAR
HON'BLE MR. JUSTICE VIBHU BAKHRU
ORDER
% 31.07.2015
Vibhu Bakhru, J.
1. These appeals are filed by the Revenue under Section 260A of the
Income Tax Act (hereafter `Act') impugning a common order dated 11 th
July, 2001 passed by the Income Tax Appellate Tribunal (hereafter ` The
Tribunal') in respect of the six separate appeals being ITA Nos.
1780/Del/1995, 5933/Del/1995 5931/Del/1995, 1874/Del/1995,
6082/Del/1995 and 6084/Del/1995; ITA Nos. 1780/Del/1995,
5933/Del/1995 and 5931/Del/1995, were filed by Shri Gian Chand Gupta,
Smt. Usha Rani Gupta and Shri Sri Chand Gupta ( hereafter collectively
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
ITA 18, 19 & 20 of 2002 Page 2 of 17
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 Assessees under Section 154 of the
Act.
2. The present appeals involve a common question concerning the
treatment of the currency seized during the search and seizure operations
conducted under Section 132 of the Act. The Assessees claim that the
amounts seized during the search ought 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. The
Revenue disputes this contention. According to 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 12 th
February, 2004 framed the following question of law for determination:-
"Whether the Tribunal was right in holding that amount r etained
u/s 132(5) of the Income-tax Act, 1961 amounts to payment of
taxes and should be taken into consideration while calculating
ITA 18, 19 & 20 of 2002 Page 3 of 17
interest payable u/s 234A, 234B and 234C of the Income-tax
Act, 1961?"
4. It is relevant to note that all parties had agreed before the Tribunal
that the facts and the questions of law involved in all the appeals were
common and a decision in the case of Sh. Gian Chand Gupta (hereafter the
`Assessee') [ITA 1780/Del/1995 and 1874/Del/1995] would cover the issues
in all the appeals. Thus, 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 Rs.25,62,500/- was
found and seized by the concerned officers.
4.2 On 10th May, 1991 an order under Section 132(5) of the Act was
made estimating the income of the Assessee at Rs.1,95,93,756/-.
Accordingly, the AO passed an order retaining the cash seized to be dealt
with in accordance with provisions of Section 132B of the Act.
4.3 The Assessee filed his return of income on 26th April, 1993 declaring
a total income of Rs.56,56,380/- for the relevant period (i.e. Previous Year
ITA 18, 19 & 20 of 2002 Page 4 of 17
1990-1991 relevant to the Assessment Year 1991-92). The said return was
processed under Section 143(1)(a) of the Act on 27th September, 1993 and a
demand of Rs.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 treated as payment of tax on that date and the failure to
treat the said amount as advance tax paid on that date had resulted in a
mistake apparent from the record. According to the Assessee, the said
mistake was liable to be corrected and the interest chargeable under Section
234A, 234B, 234C ought to have been recomputed.
4.5 By an order dated 25th January, 1994 the AO rejected the Assessee's
application under Section 154 of the Act. The AO held that the cash seized
during the search operations had 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
ITA 18, 19 & 20 of 2002 Page 5 of 17
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 Appeal No.461/1994-95. It was contended before the
CIT(A) that the demand of tax would necessarily relate back to the relevant
accounting year since the liability of income tax crystallises on the last date
of the accounting year, which in this case was 31st March, 1991. Therefore,
the amount seized by the Income Tax Authorities ought to be adjusted on the
date of the seizure and if not so, at least on the last date of the accounting
year. The Assessee further urged that he had surrendered income 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 interest be charged
accordingly. The CIT(A) directed that the interest under Section 234A,
234B, 234C of the Act be computed only up to the date of 10th May, 1991
ITA 18, 19 & 20 of 2002 Page 6 of 17
and further interest be charged only on the balance amount, if any,
remaining after adjustment of the cash seized as on 10th May, 1991. In other
words, the CIT(A) was of the view that the cash seized ought to be
appropriated as tax paid as on 10th May, 1991 being the date of the order
passed under Section 132(5) of the Act retaining the 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 Rs. 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 and the amount
seized ought to have been adjusted against the said liability as on the said
date. The Assessee also contended that the question whether interest was
chargeable or not was a debatable issue and, therefore, could not be charged
while processing the return under Section 143(1)(a) of the Act.
4.8 The Revenue also assailed the decision of CIT(A) to treat the cash
seized as tax paid w.e.f. 10th May, 1991 i.e. the date of order passed under
Section 132(5) of the Act. According to the Revenue, the amount retained
ITA 18, 19 & 20 of 2002 Page 7 of 17
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 the Act, as the amount seized had to be applied in accordance with
Section 132B of the Act and in terms of that Section the cash seized was to
be applied towards "existing liability" referred to in clause (iii) of Section
132(5) of the Act. The Tribunal reasoned that the AO was bound to adjust
the cash seized after passing of the order under Section 132(5) of the Act
and, therefore, it would be fair to hold that the adjustment of tax by the AO
should relate back from the date of order under Section 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
ITA 18, 19 & 20 of 2002 Page 8 of 17
appropriation of the assets seized but, only empowered the AO to retain the
assets to be applied in a manner as provided under the Act. He further
contended that the amount retained by the AO could only be appropriated
towards the income tax liability once the Assessee had filed a return
accepting the same as payment of tax or on a regular assessment being
made. He emphasised that prior to the filing of the return, there was no
determination of liability towards which the seized assets could be applied.
He further submitted that the expression "existing liability" as used in
Section 132(5)(iii) of the Act would refer 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) & 132B of the Act as existing at
the material time. The same are set out as under:-
ITA 18, 19 & 20 of 2002 Page 9 of 17
"132(4) The authorised officer may, during the course of the
search or seizure, examine on oath any person who is found to
be in possession or control of any books of account,
documents, money, bullion, jewellery or other valuable article
or thing and any statement made by such person during such
examination may thereafter be used in evidence in any
proceeding under the Indian Income-tax Act, 1922 (11 of
1922), 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
article or thing (hereafter in this section and in sections 132A
and 132B referred to as the assets) is seized under subsection
(1) or sub-section (1A), as a result of a search initiated or
requisition made before the 1st day of July, 1995, the Income-
tax Officer, after affording a reasonable opportunity to the
person concerned of being heard and making such enquiry as
may be prescribed, shall, within one hundred and twenty days
of the seizure, make an order, with the previous approval of
the Joint 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 Indian Income-tax Act, 1922 (11 of
ITA 18, 19 & 20 of 2002 Page 10 of 17
1922), or this Act, as if the order had been the order
of regular assessment;
(iii) specifying the amount that will be required to satisfy
any existing liability under this Act and any one or
more of the Acts specified in clause (a) of sub-
section (1) of section 230A in respect of which such
person is in default or is deemed to be in default.
and retain in his custody such assets/or part thereof as are in
his opinion sufficient to satisfy the aggregate of the amounts
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 were the total
income chargeable to tax at the rates in force in the financial
year in which the assets were seized and may also determine
the interest or penalty, if any, payable or imposable
accordingly:
Provided further that where a person has paid or made
satisfactory arrangements for payments of all the amounts
referred to in clauses (ii), (iia) and (iii) or any part thereof,
the Income-tax Officer may, with the previous approval of
the Chief Commissioner or Commissioner, release the assets
or 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:--
ITA 18, 19 & 20 of 2002 Page 11 of 17
(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 the income referred to in clause (i) of that
sub-section relates (including any penalty levied or
interest payable in connection with such
assessment or reassessment) and in respect of
which he is in default or is deemed to be in default
may be recovered out of such assets.
(ii) If the assets consist solely of money, or partly of
money and partly of other assets, the Assessing
Officer may apply such money in the discharge of
the liabilities referred to in clause (i) and the
assessee shall be discharged 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 sub-
section (5) of section 226 and the Assessing Officer
or, as the case may be, the Tax Recovery Officer
may recover the amount of such liabilities by the
sale of such assets and such sale shall be effected in
the manner laid down in the Third Schedule.
(2) Nothing contained in sub-section (1) shall preclude the
recovery of the amount of liabilities aforesaid by any other
mode laid down in this Act.
(3) Any assets or proceeds thereof which remain after the
liabilities referred to in clause (i) of sub-section (1) are
discharged shall be forthwith made over or paid to the
persons from whose custody the assets were seized.
ITA 18, 19 & 20 of 2002 Page 12 of 17
(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 in
clause (i) of sub-section (1) of this section.
(b) Such interest shall run from the date immediately
following the expiry of the period of six months from the
date of the order under sub-section (5) of section 132 to the
date of the regular assessment or reassessment referred to
in clause (i) of sub-section (1) or, as the case may be, to
the date of last of such assessments or reassessments."
8. Section 132(4) of the Act enables an authorised officer to examine on
oath any person who is found to 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 seizure operations, the same would not constitute a determined
liability towards which the assets seized could be readily applied. Thus, the
contention advanced by the Assessee that once the Assessee had declared
ITA 18, 19 & 20 of 2002 Page 13 of 17
income (undisclosed or otherwise) during the course of search operations,
the assets seized were liable to be immediately appropriated towards the tax
liability on such income cannot be sustained. A plain reading of Section 132
of the Act indicates that once the search and seizure operations 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 material available with him; (b)
calculate the amount of tax on such income; (c) determine the amount of
interest payable to penalty imposable; and (d) specify the amount required to
satisfy any existing liability under the Act. The ITO can retain in its custody
only such assets which in his opinion are sufficient to satisfy the amounts as
aforesaid and any assets in excess of the same have to be returned and
cannot be withheld from the Assessee. Section 132(5) of the Act serves to
protect interest 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
ITA 18, 19 & 20 of 2002 Page 14 of 17
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 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.
9. 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.
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
ITA 18, 19 & 20 of 2002 Page 15 of 17
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
ITA 18, 19 & 20 of 2002 Page 16 of 17
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.
12. Admittedly, no order under Section 132B of the Act was passed for
applying cash seized and retained by the ITO. It is not disputed that the
Assessee had also not made any request that the amount seized by the ITO
be applied towards the discharge of its liability under the Act. Thus, the
assets retained by the ITO could not have been appropriated towards the
payment of tax until the Assessee had filed a return indicating the
application of seized cash towards its tax liability or till an assessment was
framed for the Assessment Year 1991-1992.
13. For the reasons stated above, the question of law framed by an order
dated 12th February, 2004 is answered in the negative and in favour of the
Revenue. The appeals are, accordingly, allowed. No order as to costs.
VIBHU BAKHRU, J
S. MURALIDHAR, J
JULY 31, 2015/RK
ITA 18, 19 & 20 of 2002 Page 17 of 17
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