By TIOL News Service

NEW DELHI, MAY 31, 2016: THE issue before the Bench is - Whether denial to release cash seized from armoured vehicle which was hired by banks to transport cash can be sustained as Revenue was yet to verify cash slips from customers. NO is the verdict.

Facts of the case

The assessee is engaged in the business of transporting cash on behalf of the banks in its armoured vehicles including cash collections from customers of the various banks. In the instant case, SIPL carried out the service of collection and safe delivery of money physically from the customers of the HDFC Bank strictly in accordance with the terms of a written agreement entered into between SIPL and HDFC Bank. It was asserted that the assessee was performing the services of collection and transportation of cash under the direct authorization and on behalf of the HDFC Bank in terms of the agreement with HDFC Bank. The assessee was obliged thereunder to have sufficient security practices, control processes and checks in respect of cash pick up/delivery services "rendered and handled/executed at its premises or in the bank's premises or at customer's premises or while the cash was in transit on a regular basis." In these eventualities, HDFC was liable to its customers for any damages and SIPL shall indemnify HDFC for such losses or damages. During the concerned year, when the polling in the elections to the Uttar Pradesh Legislative Assembly was in progress, one of the armoured vehicles of SIPL was on its way to the Ghaziabad branch HDFC Bank having collected cash from some of its customers. The aforesaid armoured vehicle was intercepted by the Flying Squad Magistrate, Ghaziabad, according to the information received from the Commanding Officer, Indirapuram, Ghaziabad, wherein it was found carrying cash to the extent of Rs. 60,48,672/-. Thereafter, the police authorities took the vehicle and sealed cash containers into custody and the vehicle was then taken to the police station, Sahibabad. The seized containers were opened in the premises of State Bank of India at Navyug Market, Ghaziabad. According to SIPL, despite the sealed containers disclosing the aforementioned details the police took the vehicle and handed over the money to the JCIT who produced authorization u/s 132A. In terms of the agreement with HDFC Bank, the assessee's account was debited for the sum of Rs. 60,48,672/- and the said amount was credited to the accounts of the respective customers of HDFC Bank.

Thereafter, SIPL filed an application with the Department u/s 132B seeking release of the money, but in vain. A further application was filed, which again did not result in any response from the Department. Thereafter, the CBDT informed SIPL that it should make an application before the AO of Mr. Seth u/s 132A for release a sum of Rs. 60,48,672/-. SIPL made an application and in response thereto, it received a reply from the ITO on behalf of the DIT, Kanpur. By another letter, the DCIT, New Delhi informed SIPL that since search and seizure action was conducted on the employee of SIPL, i.e., Mr. R.K. Seth, Noida, the matter had been referred back to the DCIT (Inv)-II, Ghaziabad. SIPL then addressed a representation to the CBDT again requesting for release of the money to it, however, disappointed. Thereafter, an assessment order was passed by the ITO, Noida where the entire cash amount seized was attributed to the income of Mr. R.K. Seth and his complete taxable income assessed at Rs. 67,80,860/-. The AO also ordered interest u/s 234A, 234B and 234C and also issued penalty proceedings u/s 271(1)(c). In the said assessment order, after setting out the statement made by Mr. Seth and the terms of the agreement entered into before HDFC Bank and SIPL, the AO noticed that Mr. Seth had filed the photocopies of the cash deposit slips issued by HDFC Bank in the name of the various private parties. According to the AO, the challan slips provided by SIPL did not bear the signature of SIPL except in the case of Trents Limited. The AO then noted that the cash was seized on by the Flying Squad Magistrate and that SIPL had no evidence in the shape of challan deposit slips of the customers of the HDFC Bank for the undisclosed cash of Rs. 60,48,672/-.

Having heard the parties, the High Court held that,

++ the conclusion of the AO appears not to be correct since the file produced by the Department before this Court today contains the cash slips recovered from the containers in the armoured vehicle which was seized. As already noticed, the file contains photocopies of the slips/10 challans and they contained the names of various parties with the money (in cash) collected from each of them. The said information could easily have been verified by the Department by enquiring from the above customers. The account numbers as mentioned in the slips should have been confirmed from the HDFC Bank. The Department was aware that cash was being transported pursuant to the agreement between SIPL and HDFC Bank. This was confirmed in a letter issued by HDFC Bank setting out the names and account numbers of all the customers from whom the collection was made. A copy of this letter was furnished to the Department. Yet no verification was undertaken of the said particulars. The assessment order reveals that enquiries were made with only three parties viz., M/s Mahindra Retail Pvt Ltd, Website- unit of Trent Ltd. and JDS Limited. Those companies confirmed that they had an agreement with HDFC Bank. There is no valid explanation why the AO failed to make enquiries with the other customers. The AO was not therefore justified in coming to an unacceptable conclusion that the seized cash belonged to Mr Seth who was only an employee of SIPL. The Revenue's counsel referred to Rule 112F, which was meant to deal with a situation where the search results in recovery of money in the territorial area of an assembly or Parliamentary constituency in which an election is going on. In the first place, it requires to be noticed that Rule 112 F was inserted by the Income Tax Rules, 2012 with retrospective effect from 1st July 2012. Therefore, it was not in operation when the search in the present case took place, i.e., 9th January 2012. Secondly, Rule 112 F states that when the seizure takes place of “any money, bullion, jewellery or other valuable articles or things from a person in whose possession is found and where the election is going on in the assembly or parliamentary constituency," the AO “shall not be required to issue notice for assessing or reassessing the total income for six A.Ys immediately preceding the A.Y relevant to the previous year in which search is conducted or requisition is made.” This by no means states that the AO is relieved of the duty to make an enquiry to determine whether the cash or other valuable articles seized from a person in fact belongs to him;

++ the case on hand raises serious issues since this is neither the first nor the last instance of cash being collected and transported to banks under a valid agreement between the service provider and the Bank. What is of concern in the present case is that despite the Department being told of the agreement between SIPL and HDFC Bank, it proceeded to seize the vehicle and the cash being transported without even a preliminary enquiry by the investigating agency or the AO to verify the details contained in the challans/slips accompanying the cash. Thus there was failure on the part of the Department to discharge its basic responsibility of tracing the source of the cash. The Department was aware that Mr. Seth, one of the employees of SIPL had not accompanied the armoured vehicle. He reached the police station subsequent to the seizure and that too upon the insistence of the JDIT that someone from SIPL should be present before the JDIT to make a statement. In the circumstances, there was no occasion for the Department to assume that Mr. Seth himself was carrying the cash. To compound the above error, the Department refused to admit to the mistake even when the full facts were placed before it. SIPL was performing a perfectly legitimate and legal task of collecting and transporting cash from the customers of HDFC to the Gandhi Nagar branch of HDFC. The entire service was being performed under a valid agreement. The HDFC also issued a confirmation letter. Despite this the Department made no enquiries with the HDFC Bank. Inexplicably the Investigation wing of the Department abdicated its basic responsibility and simply passed the buck to the AO. Mr R K Seth was only an employee of SIPL. He was not carrying the cash as was wrongly presumed by the AO. His statements offered a plausible explanation which could easily be verified. The Court fails to understand how the said sum could ever be added to the returned income of Mr Seth. The Court agrees with the counsel for SIPL that the indifferent and callous approach of the Department's officials has resulted in grave injustice to SIPL. It has had to have its account debited for the entire amount and the seized cash remained in the Department's account. The Court has, in the circumstances, no hesitation in holding the actions of the Department, in refusing to release the cash seized from the armoured vehicle to the assessee, to be invalid and illegal. Further, the assessment order making the addition of Rs. 60,48,672/- to the returned income of Mr. R K Seth is unsustainable in law and the said addition is hereby deleted.

(See 2016-TIOL-1035-HC-DEL-IT)