By TIOL News Service

AHEMDABAD, JUNE 21, 2017: THE ISSUE BEFORE THE COURT IS - Whether the unaccounted cash seized during proceedings u/s 132, can be adjusted against the advance tax liability of assessee. YES is the verdict.

Facts of the case:

The assessee is an individual. A search operation was carried out at the premises of assessee during which, unaccounted cash of Rs. 70 lacs was found from his possession and seized by the authority. At the time of such search operation, the assessee had taken a stand that such cash amount belonged to his son-in-law. However, subsequently, the assessee wrote to the Revenue authorities and took a stand that his statement was recorded during the search operation rather late at night. He was otherwise also unwell and that therefore, the statement made by him was not entirely accurate. He further stated that the said amount belonged to him and he was unable to explain the source of such amount. He, therefore, conveyed that the same may be treated as his income and the advance tax of such income may be calculated and thereafter, such advance tax liability be adjusted from the cash seized. He further stated that this request was made so that he did not have to pay any interest for non-payment of advance tax on such income of Rs. 70 lacs. The AO did not accept the said request. The assessee, in the meantime, filed separate returns for the block period covered under the said search operation. For the A.Y 2012-13, during which such cash amount was seized, the assessee filed the return declaring total income of Rs. 70 lacs and tax liability on such income at Rs. 20,03,350/-. In such return itself, the assessee sought adjustment of Rs. 70 lacs and claimed that the remaining amount of Rs. 49,22,530/- be refunded to the assessee. The AO framed scrutiny assessment on the said return filed by the assessee. By an order, the AO accepted the return of assessee and thereby accepted his income for the year under consideration at Rs. 70 lacs. After passing of this order of assessment, the AO, on the amount of Rs. 20,03,350/- of tax payable, levied interest of Rs. 74,122/- u/s 234C. He also passed a separate order of penalty u/s 271AAA of the Act levying penalty of Rs. 7 lacs. Such total sum of Rs. 27,77,472/- was adjusted from the seized cash of Rs. 70 lacs. The assessee contended that, out of the total sum of Rs. 70 lacs, after adjusting the said sum of Rs. 27,77,472/-, the department had to refund a sum of Rs.42,22,528/- to the assessee instead of which, the department refunded a sum of Rs. 37,61,760/-. The assessee belived that the shortfall of Rs. 4,60,768/- would be the interest charged by the department u/s 234B for defaults in payment of advance tax.

On appeal, the HC held that,

++ in terms of section 132B(1), the existing liability of an assessee could be adjusted against the amount seized u/s 132 of the Act. It was on this background, the assessee has requested for such adjustment concerning his advance tax liability. We may recall, soon after the search was carried out, the assessee conveyed to the Revenue that he admits the cash seized as his income, surrenders it for the purpose of tax and requests for appropriation of advance tax payable on such income from out of the seized amount. The Revenue, however, contended that the stand of the assessee was inconsistent and, in any case, the advance tax would not fall within the meaning of term 'existing liability'. As pointed out by the assessee's counsel, a Division Bench of this Court had an occasion to deal with a somewhat similar issue in case of Kamlesh Bhogilal Kandoi M/s. Bhogilal Mulchand Kandoi vs. A.C.I.T, wherein it was held that the cash seized can be adjusted against the advance liability as requested by the appellant. We may recall, the Explanation 2 to section 132B was introduced w.e.f. 01.06.2013. This explanation provides that for removal of doubts, it is declared that the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII. Counsel for the Revenue, therefore, submitted that this explanation being clarificatory in nature, amendment should apply to pending cases as well. It is well settled principle that an amendment in the nature of a clarification could have retrospective operation. However, whether such amendment is clarificatory or declaratory as opposed to creating new rights and liabilities is always open to judicial interpretation. Mere words used by the legislature as a title to such an amendment would not be conclusive. It can be seen that the amendment occasioned due to various courts taking a view that the term 'existing liability' includes advance tax liability of the assessee also. The legislature was of the opinion that such interpretation was not in consonance with the intention of the legislature. Thus, the amendment was necessary because of the judicial interpretation. Amending the statute to overcome adverse decision is a wellknown legislative device often employed by the legislature in tax statutes. By such explanation introduced specifically with prospective effect therefore, would not override or overrule the past decisions at least for the past period before the amendment was brought into effect;

++ in view of the discussion, considering the decision of Division Bench of this Court in case of Kamlesh Bhogilal Kandoi M/s. Bhogilal Mulchand Kandoi vs. A.C.I.T, we find that the AO was in error in not permitting adjustment of the assessee's advance tax liability against the seized cash. Coming to the question of non-payment of interest on realizing the remaining amount of seized cash, sub section (4) of section 132B is amply clear and mandates the Central Government to pay interest at the prescribed rate for the prescribed period when the amount is so withheld. The petition is, therefore, allowed. The Revenue shall adjust the advance tax liability on the income of Rs.70 lacs of the petitioner as requested by him in the letter. Resultantly, the liability to pay interest on the premise that such advance tax was paid late, would not arise. The Revenue shall also pay interest in terms of sub section (4) of section 132B on the remaining amount from out of Rs. 70 lacs after making adjustments as permissible under sub section (1) of section 132B which will include the advance tax, interest u/s 234C and the penalty u/s 271AAA of the Act.

(See 2017-TIOL-1146-HC-AHM-IT)