Whether assessee is entitled to interest on deposit with Revenue from end

I-T - Whether assessee is entitled to interest on deposit with Revenue from end of 120 days from date of last of authorisations for search or from date when sum is transferred into AO's account from PD Account - after 120 days: HC

NEW DELHI, JULY 12, 2011: THE two issues before the Bench are - Whether the interest u/s 234A, 234B, 234C & 220(2) is rightly levied on the demand for various years when the department is having huge deposit on account of the assessee in PD account and the assessee repeatedly requested to adjust the said amount against the demand – Whether the assessee is entitled to interest on the deposit with the department u/s 132D from the end of 120 days from the date on which the last of the authorizations for search under Section 132 or requisition under Section 132A and not from the date when sum is transferred into AO's account from PD a/c. And the verdict goes in favour of the assessee.

Facts of the case

Assessee is a proprietor of `F', started in the year 1993 to trade in gold, silver and bullion – a search and seizure action was conducted whereby cash and silver were restrained initially but subsequently seized – ACIT, investigation circle passed order u/s 132(5) that the cash found during search as unexplained was retained and not released. Subsequently, vide another order u/s 132(5), various disputed additions were made and tax and penalty @200% was levied - the entire silver seized was retained and was not released.

The department disputed the status of the concern as it was an unregistered partnership firm and intended to tax it as firm. AO made assessment u/s 143(3) in the name of `F' after making additions on protective basis. In appeal before CIT (A), partly additions were deleted and partly confirmed. Before the protective assessment orders were passed in the case of `F', assessee approached the department to allow him to sell the seized silver after deposing the amount of equal value. As no heed was paid to this request, the assessee filed Writ Petition and the Court directed the department to release seized silver after depositing rotational deposits of Rs.50 lacs or equal amount of silver to be released. Accordingly the entire silver was released against total payment of Rs.4,20,50,000/- deposited by the petitioner from time to time on the sale of released silver.

After various orders / developments, against the deposit of Rs.4,70,36,500/- lying with the Department, liability of the assessee was ascertained to Rs.17,22,608/- and thus, he was entitled to refund of the balance amount along with interest.

Assessee approached the Settlement Commission u/s 245C to determine his income. The application was admitted. According to the assessee, the amount deposited with the department was much more than the tax liability and therefore, he had been making request for refund of the same and till it was refunded, to keep the same in the fixed deposit bearing interest. That was not done. The assessee was supposed to file the income tax return for the successive years. Assessee was required to pay the advance tax due and payable in respect of these income tax returns. Since he was facing cash flow problems in his business and there was sufficient surplus money lying with the Department which belonged to the petitioner, he made request for adjusting the advance tax payable out of the aforesaid amount lying with the Department. These requests of the assessee remained unattended. However, AO while passing the assessment order imposed interest u/s 234B, 234C and 220 of the Act for making deposit of advance tax.

The Settlement Commission finally disposed of settlement application and the income of the assessee was determined. After this order was passed, the assessee again requested for release of the amount as the final tax payable was only Rs.17.22 lacs - Assessee approached various authorities in this behalf including the ITO, CBDT, Commissioner of Income Tax, etc. However, no action was taken.

Insofar as interest payable to the assessee on the deposit, the department calculated the same w.e.f the date when the amount transferred into the account of PD account. Assessee contended that he was entitled to interest u/s 132B at least till the time order is passed by the Income Tax Settlement Commission. The claim of the assessee was that u/s 132B of the Act, he was entitled to interest after six months from the date of order passed under Section 132(5) of the Act on initial seized amount minus tax due/payable and on further deposits in P.D. Account from the date of such deposit.

The issues raised by the assessee were (i) Whether interest u/s 234A, 234B, 234C and 220 (2) of the Act could be charged when according to the assessee, sufficient amount of the assessee was lying deposited with the Department wherever advance tax could be adjusted? (ii) From which date the assessee is entitled to interest on the amount which became refundable after giving effect to the orders passed by the Income Tax Settlement Commission?

Assessee contended that no interest could be charged for non-payment of advance tax as there was sufficient amount already lying with the Department. Revenue contended that it was not permissible for the assessee to seek adjustment from the amount lying with the Department, which in fact belonged to `F' which was assessed as unregistered partnership and not as the sole proprietorship of the assessee. There was a dispute about the amounts seized and/or rotational payments either belonged to `F' or the assessee in his personal capacity which was settled u/s 245D(4) by the Income Tax Settlement Commission vide its order dated 07.07.2003. Hence, no amount was available for adjustment of the demands raised in the case of assessee upto 07.07.2003.

After hearing both the parties, the High Court held that,

++ no doubt, `F' was assessed as unregistered partnership. However, the assessee was clamouring that it was his sole proprietorship concern and had submitted proofs in respect thereof. If the plea of the assessee was not accepted erroneously by the Department, it cannot take advantage of its own wrong. Ultimately, the assessee was vindicated when the Settlement Commission accepted that he was the sole proprietor of `F'. The arguments of the department that it is only on 07.07.2003 when the Settlement Commission passed the orders u/s 245D(4) of the Act that the amount became available to the petitioner, is without any substance. The request of the assessee to adjust the advance tax from the amount lying deposited with the Department in the accounts of `F' was justified, which was unnecessarily turned down by the Department. Therefore, the revenue would not be justified in levying interest, as the amount of advance tax payable by the assessee for these assessment years could be adjusted from the amount lying with the Department in the assessee's own account;

++ insofar as the assessee's entitlement to interest on the amount which became refundable after giving effect to the orders passed by the Settlement Commission, it cannot be disputed that the assessee is entitled to interest on such an amount u/s 132D(4) of the Act. This provision clearly mandates the Central Government to pay simple interest @ 1 ½ % for every month on amount by which the credit money seized under Section 132, etc. of the Act. Clause (b) sub-Section (4) of Section 132B of the Act stipulates that such interest shall run from the date immediately following the expiry of the period of 120 days from the date on which the last of the authorizations for search under Section 132 or requisition under Section 132A was executed to the date of completion of the assessment. In accordance with this provision, from the date of search and seizure of the gold, 120 days would be calculated and from the expiry of this period, the interest shall become payable. In the present case, even after giving effect to the orders of the Settlement Commission, the excess amount was not refunded to the petitioner. The assessee has demanded interest u/s 132A of the Act and would be entitled to interest u/s 244A of the Act from the date of amount transferred into the account of AO from PD account after adjusting the tax due/payable.