Appellant Rep by: Mr. C S Gupta, Adv
Respondent Rep by: Mr. Sanjeev Sabharwal, Sr. Standing Counsel
Income tax – Sections 132(5), 143(3), 234A, 234B, 234C – 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 the amount was transferred into the account of AO from P.D. Account.
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.
Assessee’s appeal allowed
JUDGEMENT
Per: A K Sikri:
1. The petitioner is a proprietor of M/s Foto Traders, a firm started in the year 1993 to trade in gold, silver and bullion. Income Tax Department conducted a search and seizure operations on 04.02.1995 whereby cash and silver were restrained initially but subsequently seized as under:
Cash : Rs. 49,86,500/-
Silver : 222 bars of total weight 70003.859Kgs. Having market value estimated at Rs.4,44,66,395/- by the Income Tax Department.
2. The Assistant Commissioner of Income Tax, Investigation Circle (20)(1), New Delhi passed order under Section 132(5) of the Income Tax Act (hereinafter referred to as 'the Act') dated 02.06.1995 declaring that cash found during search as unexplained and hence, cash seized of Rs.49,86,500/- was retained and not released. Subsequently, vide another order under Section 132(5) dated 19.06.2005, various disputed additions were made and tax and penalty @200% were raised. Therefore, entire silver seized valuing Rs.4,44,66,395/- was retained and not released. We may mention at this state that the Income Tax Department disputed the status of M/s Foto Traders, as according to it, it was an unregistered partnership firm. Therefore, the Department intended to tax income in the hands of this firm. The concerned Assessing Officer (AO) passed the assessment order under Section 143(3) in the name of M/s Foto Traders after making huge additions of Rs.10,49,53,527/- on protective basis. In the appeal filed against the said order, additions of Rs.6,32,84,274/- were deleted and rest additions were confirmed. We may also mention at this stage that in the meantime and before the aforesaid protective assessment orders were passed in the case of M/s Foto Traders, the petitioner had 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 petitioner filed Writ Petition (Civil) No.4767/1998 in this Court. While disposing of the writ petition, this Court directed the Department to release seized silver after depositing rotational deposits of Rs.50 lacs or equal amount of silver to be released. In this manner, the Department released silver in installments against deposit of Rs.50 lacs each time. The entire silver was, thus, released against total payment of Rs.4,20,50,000/- deposited by the petitioner from time to time on the sale of released silver. Details of this deposit are as under:
| “Date of Deposit | Amt. Deposited |
| 05-02-1999 | 50,00,000 |
| 15-02-1999 | 46,00,000 |
| 01-03-1999 | 60,00,000 |
| 29-10-1999 | 25,00,000 |
| 05-11-1999 | 25,00,000 |
| 15-11-1999 | 25,00,000 |
| 22-11-1999 | 25,00,000 |
| 26-11-1999 | 44,00,000 |
| 14-12-1999 | 24,00,000
16,00,000 |
| 14-02-2000 | 50,00,000 |
| 05-04-2000 | 30,50,000 |
| Total | 4,20,50,000 |
| Cash seized and retained on 04-02-1995 | 49,86,500 |
| Grand Total | 4,70,36,500” |
3. The necessary consequence of the aforesaid developments/orders was that against deposit of Rs.4,70,36,500/- lying with the Department, liability of the petitioner was ascertained to Rs.17,22,608/- and thus, he was entitled to refund of the balance amount along with interest. To give effect of the orders of the Settlement Commission, the Deputy Commissioner of the Income Tax [Investigation Circle, 20 (1)] passed the orders dated 11.03.1999 under Section 250 of the Act. The net demand after giving effect was arrived at Rs.3,57,73,695/- including interest under Section 234A of Rs.10,63,883/-, interest under Section 234B of the Act of Rs.1,27,66,599/-, interest under Section 234C of the Act of Rs.6,142/-, interest under Section 220(2) of the Act of Rs.50,66,660/-. This amount, however was not released to the petitioner, in spite of his request to release the same and also return Original Title Deeds of the property kept as security.
4. In the meantime, the petitioner also approached the Settlement Commission by moving application under Section 245C of the Act to determine his income for the Assessment Year 1995-96.
This application was admitted on 07.03.2000 for assessment. During the pendency of this application, certain events which took place and have bearing on the dispute involved in this writ petition may now be recapitulated. As mentioned above, according to the petitioner, 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 is refunded, to keep the same in the fixed deposit bearing interest. This was not done. The petitioner was supposed to file the income tax return for the successive years, i.e., Assessment Years 1999-2000, 2000-01, 2001-02, 2002-03 and 2003-04. He filed these returns. He was also required to pay the advance tax due and payable in respect of these income tax returns. According to the petitioner, 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 vide various letters for adjusting the advance tax payable out of the aforesaid amount lying with the Department. Separate letters and reminders were written in respect of each of the aforesaid assessment year. These requests of the petitioner also remained unattended. On the contrary, the AO while passing the assessment order imposed levied interest under Section 234B, Section 234C and Section 220 of the Act for making deposit of advance tax. A total demand raised was as under:
Assessment Year 1999-2000 : Rs.15,86,347/-
Assessment Year 2000-01 : Rs.22,75,638/-
Assessment Year 2001-02 : Rs.8,30,476/-
Total = Rs.46,92,461/-
5. Letter dated 11.02.2002 was written by the Department stating that the aforesaid amount would be adjusted in P.D. account with which deposit of the petitioner was lying. The petitioner objected to levy of these interest & demand and filed rectification application under Section 154 of the Act in respect of these assessment years.
6. While this was pending, the Income Tax Settlement Commission finally disposed of settlement application preferred by the petitioner vide order dated 07.07.2003 passed under Section 245D(4) of the Act. Vide this order, income of the petitioner for the assessment year 1995-96 was assessed at Rs.43,69,023/- on which tax was of Rs.1,78,430/-. After this order was passed, the petitioner again requested for release of the amount as the final tax payable for the assessment year 1995-96 was only Rs.17.22 lacs. The petitioner approached various authorities in this behalf including the ITO, CBDT, Commissioner of Income Tax, etc. He even faced claim from one M/s. Inter Gold (India) Limited, his supplier whom he could not make payment who filed OMP No.61 of 2004. In that OMP, this Court directed the Department to issue refund due to the petitioner by making the payment of Rs.4,20,00,000/- to the said M/s. Inter Gold (India) Limited.
7. Ultimately, order dated 27.09.2004 was passed by the AO giving effect to the orders of the Income Tax Settlement Commission. As per this order, refund payable to the petitioner was Rs.4,69,50,288/- and since the sum of Rs.4,20,00,000/- was already paid to the Inter Gold (India) Limited, balance amount of Rs.49,50,288/- was refunded to the petitioner. While computing the amount, the AO adjusted the interest charged from the petitioner in respect of non-payment of advance tax pertaining to the Assessment Years 1999-2000, 2001-02. That is the first grievance of the petitioner. The interest charged is as under:
| Asst. Yr. | 1995-96 | 1999-00 | 2000-01 | 2001-02 | 2002-03 | Total |
| Interest under Section 234A | 68,226 | -- | -- | -- | | |
| Interest under Section 234B | 8,18,712 2,75,491 | 5,30,541 | 5,54,920 | 1,03,581 5,06,491 | 38,391 | |
| Interest under Section234C | -- | 55,042 | 90,471 | 38,220 | | |
| Total | 11,62,429 | 5,85,583 | 6,45,391 | 6,48,292 | 38,391 | 30,80,086 |
INTEREST UNDER SECTION 220(2)
| | | | | | | TOTAL |
| Interest under section 220 (2) | 3,33,960 4,64,886 | 3,70,798 | 5,31,927 | 57,220 30,105 | 15,310 | |
| TOTAL | 7,98,846 | 3,70,798 | 5,31,927 | 87,325 | 15,310 | 18,04,206 |
8. Secondly, while calculating interest payable to the petitioner, the Department has admitted that an amount of Rs.4,39,91,00/- against the amount of Rs.4,70,36,500/-. However, the alleged draft of Rs.30.50 lacs dated 05.04.2000 to have been paid finds no mention in the Public Deposit account of M/s. Foto Traders. No original record is available in this regard with the Department. We are not concerned with this, as it is fairly stated that in this regard, litigation between the parties is pending in this Court.
9. Insofar as interest payable to the petitioner on the aforesaid deposit is concerned, the Department has calculated the same with effect from the date when the amount was transferred into the account of AO from P.D. Account. The petitioner claims that he is entitled to interest under Section 132B of the Act at least till the time order is passed by the Income Tax Settlement Commission on 07.07.2003d, whereas the Department on 27.09.2004, the Department had granted interest under Section 244A of the Act ignoring provisions of Section 132B completely. The claim of the petitioner is that under Section 132B of the Act, he is entitled to interest after six months from the date of order passed under Section 132(5) of the Act on initial seized amount of Rs.49,86,500/- minus tax due/payable and on further deposits in P.D. Account from the date of such deposit. In this backdrop, following reliefs are sought by the petitioner in this petition:
“a.(i) Issue appropriate writ, direction or order to the respondents declaring that no interest could be charged on such alleged demands raised for Assessment Years 1995-96, 1999-2000, 2000-01, 2001-02, 2002-03 and 2003-04 in view of the sufficient amount lying and deposited with the Income Tax Department since 1995.
a(ii) Issue appropriate writ, direction or order to the respondent to quash and/or set aside impugned actions of respondents in levying interest charged for Assessment years 1995-96, 1999-2000, 2000-01, 2001-02, 2002-03, 2003-04 in view of sufficient amount lying and deposited with the Income Tax Department since 1995.
a(iii) Issue appropriate writ, direction or order to the respondents that they should refund an amount of Rs.48,16,066/- as being interest illegally recovered (as per statement marked as Annexure – 43 enclosed) by deducting from amount refundable.
b.(i) Issue appropriate writ, direction or order to the respondent that petitioner is entitled for interest from the date of deposit of money in Public Deposit Account and consequentially, respondent be directed to pay the petitioner the interest amount in accordance with law and as described in statement enclosed marked as ANNEXURE – 42.
b.(ii) Issue appropriate writ, direction or order to the respondents that petitioner is entitled for interest on the amount illegally adjusted from refund. Interest has already been covered in the statement marked as ANNEXURE -42.
c. Award cost to the petitioner.
d. Pass such further order or orders as this Court may deem fit and proper in the facts and circumstances of the case.”
10. It would be clear from the above that this petition basically raises two issues, viz.,
(i) Whether interest under Sections 234A, 234B, 234C and 220 (2) of the Act could be charged when according to the petitioner, sufficient amount of the petitioner was lying deposited with the Department wherever advance tax could be adjusted?
(ii) From which date the petitioner is entitled to interest on the amount which became refundable after giving effect to the orders passed by the Income Tax Settlement Commission?
ISSUE NO.(1):
11. Submissions made by the learned counsel for the petitioner on the basis of which he has argued that no interest could be charged for non-payment of advance tax was that there was sufficient amount was already lying with the Department. The Department, however, contends that it was not permissible for the petitioner to seek adjustment from the amount lying with the Department, which in fact belonged to M/s. Foto Traders and the same was assessed as unregistered partnership and not as the sole proprietorship of the petitioner. To support this plea, the Department has relied upon the statement of the petitioner himself at the time of search/survey, which was given on oath stating that material seized belonging to M/s. Foto Traders. The Panchnama was also prepared at the address of M/s. Foto Traders at Chandni Chowk. It is the petitioner who had changed the stand later on contending that M/s. Foto Traders was not a partnership firm, but his sole proprietorship, a protective assessment order was passed in the status of firm. This order was even confirmed by the CIT (A) vide order dated 17.03.1999 and only thereafter, adjustments from P.D. Account of M/s. Foto Traders beginning from 31.03.1999 were made. Therefore, as per the Department, there was a dispute about the amounts seized and/or rotational payments either belonged to M/s. Foto Traders or Mr. Khanna in his personal capacity. That dispute was ultimately settled vide order under Section 245D(4) of the Act dated 07.07.2003 passed by the Income Tax Settlement Commission. Hence, no amount was available for adjustment of the demands raised in the case of Shri V.N. Khanna upto 07.07.2003.
12. Under Section 234B of the Act, interest is payable by the assessee if there is default in payment of advance tax. Likewise, under Section 234C of the Act, interest can be charged for deferment of advance tax. On the other hand, when the income is assessed and the tax is payable for which notice of demand under Section 156 of the Act is issued and the tax payable is not deposited within 30 days of the service, the assessee would be deemed in default.
13. Taking shelter of all these provisions, the Department has levied the interest. It is not in dispute that when the assessee filed his income tax returns for the Assessment Years 1999-2000 to 2003-04, he did not deposit advance tax due and payable in respect of these income tax returns. However, his case is that sufficient amount was tending to his credit with the Department and his request for adjustment of the advance tax, etc. was legitimate which should have been allowed by the Department. It is also not in dispute that at least Rs.4.2 Crores were lying with the Department. The only reason given by the respondent for not making adjustment from this account is that it was not permissible for the petitioner to seek adjustment from this amount, as this belonged to M/s Foto Traders which was assessed as unregistered partnership and not as the sole proprietorship of the petitioner.
14. However, to our mind, this plea taken by the respondent is totally misconceived. No doubt, M/s Foto Traders was assessed as unregistered partnership. However, the petitioner was clamouring that it was his sole proprietorship concern and had submitted proofs in respect thereof. If the plea of the petitioner was not accepted erroneously by the Department, it cannot take advantage of its own wrong. Ultimately, the petitioner was vindicated when the Settlement Commission accepted that he was the sole proprietor of M/s Foto Traders. There is an ample discussion in this behalf in the order of the Settlement Commission. The arguments of the learned counsel for the respondent that it is only on 07.07.2003 when the Settlement Commission passed the orders under Section 245D(4) of the Act that the amount became available to the petitioner, is without any substance. As stated above, the petitioner was questioning the assessment of M/s Foto Traders as unregistered partnership firm. He has been proved correct. Merely because order to this effect passed by the Settlement Commission on 07.07.2003 would not mean that it is on this date the amount became available at the hands of the petitioner. What is held by the Settlement Commission is that M/s Foto Traders is the sole proprietorship concern of the petitioner and it would follow from this finding that the request of the petitioner to adjust the advance tax from the amount lying deposited with the Department in the accounts of M/s Foto Traders was justified, which was unnecessarily turned down by the Department.
15. We are of the view that the respondent would not be justified in levying interest, as the amount of advance tax payable by the petitioner for these assessment years could be adjusted from the amount lying with the Department in the petitioner's own account.
ISSUE NO.(2):
16. Insofar as the petitioner'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 petitioner is entitled to interest on such an amount under Section 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.
17. This interest is upto the date of assessment. However, in the present case, even after giving effect to the orders of the Settlement Commission, the excess amount was not refunded to the petitioner. On this count, the petitioner has demanded interest under Section 132A of the Act.
18. The petitioner would, thus, be entitled to interest under Section 244A of the Act from the date of amount transferred into the account of AO from PD account after adjusting Rs.49,86,500/-, which was the tax due/payable. The amount shall be calculated accordingly.
19. Writ petition is allowed in the aforesaid terms. The petitioner shall also be entitled to cost quantified at Rs.10,000/-.
