Court Rules in Favor of Taxpayer: Cash Seizure Date Counts for Advance Tax Payment

Case Name: 

Marble Centre International P. Ltd. vs Assistant Commissioner of Income Tax

Key Takeaways:

1. The court recognized the taxpayer's right to request adjustment of seized cash against advance tax liability.

2. The date of such request should be considered as the date of tax payment for interest calculation purposes.

3. Explanation 2 to Section 132B of the Income Tax Act was held to be prospective in nature.

4. The judgment emphasizes the importance of considering the taxpayer's intent and actions in tax matters.

Issue: 

Should the date of the assessee's request to adjust seized cash against advance tax liability be considered as the date of tax payment for the purpose of computing interest under Sections 234B and 234C of the Income Tax Act?

Facts:

1. The assessee is a private limited company trading in marble and granite slabs.

2. A search was conducted on the assessee's premises, resulting in the seizure of Rs. 4.77 Crores in cash.

3. On March 15, 2007, the assessee requested that Rs. 50 Lakhs of the seized cash be treated as advance tax for the Assessment Year 2007-08.

4. The assessee had already paid advance tax in four installments prior to the seizure.

5. The Income Tax department did not adjust the seized amount against the advance tax liability.

6. The case went through various stages of appeal before reaching the High Court.

Arguments:

Assessee's arguments:

1. The date of request (15.03.2007) should be considered as the date of advance tax payment.

2. The department had the seized cash and could have adjusted it against the tax liability.

3. Explanation 2 to Section 132B of the Income Tax Act is prospective in nature.

Revenue's arguments:

1. Advance tax cannot be adjusted towards tax as it is not an existing liability.

2. The assessee did not compute advance tax as required under Section 209(1)(a) of the Act.

3. The adjustment should be treated as tax paid on the date of filing the return.

Key Legal Precedents:

1. Commissioner of Income Tax, Kanpur vs. Sh Sunil Chandra Gupta, 2015-TIOL-673-HC-ALL-IT (upheld by the Supreme Court)

2. M/s Shri Raghavendra Traders Santhepet, Hassan vs. Assistant Commissioner of Income Tax, 2011-TIOL-587-HC-KAR-IT

Judgment:

1. The court ruled in favor of the assessee.

2. It held that the date of payment of tax should be considered as 15.03.2007, the date on which the assessee requested to adjust the seized cash against advance tax.

3. The court quashed the orders passed by the Income Tax Appellate Tribunal.

4. The court directed that the date of tax payment shall be taken as 15.03.2007 for the Assessment Year 2007-08.

FAQs:

1. Q: What was the main issue in this case?

  A: The main issue was determining the correct date of advance tax payment when the assessee requested to adjust seized cash against tax liability.

2. Q: How did the court's decision affect the calculation of interest?

  A: By considering the earlier date (15.03.2007) as the date of payment, it likely reduced the interest payable by the assessee under Sections 234B and 234C of the Income Tax Act.

3. Q: What is the significance of Explanation 2 to Section 132B of the Income Tax Act?

  A: The court noted that this Explanation is prospective in nature, meaning it doesn't apply to cases before its introduction on 01.06.2013.

4. Q: How does this judgment impact taxpayers in similar situations?

  A: It provides a precedent for taxpayers to claim the date of their request for adjustment of seized cash as the date of tax payment, potentially reducing interest liabilities.

5. Q: Why didn't the court answer the second substantial question of law?

  A: The court found it unnecessary to address the second question after answering the first question in favor of the assessee.

1. These appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) have been filed by the assessee. The subject matter of I.T.A.No.382/2011 & I.T.A.No.383/2011 pertains to Assessment year 2007-08. Since, common questions of law arise for consideration in these appeals, they were heard analogously and are being decided by this common judgment. The appeals were admitted on following substantial questions of law:

(i) Whether on the facts and in the circumstances of the case the Honourable Tribunal was right in law in holding that the letter of request dated 15.03.2007 but only as on the date of filing the return of income for the purpose of computation of interest under Section 234B and 234C?

(ii) Is the implied finding of Honourable Tribunal that the appellant has offered the cash seized as advance tax against the liability in block assessment, not perverse in the light of the letter of request dated 15.03.2007?

2. For the facility of reference facts from ITA No.383/2011 are being referred to. The assessee is a private limited company which is engaged in the business of trading random slabs of marbles and granites. A proceeding under Section 122 of the Act was initiated and a search took place in the business premises of the assessee and residential premises of the Director and accountant. During the course of the said proceeding, cash amount of Rs.4.77 Crores was seized by the department and was deposited in the personal deposit account. The assessee agreed to disclose Rs.50 Lakhs and stock of Rs.1.40 Crores as additional income for Assessment year 2007-08 and sent a communication dated 15.03.2007, in which a request was made to treat Rs.50 Lakhs out of the cash seized as advance tax payable by the assessee for the Assessment year 2007-08.

3. The assessee filed the return of income on 31.10.2007 declaring total income of Rs.3,58,15,790/-, which was processed under Section 143(1) of the Act and notices under Section 142 and Section 143(2) were issued on 19.05.2008. The assessee filed the details as sought for by the respondent. An order of assessment was passed on 31.12.2008 under Section 143(3) of the Act. Aggrieved by the aforesaid order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by an order dated 24.06.2010 inter alia held that the assessee is entitled to grant of relief in respect of interest from the date of filing of the return till the date of order of assessment. Thus, the appeal preferred by the assessee was partly allowed. The tribunal by an order dated 30.06.2011 dismissed the appeal preferred by the assessee. In the aforesaid factual background, these appeals have been filed.

4. Learned counsel for the assessee has invited the attention of this court to a communication dated 15.03.2007 and has pointed out that the assessee had made a request to adjust a sum of Rs.50 Lakhs out of the cash seized towards advance tax payable for the Assessment year 2007-08. While pointing out to the statement of total income, it was pointed out that before seizure of the cash, four installments of advance tax was paid on 15.06.2006, 14.09.2006, 14.12.2006 and 08.03.2007. Our attention has also been invited to provisions of Section 132B of the Act and it has been pointed out that Explanation 2 has been inserted to the aforesaid Section with effect from 01.06.2013. It has also been submitted that in respect of the aforesaid explanation, Circular No.20/2017 dated 12.06.2017 has been issued wherein it has been stated that insertion of Explanation 2 to Section 132B of the Act shall have prospective application. It is further submitted that advance tax liability can be adjusted against the cash lying in the account of revenue, which was seized from assessee. In support of aforesaid submission, reliance has been placed on decision of Allahabad High Court in ‘COMMISSIONER OF INCOME TAX, KANPUR VS. SH SUNIL CHANDRA GUPTA’, 2015-TIOL-673-HC-ALL-IT.

It is pointed out that Special Leave Petition was preferred by the revenue against the aforesaid order, which was dismissed by the Supreme Court by an order dated 29.04.2016. It is also submitted that payment of interest in the instant case is compensatory in nature and amount belonging to the assessee was in possession of the revenue and the aforesaid amount was also to be taken into account to determine the tax liability. In support of aforesaid submission, reference has been made to decision of division bench of this court in ‘M/S SHRI RAGHAVENDRA TRADERS SANTHEPET, HASSAN VS. ASSISTANT COMMISSIONER OF INCOME TAX’, 2011-TIOL-587-HC-KAR-IT.

Therefore, it is submitted that the first substantial question of law framed by this court deserves to be answered in favour of the assessee and against the revenue and the second substantial question of law need not be answered.

5. On the other hand, learned counsel for the revenue submitted that the advance tax cannot be adjusted towards the tax as it is not an existing liability. It is further submitted that the assessee did not make computation of advance tax as required under Section 209(1)(a) of the Act and as per Section 210(1) of the Act is required to calculate the amount of advance tax. Therefore, the tribunal is justified in taking the view that for the purposes of adjustment of the cash seized against the advance tax payable can be treated as tax paid on the date of filing of the return.

6. We have considered the submissions made on both the sides and have perused the record. Admittedly, in the instant case, the assessee has offered a sum of Rs.50 Lakhs on 15.03.2007 towards the advance tax payable for the Assessment year 2007-08. It is also pertinent to mention here that prior to seizure of the cash, the assessee had paid advance tax in four installments on 15.06.2006, 14.09.2006, 14.12.2006 and 08.03.2007, which is evident from statement of total income. However, the department did not adjust the aforesaid amount even though the cash was available with the department. The aforesaid amount could have been adjusted against the advance tax. We concur with the view taken by High Court of Allahabad, which has been upheld by the Supreme Court. It is also pertinent to note that Explanation 2 to Section 132B has been held to be prospective in nature and the aforesaid position has been settled by Circular No.20/2017 dated 12.06.2017.

7. In view of the preceding analysis, we hold that the tribunal ought to have held the date of payment of tax by the assessee as 15.03.2007 i.e., the date on which the request was made by the assessee to adjust the cash seized against the advance tax payable towards the tax for the Assessment year 2007-08. The first substantial question of law is answered in favour of the assessee and against the revenue. In the facts of the case, in view of our answer to first substantial question of law, it is not necessary to answer the second substantial question of law. The orders passed by the Income Tax Appellate Tribunal is hereby quashed and it is directed that date of payment of tax shall be taken as 15.03.2007 i.e., the date on which the request was made by the assessee to adjust the cash seized against the advance tax payable for the Assessment year 2007- 08.

In the result, the appeals are allowed.

Sd/-

JUDGE

Sd/-

JUDGE