1. These appeals of the Department have been directed against the orders of the CIT(A)-XXX, Mumbai, dt. 10th Oct., 1994, for the asst.
yrs. 1989-90 and 1990- 91. The only common ground of appeal taken up by the Department for both the assessment years reads as follows : On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the AO to recalculate the interest leviable under Sections 234A, 234B and 234G of the IT Act in view of the decision in the case of Pradeep J. Mehta, vide order No. CIT(A)-XXX/AC(Inv), Cir-24(1)/Arr. IT-29(h)/1992-93 and IT-653/1993-94, dt 10th Oct., 1994. It is to be noted that the decision in the case of Pradeep J. Mehta is not accepted by the Department.
2. The assessee is a registered firm carrying on business in cotton since the asst. yr. 1978-79. The assessee-firm has two partners (i) Kusum J. Mehta, wife of Jasubhai, and (ii) Pradeep Mehta, son of Jasubhai. The residential premises of Jasubhai D. Mehta were searched under Section 132 of the IT Act, 1961. Such premises are shared by all the partners. Further, pursuant to such search, bank lockers of all family members were searched. During the course of search, cash of Rs. 17,56,857 was seized. The seizure was effected in the name of Jasubhai D. Mehta. Shri Jasubhai D. Mehta made the disclosure of additional income on behalf of the firm after consulting partners and such statement was ratified by partners. The firm also disclosed Rs. 3 lakhs on account of creditors also. The assessee filed return of income on 31st Aug., 1990, declaring total income of Rs. 14,30,000. Along with this return a statement of income showing estimated profit of Rs. 3 lakhs has been declared and an amount of Rs. 11,30,000 has been shown as income offered under Section 132(4) in consequence of the search and seizure action in the case of Shri Jasubhai D. Mehta, father of one of the partners of the assessee-firm and husband of the another partner.
3. During the course of search along with the seizure of jewellery, cash of Rs. 75,84,135 was seized. Out of the said cash, Shri Jasubhai D. Mehta claimed that cash to the extent of Rs. 9,84,135 belongs to various sister concerns as follows : After putting up this claim of Rs. 9,84,135, Shri Jasubhai D. Mehta declared additional income of Rs. 66 lakhs on account of the seized cash to be assessed in the hands of the following two concerns.
Thus, the declaration in the hands of the assessee was only of Rs. 16 lakhs on account of cash seized. The assessee also declared Rs. 3 lakhs on account of sundry creditors, during the course of search. Thus, the total declaration in the hands of the assessee was Rs. 19 lakhs. The said declaration has been divided by the assessee in two accounting periods to the assessee as follows : The AO determined the taxable income at Rs. 14,53,803 and Rs. 2,85,780, respectively, for the asst. yrs. 1989-90 and 1990-91. The AO also charged interest under Sections 234A, 234B and 234C for the asst. yr.
1989-90 and under Sections 234B and 234C for the asst. yr. 1990-91. The learned CIT(A) directed the AO to re-compute the interest as per the direction in his order Nos. CIT(A)-XXX/AC(Inv), Cir-24(1)/Arr. IT 29(H)/l992-93 and IT 653/1993-94 of even date. Aggrieved by the orders of the learned CIT(A), the Department has approached the Tribunal with the present appeal.
4. Before the learned CIT(A), it was contended that the interest under Sections 234A, 234B and 234C was not leviable. It was argued that in view of the search and seizure action, the Department was in possession of enough cash and assets in the form of FDRs and IVPs which could be utilised for the purpose of tax payable. It was contended that the assessee had written to various authorities in this connection, requesting for adjustment of the tax payable out of the seized cash and jewellery. The learned CIT(A), however, concluded that interest under Sections 234B and 234C could be levied proportionately in view of the fact that from 29th Aug., 1989, the Department was in possession of the cash and other assets which could have been adjusted against the tax due. He accordingly directed the AO to levy interest under Sections 234B and 234C upto 29th Aug., 1989, only. In respect of levy of interest under Section 234A, the assessee submitted before the learned CIT(A) that delay in submitting the return was for reasons beyond his control since seized materials in this case were with the Department and as such the returns could not be completed and submitted in time.
The learned CIT(A) has, however, observed that the search took place on 28th Aug., 1989, and therefore, the books of account were available with the assessee upto that period by which date it was expected that most of the spade work with regard to submission of returns could have been completed. But the learned CIT(A) held that interest under Section 234A is leviable only from 1st Nov., 1989, and at that point of time, cash and other assets were available with the Department for adjustment against tax dues and the assessee had made requests to this effect also.
5. At the time of hearing, the learned Departmental Representative placed his reliance on the findings of the AO. He contended that the cash was seized from the premises of Shri J.D. Mehta, father of one of the partners and husband of the other partner. Therefore, the cash seized belongs to Shri J.D. Mehta unless it is finally determined by the Department that some of the cash seized belongs to the assessee-firm also. The learned Departmental Representative, therefore, argued that the cash seized could have not been adjusted against the law payable by the assessee-firm as the same was belonging to Shri J.D.Mehta. The learned Departmental Representative brought to our notice that declaration of Rs. 3 lakhs was made on account of sundry creditors, therefore, this amount of cash seized was pertaining to the creditors which would have not been adjusted against the tax payable by the assessee-firm. He, therefore, contended that levy of interest under Sections 234A, 234B and 234C was fully justified.
6. The learned counsel for the assessee invited our attention to pp. 48 to 51 of the compilation filed by him and contended that the assessee made requests from time to time to the Department for the adjustment of tax out of the cash seized during the course of search in the premises of Shri J.D. Mehta. The learned counsel especially invited our attention to p. 52 of the compilation which is a letter dt. 31st Aug., 1990, written to the CIT, City-DC, Bombay, wherein the assessee made the request as follows : "In the course of proceedings under Section 132 of IT Act, 1961, in the case of Jasubhai D. Mehta, the cash belonging to M/s Rajesh Cotton Company is also seized. This fact is also recorded in the statement under Section 132(4) given by Shri Jasubhai D. Mehta.
M/s Rajesh Cotton Company has prepared its income-tax return for asst. yr. 1989-90, according to which, a self-assessment tax of Rs. 2,98,717 is payable by the said firm. Therefore, we request your honour to kindly adjust the taxes out of such cash seized and oblige." The learned counsel, therefore, contended that a specific request was made to the CIT for the adjustment of taxes out of seized cash belonging to the assessee-firm. This fact was also mentioned in the return filed by the assessee. The learned counsel also invited our attention to the Tribunal order in ITA Nos. 427, 428, 429 & 430/B/95 for the asst. yrs. 1987-88, 1988-89, 1989-90 and 1990-91, dt. 30th April, 2002 in the case of Smt. Kusumben J. Mehta (compilation p. 62) wherein the Tribunal has decided this issue in favour of the assessee on the basis of the same set of facts and circumstances. The learned counsel invited our attention to the decision of the Delhi High Court in the case of Dr. Prannoy Roy and Anr. v. CIT and Anr. (2002) 254 ITR 755 (Del) wherein the Hon'ble Delhi High Court held that interest under Section 234A is payable in a case where tax has not been deposited prior to due date of filing of return and not where the tax has been paid but return has been filed belatedly. The High Court further held that "The Court must interpret the provisions of the statute upon ascertaining the object of the legislation through the medium or authoritative forms in which it is expressed. It is well settled that the Court should, while interpreting the provisions of the statute assign its ordinary meaning. It is well settled that for the purpose of imposition of penal interest, expression provision in that regard in a statute must exist".
7. During the course of hearing, the attention of the learned counsel was also invited to the decision of the Madhya Pradesh High Court in the case of Ramjilal Jagannath and Ors. v. Asset CIT (2000) 241 ITR 758 (UP). In this case, the petitioners requested that the amounts of cash seized from them in the course of search operation under Section 132 of the IT Act, 1961, should be adjusted against their liabilities for advance tax for the current year.
The Department rejected the said request. The petitioners moved the High Court for the said relief under Article 226 of the Constitution of India and for a declaration that the petitioners were not liable for interest under Sections 234B and 234C of the IT Act, 1961. The Hon'ble High Court held, dismissing the petition, that irrespective of the seizure, the petitioners were obliged to pay advance tax in accordance with law and if they had not paid the advance tax in accordance with the provisions of the IT Act, they could not avoid the liability either under Section 234B or 234C. The learned counsel contended that the aforesaid case of the Madhya Pradesh High Court is not applicable to the facts of the present case. He argued that in the above case, the seizure was made from the premises of the assessees whereas in the present case, the seizure has been made from the premises of a third party. Therefore, on facts, the present case is distinguishable from the case decided by the Madhya Pradesh High Court (supra). According to him, in the present case, the cash of the assessee was lying in the premises of Shri J.D. Mehta which was seized by the Department during the course of search under Section 132 of the Act. Shri J.D. Mehta also admitted in his statement under Section 132(4) of the Act that the cash of Rs. 16 lakhs seized by the Department belong to the assessee-firm.
Therefore, the learned counsel contended that the Department should have adjusted this cash against the advance tax payable by the assessee as soon as the Department received such request from the assessee-firm.
He, therefore, contended that the case of Ramjilal Jagannath (supra) is not relevant to the facts of the present case. The learned Departmental Representative, however, contended that the case of the assessee is squarely covered with the aforesaid decision of the Madhya Pradesh High Court (supra) wherein the Hon'ble High Court has clearly laid down that Section 132(5) provides for a complete procedure for dealing with the seized assets. Unless the ITO makes an enquiry as may be prescribed and makes an order, the assets seized cannot be dealt with in any other manner. Thus, according to the learned Departmental Representative, the default of the assessee continued till the order under Section 143(3} of the Act was passed. He, therefore, argued that the interest under Sections 234A, 234B and 234C has been charged as per the provisions of law and the learned CIT(A) has erroneously deleted the interest.
8. We have carefully considered the submissions made by the rival parties. We have also gone through the various documents filed before us during the course of hearing. In this case, there was search action under Section 132 of the Act in the residential premises of Shri J.D.Mehta. This residential premises were also shared by the partners of the assessee-firm. During the course of search cash of Rs. 17,56,857 along with jewellery was seized. Shri J.D. Mehta declared additional income of Rs. 66 lakhs on account of seized cash and jewellery.
According to Shri J.D. Mehta, out of the declaration of Rs. 66 lakhs, the amount of Rs. 16 lakhs was to be assessed in the hands of the assessee-firm. There was a further declaration of Rs. 3 lakhs on account of sundry creditors made by the assessee during the course of search. The assessee made requests to the Department for the adjustment of advance tax payable for the asst. yrs. 1989-90 and 1990-91 out of the seized cash. The Department turned down the requests of the assessee for making the adjustment out of the seized cash and thereafter, charged interest under Sections 234B and 234C of the Act, after completing the assessment under Section 143(3) of the Act. The Department also charged interest under Section 234A of the Act for the asst. yr. 1989-90 for filing the income-tax return late. The learned CIT(A), however, held that the AO should have made the adjustment of advance tax payable for the assessment year under consideration out of the cash seized as per the request of the assessee and thereafter, the interest should have been charged, if any. Now the main point for consideration is whether the amount seized during the course of search operation under Section 132 of the Act at the residential premises of Shri J.D. Mehta can be adjusted against the advance tax liabilities of the assessee for the asst. yrs. 1989-90 and 1990-91 and thereby the assessee cannot be considered in default for levying interest under Sections 234A, 234B and 234C of the Act. In this case, search under Section 132 was carried out on 28th Aug., 1989, in the residential premises of Shri J.D. Mehta, father of one of the partners and husband of the other partner of the assessee-firm. The last date of payment of advance tax for the asst. yr. 1989-90 was 31st March, 1989. Therefore, the question of making any adjustment out of the seized cash for the asst. yr. 1989-90 does not arise as the seized cash was not available upto the last date for payment of advance tax.
9. Sub-section (1) of Section 234A provides for charging interest for late furnishing of return under Section 139(1) and 139(4) or in response to notice under Section 142(1), either where the return was furnished after the due date or is not furnished at all. The assessee has to pay simple interest at 2 per cent for every month or part of the month commencing from the date immediately following the due date and where the return or where no return was furnished, ending on the date of completion of the assessment under Section 144. The interest shall be charged on the amount of tax on the total income as determined under Section 143(1) or on regular assessment as reduced by the advance tax, if any, paid and any tax deducted or collected at source. It has been held by the Courts that the provisions pertaining to levy of interest under Sections 234A, 234B and 234C cannot be considered as penal in nature rather than they are compensatory in the sense that Revenue like any other creditor should be compensated for the delay for obtaining its dues. These provisions are also mandatory in nature. Section 234B authorities levy of interest for shortfall in payment of advance tax.
The section takes into, consideration, the following situations and explains the manner of levy thereunder : (i) Whether, the assessee who is liable to pay advance tax under Section 208 fails to pay such tax, interest is payable by him on assessed tax at 2 per cent for every month or part of the month for default from 1st April of the assessment year to the date the determination of income under Section 143(1) and where a regular assessment is made to the date of regular assessment.
(ii) Where the assessee has paid advance tax under Section 240 but the amount of or advance tax paid to less than 90 per cent of the assessed tax, interest is payable on the assessed tax minus advance tax at 2 per cent for every month part thereof from 1st April of the assessment year to the date of determination of income under Section 143(1) and where the regular assessment is made, to the date of regular assessment.
Section 234C authorises the levy of interest for deferment of advance tax by an assessee who is liable to pay advance tax under Section 208 of the Act. In a sense, Section 234C is an extension of the provisions of Section 234B. The basic condition for the application of both the sections is the existence of a shortfall in the payment of advance tax.
But while Section 234B authorises the levy of interest on the overall shortfall, Section 234C authorises the levy of interest for shortfall in each mandatory instalment of advance tax. Advance tax is payable in three instalments by non-companies and by four instalments by companies. The dates of the instalments are fixed i.e., 15th September, 15th December, and 15th March for non-companies. In the case of companies, the date of first instalment is 15th June. Section 234C provides that if the advance tax paid by the assessee in any instalment is less than the specific percentage of the amount due, interest is leviable on the shortfall. By the Finance (No. 2) Act, 1991, the provisions of Section 234C(1) have been amended with retrospective effect from 1st April, 1989, so as to provide that these provisions are to apply even in cases where no advance tax has been paid by the assessee who is liable by virtue of the provisions of Section 208 to pay such tax during the financial year.
10. In a case of seizure, the assessee is not required to do anything he is not required to pay anything to the Department either towards any tax or towards any liability. It is for the officers of the Department to make a search and after finding the incriminating articles to seize the same. Section 132(5) provides for a complete procedure for dealing with the seized documents and cash. Under Sub-section (5), the AO is to make an order within the specified period of the search. The order under Section 132(5) has to be made after affording reasonable opportunity to the person concerned of being heard and making such enquiries as necessary. In this order, the AO is required to estimate the undisclosed income (including the income from undisclosed property) in a summary manner to the best of his judgment on the basis of such material as are available with him. Thereafter, he would calculate the amount of tax on the income so estimated. He would also determine the amount of interest payable and the amount of penalty imposable as if it were an order of regular assessment. The AO would also specify the amount that is required to satisfy any existing liability of the person from whose custody, the assets are seized and retain in his custody such assets or parts thereof as are in his opinion sufficient to satisfy such liability and thereafter, release the remaining asset, if any. The provisions of Section 132B(1) make it absolutely clear that the amount of existing liability under Section 132(5)(iii) and the amount of the liability determined on regular assessment or reassessment including penalty and interest may be recovered out of the assets retained under Section 132(5). Accordingly we are of the opinion that advance tax payable could not be including in the ...............
(sic) be retained by the AO until the final order is made by him under Sub-section (5) of Section 132. The AO is authorised to retain in his custody, such assets as are in his opinion sufficient to satisfy the aggregate of amounts referred to in Clauses (ii), (iia) and (iii) of Sub-section (5) of Section 132 and obliges him to release the remaining portion. So long as the final order is not passed and the AO records the findings that the assets in his possession or part thereof are sufficient to satisfy the aggregate of the amounts referred to in Clauses (ii), (iia) and (iii), he cannot direct release of the remaining portion of the seized assets nor can he direct the assets seized being adjusted towards advance tax. In the case of Ramjilal Jagannath (supra), the Hon'ble Madhya Pradesh High Court held that the right to receive the money would accrue in favour of the assessee only after the final order is made under Section 132(5) and only if such an order is made, can the assessee make a request to the ITO that the amount which is sought to be released in his favour be adjusted or appropriated towards, the liability of the payment of advance tax. The enquiry under Sub-section (5) of Section 132 is of summary nature, limited for the purpose of a temporary estimation of undisclosed income and retaining of that portion of the money which is, in the opinion of the authority, sufficient to satisfy the amount of tax, etc., on the income so estimated. The High Court also held that there is no confiscation of the property involved. A conjoint reading of Section 132(5) and 132B would make it clear that if the assets retained are in excess of the liability to pay then immediately after the application of the retained assets or the money, the excess amount shall be refunded and the Government shall pay interest on the amount from a particular date. The amount cannot be adjusted towards existing liability towards advance tax.
11. The proceedings under Section 132 are independent proceedings and the same cannot be clubbed with the liability of paying the advance tax. Section 234B, as we have mentioned above provides that if there is a default in payment of advance tax, then the assessee would be liable to pay simple interest @ 2 per cent per month. Section 234G provides that if there is any deferment of advance tax, then the assessee shall be liable to pay interest on such amount. The assessee cannot escape the liability either under Section 234B or 234C irrespective of the seizure of the amount. The assessee was obliged to pay advance tax in accordance with law and if he has not paid the advance tax in accordance with the provisions of IT Act, he cannot avoid the liability either under Section 234B or 234C. The seized amount cannot be appropriated or applied towards any other liability until an order is made by the AO under Section 132(5) and it is determined that some amount has been left out of adjustment. In the case of Ramjilal Jagannath (supra), the High Court also observed that "The Tribunal has also not considered that the seizure is not a voluntary payment. The Tribunal has also not considered that the ITO is entitled to retain the amount under the authority of law and is required to return the excess amount forthwith under Section 132(5) and to apply the retained amount as per the provisions of Section 132B of the IT Act. The learned Members have simply observed that because the money was lying with the Department, it could not be held that the assessee defaulted in payment of the taxes. In the opinion of this Court, the approach of the Tribunal is not correct." 12. In the present case, search action was taken in the case of Shri J.D. Mehta on 28th Aug., 1989. Order under Section 132(5) of the Act was passed on 22nd Dec., 1989, by determining the total liability of Rs. 1,84,13,350 which exceed the value of the total seizure of Rs. 1,49,64,068. Therefore, the AO ordered for the retaining of the entire assets seized. The seizure was not a voluntary payment by the assessee.
'The AO was empowered to retain the amount under the authority of law.
Therefore, there was no excess amount to be returned to the assessee under the provisions of Section 132B of the Act. A conjoint reading of Sections 132(5) and 132B would make it clear that if the assets retained are in excess of the liability of tax, then immediately after the application of retained assets or the money, the excess amount shall be refunded and the Government shall pay interest on the same from a particular date. Thus, it is very clear from these provisions that it does not only call upon the ITO to make an enquiry and pass an order, but it obliges him to retain that much of the assets which are sufficient to satisfy the amount of tax liability because in case there is unnecessary retainment, the Government is obliged to pay the interest. Thus, it is abundantly clear that the assets seized under Section 132 cannot be dealt with unless an order is made by the ITO either under Section 132(5) or the money is applied or appropriated in accordance with Section 132B. In the present case, order under Section 132(5) has been passed and the entire seized assets valuing Rs. 1,49,64,068 have been appropriated against the liability of Rs. 1,84,13,350 determined under Section 132(5). Therefore, nothing remained to be refunded to the assessee. Therefore, the assessee's contention that the amount should have been adjusted towards existing liability of advance tax cannot be accepted.
13. The contention raised by the learned counsel that the cash seized of Rs. 16 lakhs from the premises of Shri J.D. Mehta did not belong to him and he also admitted this fact in his statement under Section 132(4) recorded during the course of search, therefore, the same should have been either refunded to the assessee or the same should have been adjusted against the liability of advance tax, as requested by the assessee in his various letters, is without any substance. The seizure was made from the residential premises of Shri J.D. Mehta, therefore, the ownership of the cash vested with him unless the AO passes an order after making enquiries that the amount actually belonged to the assessee and the same was in excess of the liability determined under Section 132(5) of the Act. Madras High Court in the case of P.P.Kanniah v. ITO and Anr. (1981) 129 ITR 414 (Mad) has laid down that "Even in respect of the assets retained under Section 132(5), the ownership still vests with the original owner till such assets or other valuables, etc., are sold to effect recovery of tax liabilities. Till such assets are sold or money seized is adjusted towards the tax under Section 132B(1), such assets shall be deemed to be under distraint".
Therefore, the assessee was not entitled to make any claim of ownership to the seized cash till it is determined by the AO that the same belongs to the assessee and the same is refunded to them.
14. The learned counsel also contended that the case of Ramjilal Jagannath (supra) is not relevant to the facts of the present case. He argued that the case of the assessee is distinguishable from the above case in view of the fact that in the above case, the seizure was made from the premises of the assessee whereas in the present case, the seizure was made from the premises of the assessee whereas in the present case, the seizure has been made from the premises of a third party. We do not find any force in the arguments of the learned counsel because the cash has been seized from the premises of Shri J.D. Mehta and in law, he is the real owner of the cash till it is determined by the Department by making necessary enquiries that the cash actually belongs to the assessee. The Department has already passed the order under Section 132(5) wherein all the assets including cash seized have been adjusted against the liability of tax raised in that order.
Therefore, the claim made by the assessee of ownership of cash has been correctly rejected by the Department. Under the circumstances, the case of the assessee is squarely covered with the decision of the Madhya Pradesh High Court in the case of Ramjilal Jagannath (supra). The Tribunal cases relied upon by the learned counsel cannot be entertained in view of the fact that the same issue has now been decided in favour of the Department by the Hon'ble Madhya Pradesh High Court. The case of Prannoy Roy & Am, (supra) is not relevant to the facts of the present case. In the above case, it has been held that interest under Section 234A is payable in a case where has not been deposited prior to the due date of filing of return and not where tax has been paid but return has been filed belatedly. In the present case, tax has not been paid as we have held in the preceding paragraphs, therefore, interest under Section 234A has been correctly charged.
15. Regarding the interest levied under Section 234A, the assessee submitted that the delay in submitting the return was for reasons beyond their control since seized materials in this case were with the Department and as such the returns could not be completed in time. It was, therefore, contended that there was a reasonable cause for not filing the return in time. The learned counsel, thus, contended that the interest levied under Section 234A is not justified. The learned Departmental Representative, however, contended that the AO has correctly levied the interest. After hearing both the parties, we do not find any force in the arguments of the learned counsel. The search took place on 28th Aug., 1989, therefore, the books of account were available with the assessee upto that period. Therefore, the assessee could have completed the returns by that time. We, therefore, find full justification for charging interest as the assessee filed the return late for the asst. yr. 1989-90 without any reasonable cause and the assessee also did not pay the tax as we have held in the earlier paragraphs.
16. We have already held that the seized amount cannot be appropriated to applied towards any other liability until an order is made by the AO under Section 132(5) of the Act and the amount refundable is determined. The learned CIT(A) has not considered that the AO is entitled to retain the amount under the authority of law and is required to return the excess amount forthwith under Section 132{5) and to apply the retained amount under the provisions of Section 132B of the Act. The learned CIT(A) has simply observed that because the Department was in possession of cash and other assets which could be adjusted against the taxes due. The learned CIT(A) has not understood that Section 132 has separately laid down a procedure for dealing with the seized cash and other assets. As per this procedure, seized cash has to be adjusted against the tax payable by the assessee which has to be determined by the Department as per the provisions of Section 132(5) of the Act, and therefore, if any cash remains in excess of the liabilities determined by the Department, the same has to be released to the assessee or the same can be adjusted against the other taxes if such request is received from the assessee. Therefore, in our opinion, the approach of the learned CIT(A) is erroneous. The AO, therefore, has correctly charged interest under Sections 234A, 234B and 234C of the Act for the assessment years under consideration. The findings of the learned CIT(A) are, therefore, set aside and that of the AO are restored.