Amount Seized From Third Party Is Not Eligible For Adjustment Against Advance Tax Liability Of Assessee: Punjab & Haryana HC

The Division Bench comprising Justice Sanjeev Prakash Sharma and Justice Jagmohan Bansal observed “From sub-section (3) of Section 132B, it is evident that person from whose custody assets is seized is entitled to adjustment thereof against the tax liability. As per explanation, existing liability does not include advance tax”.

Thus, contention of appellants that amount seized from the possession of another person should be treated as advance tax paid by appellants is misconceived, added the Bench.

Facts of the case:

The AO conducted search at different premises of both the appellants/ assessee as well as one person namely Sarup Chand. During search, it was found that Sarup Chand is maintaining two saving accounts with Standard Chartered Bank wherein a sum of Rs.43,78,272/-is lying deposited. The Revenue recorded statement of Sunil Mehta, who admitted that amount lying in the account of Sarup Chand belonged to his family members, and the said amount was sale proceeds of a house in Amritsar. The said house was owned by Kamla Mehta and Shelly Mehta (Appellants). The AO thereafter seized the amount lying in the bank account of Sarup Chand.

Later, the assessee filed return pursuant to notice issued u/s 153A disclosing undisclosed income of Rs.77,25,000/- as short-term capital gain arising on account of sale of a residential property. The surrendered income included cash seized from the bank account of Sarup Chand. Since no tax liability was found of Sarup Chand though a sum of Rs.43,73,136/- found in his bank account, the said amount was claimed by appellants as their capital gain arising out of sale proceeds of house. Thus, the AO requested the CIT for adjustment of seized amount towards the tax liability of appellants, which was permitted. The AO accordingly, adjusted seized cash against the tax liability of appellants. However, the AO charged interest u/s 234B from both the appellants.

The appellants pleaded that amount recovered from the possession of Sarup Chand should be adjusted against self-assessed tax due u/s 140A read with Section 132B and interest should not be charged u/s 234B. As AO charged interest u/s 234B, the appellants approached the CIT(A) who dismissed the appeals holding that cash seized from the possession of Sarup Chand could not be adjusted against tax liability of appellants as advance tax.

Observations of High Court

The Bench observed that Revenue Department had correctly adjusted seized cash from the date of framing assessment and charged interest u/s 234B on delayed payment of advance tax.

The Bench further observed that the assets seized u/s 132B by the Revenue is utilized to determine the tax liability arising under provisions drawn in Income Tax, Wealth Tax, Expenditure Tax etc.

On a conjoint reading of Sections 132B, 140A, and 234B, the Bench found that for determination of tax liability, the tax deducted or collected at source and advance tax is required to be deducted from total liability.

The Bench highlighted that the Assessee having not paid any advance tax, are incorrectly claiming that the amount recovered from the possession of third party should be treated as advance tax payable by the Assessee.

The alleged amount was concededly lying in the bank account of third party and there was no question of adjustment of seized cash against the liability of Assessee until the liability of all parties stands determined, added the Bench.

Therefore, the High Court dismissed the Assessee's appeal and concluded that the amount seized cannot be treated as cash belonging to Assessee and cannot be adjusted against their tax liability.

Counsel for Appellant/ Assessee: Senior Advocate Radhika Suri and Advocates Parnika Singla and Abhinav Narang

Counsel for Respondent/ Revenue: Advocate Saurabh Kapoor

Case Title: Kamla Mehta vs. CIT

Case Number: ITA-20-2012 (O&M)

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