Ajay Gupta v. Commissioner Of Income Tax

IN THE HIGH COURT OF DELHI AT NEW DELHI W.P.(C)2959/2005 AJAY GUPTA .... Petitioner throughthrough Mr.Kaanan Kapur, Adv. Versus COMMISSIONER OF INCOME TAX ...Respondent through Mr. R.D. Jolly, Sr. Standing Counsel Date of Decision: April 2, 2007 CORAM:HON'BLE MR. JUSTICE VIKRAMAJIT SENHON'BLE MR. JUSTICE J.P. SINGH 1. Whether reporters of local papers may be allowed to see the Judgment? allowed to see the Judgment? allowed to see the Judgment? Yes2. To be referred to the Reporter or not? Yes3. Whether the Judgment should be reported Yes in the Digest?2. To be referred to the Reporter or not? Yes3. Whether the Judgment should be reported Yes in the Digest? J U D G M E N T VIKRAMAJIT SEN, J.:(Oral) 1.The question which calls for consideration in this Petitionconcerns the date from which the Income Tax Department isWP(C) No.2959/2005Page 1 of 17 liable to pay interest on the amount of money/assets seized fromthe Petitioner in the course of a Search conducted on 2.7.2002under Section 132 of the Income Tax Act, 1961 (IT Act). In thecourse of this Search, cash amounting to Rs.35,15,000/- wasdiscovered at the premises of the Petitioner/Assessee, out ofwhich there was a Seizure of Rs.33,00,000/-. It is the case of theDepartment that during the Block Assessment proceedings theAssessee could sufficiently explain only a part of the cash seizedduring the Search. The Block Assessment proceedings werecompleted vide Assessment Order dated 30.7.2004. According tothe Department, the Assessee's undisclosed income aggregatedRs.12,43,232/-, attracting a tax demand of Rs.7,83,236/- togetherwith a penalty of Rs.7,83,236/- under Section 158BFA(2) of the ITAct, thus raising a total demand of Rs.15,66,471. Pursuant to thisOrder, the balance amount of Rs.17,33,529 was “released” on27.9.2004 as stated in the Affidavit of the Assistant Commissionerof Income Tax (Central Circle 5, New Delhi). Upon appeal againstthe Assessment Order, the CIT(A) vide its Order dated 15.12.2004deleted Rs.12,43,232 as undisclosed income assessable to taxalong with the penalty imposed. The Assessing Officer (AO) gaveeffect to the Order-in-appeal and framed 'nil income' assessmenton 24.12.2004, releasing the remaining amount of Rs.15,66,471/-. Thus, the entire Seizure of Rs.33 lakhs was ordered to bereleased (in contradistinction to 'refunded') to the Petitioner. 2.With respect to the payment of interest, it has been statedin the Affidavit by the Assistant Commissioner that as per theprovisions of Section 132B(4) of the IT Act, interest was paid onthe sum of Rs.17,33,529/- as follows: (a) 01-11-02 to 31.08.03(10 months) at the rate of 0.66 per cent per month =Rs.1,14,411/-; (b) 01-09-03 to 30-07-04 (11 months) at the rate of0.5 per cent per month = Rs.95,342/-; thus aggregating the sumof Rs.2,09,753/-. This interest is stated to have been determinedin consonance with ITNS 150 dated 7.3.2005, and was paid to theAssessee vide Refund Voucher No.830974 dated 7.3.2005. Thiscomputation as well as the rate of interest has not beenchallenged before us, although the period for which it has beengranted is assailed by the Petitioner. The entire seized amounthaving been returned, the only remaining controversy concernsthe element of interest payable by the Department to thePetitioner. 3.According to the Petitioner, it had informed the Departmentat the time of the Search itself and thereafter in detail on 11.7.2002 that the seized cash belonged to two companies,namely, Arkaylite Electricals, and, Contimeters & Electricals, andhad been duly accounted for in their Books of Accounts. A baldand unsubstantiated statement has been made by theCommissioner of Income Tax to the effect that the Assessee couldonly explain the source of part of the cash at the time of thecompletion of the Assessment proceedings on 30.7.2004, possiblymindful of the delay on his part in completing the adjudication. 3.According to the Petitioner, it had informed the Departmentat the time of the Search itself and thereafter in detail on 11.7.2002 that the seized cash belonged to two companies,namely, Arkaylite Electricals, and, Contimeters & Electricals, andhad been duly accounted for in their Books of Accounts. A baldand unsubstantiated statement has been made by theCommissioner of Income Tax to the effect that the Assessee couldonly explain the source of part of the cash at the time of thecompletion of the Assessment proceedings on 30.7.2004, possiblymindful of the delay on his part in completing the adjudication. 4.The claim of the Petitioner on account of interest isadumbrated in the following table: 5.According to learned counsel for the Department, the dateon which the Assessment is completed is the relevant date afterwhich interest will cease to run for the purpose of Section 132B;and thereafter interest is to be calculated under Section 244A ofthe IT Act. However, the absence of any reference to Section244A in the pleadings of the Department, manifests that relianceon this Section during the course of arguments was an after-thought. So far as Rs,17,33,529/- is concerned, no validexplanation has been offered as to why interest has not beengiven upto the date when payment was actually tendered. TheDepartment cannot be exonerated or excused from payment ofinterest for the period of two months, being the hiatus betweenthe passing of the Assessment Order and the date on which theinterest was tendered. 6.Let us now revert to the statutory provisions which apply tothe conundrum before us. The provision of Section 132B(i)appear to us to be of far-reaching dimensions, if not of draconiannature. It permits assets seized under Section 132 orrequisitioned under Section 132A to be adjusted against existingliability. The assumption must be that the Search and Seizureprovision under Section 132 or the Requisition proceedings under WP(C) No.2959/2005 Section 132A will not be lightly or obliquely resorted to by theDepartment. In other words, the highly invasive action underSection 132A of the Act, in which the privacy of a citizen is rentasunder, should not be employed as a surrogate of Section 226 ofthe Act for effecting recoveries of tax dues from litigiousassesses. 7.In the present case we are not concerned with this aspectof the statute since it is Section 132B(4)(b) that is at the fulcrumof the conundrum. It clarifies that “interest shall run from thedate immediately following the expiry of the period of onehundred and twenty days from the date on which the last of theauthorisations for search under section 132 or requisition undersection 132A was executed to the date of completion of theassessment under section 153A or under Chapter XIV-B”. Theperiod of 120 days (90 days upto 30-9-1984) was previouslystipulated in Section 132(5) of the IT Act until its omission by theFinance Act 2002 with effect from 1.6.2002. Section 132(5) alsoprescribed that the remaining portion of the assets must be'forthwith released' to the person from whose custody they wereseized after satisfaction of the tax liability existing against suchperson. At that time, i.e. prior to the amendments brought about WP(C) No.2959/2005 by the Finance Act 2002, Section 132B(4)(b) envisaged paymentof simple interest at the rate of 15 per cent per annum on theretained money computed “from the date immediately followingthe expiry of six months from the Order under sub- section (5) ofSection 132.” It is also worth emphasizing that seized assetsfor which a valid explanation has been furnished and whichtherefore do not partake of the nature of undisclosed income orassets cannot be retained even if there are outstanding tax-dues. WP(C) No.2959/2005 by the Finance Act 2002, Section 132B(4)(b) envisaged paymentof simple interest at the rate of 15 per cent per annum on theretained money computed “from the date immediately followingthe expiry of six months from the Order under sub- section (5) ofSection 132.” It is also worth emphasizing that seized assetsfor which a valid explanation has been furnished and whichtherefore do not partake of the nature of undisclosed income orassets cannot be retained even if there are outstanding tax-dues. 8.Since the Search was conducted on 2.7.2002, the Petitionerhas claimed interest commencing from the expiry of a period of120 days thereof, i.e., 1.11.2002. It is noteworthy that therelevant provisions, i.e. Section 132B(4) make no reference toSection 244A on which reliance has been placed by learnedcounsel for the Respondent in the course of his final arguments.We must take note of the fact that the Department has tenderedinterest of the sum of Rs.2,09,753/- calculated for the period1.11.2002 to 30.7.2004, i.e. the date of the Assessment Order forthe Block Period starting from 1.4.1996 to 1.7.2002. However, ithas failed to pay interest from 1.8.2004 to 27.9.2004, for nojustifiable reasons. Predicated on the said Assessment Orderdated 30.7.2004, after deducting the income-tax and penalty from the seized sum of Rs. 33 lakhs, there was no further justificationnot to release the balance sum of Rs.17,33,529/- forthwith. In theevent, this sum was actually released after some delay undercover of the Department's letter dated 27.9.2004. As has beennoted above, interest at the rate of 0.66 per cent per month wastendered for the period 1-11-2002 upto 31-08-2003. It appears tous that this may have been for the reason that by virtue of theTaxation Laws (Amendment) Ordinance, 2003, subsequentlycemented by the Taxation Laws (Amendment) Act, 2003, the rateof interest stood reduced to 0.5 per cent per month with effectfrom 8-9-2003. Accordingly, interest at the higher rate shouldhave been calculated upto 8-9-2003. However, since this pointhad not been urged by the Petitioner, we leave the matter to rest. 9.In our opinion the purpose of stipulating the period of 120days cannot be over-emphasised. What the statute expects is thatwhere a Seizure has taken place consequent upon a Search, thedecision declining to release or return the amount to theAssessee must be taken with extreme expedition. This isevidently how the Department understood the provisions of the ITAct since it has itself computed interest commencing from theexpiry of the said period of 120 days, that is, 1.11.2002. Perhaps it would have been logical for Parliament to clarify that if adecision to hold or withhold monies/assets discovered during aSearch is not taken with the prescribed period of 120 days,interest would start to run from the date of the Seizure itself.Otherwise, granting a blanket moratorium for the period of 120days loses logicality. This question has not been raised onbehalf of the Assessee and therefore we need not enter into anexercise of jural engineering to impart what, prima facie, appearsto be a proper interpretation of the Section. 10.Section 132B(4)(a) imposes on the Central Government theliability to pay simple interest at a rate that has been varied fromtime to time, on the amounts which have been duly accounted for,together with the surplus amount for which no valid explanationis forthcoming after deduction or reduction of outstanding taxdues. Thereafter, Section 132 B(4)(b) specifies that interestunder “Chapter C – Powers”, being Sections 131 to 136, shall bepayable for the period commencing from the 121[st] day after thelast authorisation for the Search upto the date of completion ofthe assessment relating to the Search. In the present case, sincethe Petitioner has claimed interest only from the date on whichthe Search was conducted, we shall assume that that was also the 10.Section 132B(4)(a) imposes on the Central Government theliability to pay simple interest at a rate that has been varied fromtime to time, on the amounts which have been duly accounted for,together with the surplus amount for which no valid explanationis forthcoming after deduction or reduction of outstanding taxdues. Thereafter, Section 132 B(4)(b) specifies that interestunder “Chapter C – Powers”, being Sections 131 to 136, shall bepayable for the period commencing from the 121[st] day after thelast authorisation for the Search upto the date of completion ofthe assessment relating to the Search. In the present case, sincethe Petitioner has claimed interest only from the date on whichthe Search was conducted, we shall assume that that was also the day on which the last authorisation for the Search was recorded.The following Table will elucidate that the rate of interestpayable in Search cases was not always the same as interestpayable on delayed Refunds under Section 244A, to which ourattention has been drawn by learned counsel for the Revenue: 11.Even though the rate of interest payable under Section132B(4)(a) and Section 244A is the same since 2002 there was adifference prior thereto. This was obviously for the reason thatParliament considered Search proceedings to be distinct fromordinary assessment proceedings. We have already observed thatcarrying out a Search is an invasion of the privacy of a citizen. Itis for good reason that the IT Act imposes stringent safeguardsand restrictions on the conduct of Searches. For these veryreasons Parliament was mindful of setting down a comparativelyshort period of 120 days within which it expected summaryproceedings relating to Searches to be completed. In fact this period has been successively reduced by Parliament, sinceSection 132B as originally inserted into the Act by Income Tax(Amendment) Act, 1965 specified the period to be six months.This period was thereafter reduced to 120 days by virtue ofFinance Act, 2002. Obviously, Parliament is mindful of the factthat where assets and money belonging to a citizen are taken intocustody by the Department consequent upon a Search, a decisionshould be taken promptly as to what portion thereof is to beretained. 12.At first blush, therefore, in our understanding, it mustlogically be expected that the rate of interest payable underSection 132B(4) should be higher than that prescribed in otherprovisions, with the expectation that the component of interestwould act as a deterrent to dilatory decision by the Departmentin the context of Searches. On further consideration, it is equallyunacceptable for the Revenue to drag its feet or create obstaclesor delays for refunding monies to assessees. In fact, in Union ofIndia through Commissioner of Customs (Import & General) -vs-Honda Siel Cars India Ltd, MANU/DE/0258/2007, we have takenserious note of this deleterious and objectionable practice whichhas become rampant in the Department. Perhaps for this reason the Legislature has made the same rate of interest applicable toboth eventualities. However, in this process the period separatelycarved out under Section 132B(4) has lost most of itssignificance. After careful cogitation it appears to us that itwould be expedient to prescribe a higher rate of interest underSection 132B(4) than that prevailing for Refunds under Section244A. Further, Section 153B prescribes a period of two years forcompletion of assessment or reassessment by the AssessingOfficer which vide the Finance Act, 2006 has been furtherreduced to a period of 21 months in those cases where the last ofthe authorisations for Search under Section 132 was executedduring the financial year commencing on the 1st day of April,2004 or any subsequent financial year. This goes to show, yetagain, the intent of the Legislature to impress upon theDepartment the need to deal with all Search and Seizure mattersexpeditiously. 13.In respect of the amount of Rs.15,66,471/- it will be recalledthat this amount was the aggregate of the amount computed bythe AO as the income tax demand of Rs.7,83,236/- on the amountfound to be undisclosed income, namely, 12,43,243/- togetherwith penalty in the like sum of Rs.7,83,236/- under Section WP(C) No.2959/2005 158BFA(2). Had these Orders not been reversed by theCommissioner of Income Tax (Appeals) [CIT(A)] in the Judgmentdated 15.12.2004, there would have been no foundation for theclaim of interest on this amount. It is trite that the Order of theAO merge with that of the CIT(A). As a consequence of thisamalgamation, complete parity must be accorded to the sum ofRs.17,33,529/- and Rs.15,66,471/-, thereby necessitating identicaltreatment to them. In other words, if interest is payable witheffect from 1.11.2002 on the first sum, it would be axiomatic thatit would also be payable with effect from the same date in respectof second amount also. In support of this proposition we shallonly mention that our attention has been drawn to the decisionsin Chloride India Ltd. -vs- Commissioner of Income-Tax, WestBengal I, [1977] 106 ITR 38, Bardolia Textile Mills -vs- Income-Tax Officer, Circle II, Ward-E, Surat, [1985] 151 ITR 389 andCommissioner of Income-Tax -vs- M.L. Sanghi, [1988] 170 ITR670. 14.We find no justification whatsoever for placing reliance onSection 244A of the IT Act which is found in Chapter-XIX dealingwith Refunds. A reading of Sections 237 and 238 makes it clearthat it pertains to amounts of tax paid by the Assessee or on its WP(C) No.2959/2005 behalf. It cannot cover or be equated to involuntary acts such asseizure of assets in the course of a Search conducted underSection 132 of the IT Act which events are covered in thefasciculous of Chapter XIII-C. Section 153A is to be found inChapter-XIV prescribing the procedure for assessment in case ofsearch and requisition, and has been dealt with as a distinctsubject even in that Chapter. Similar is the position so far asreference to Chapter XIV-B is concerned. None of theseprovisions prescribe the period from which interest is payable. Inthe event it is found that there is no justification for the retentionof the items seized by the Department in the cases of a Search,the procedure for assessment should not be confused withprovisions stipulating the time within which a summary decisionis to be taken in respect of money or assets seized during aSearch. 15.Our attention has also been rightly drawn to the decisionsin K.A. Karim -vs- Commissioner of Income-Tax, [1990] 186 ITR97 and Manohar Lal -vs- Commissioner of Income Tax, (2001) 168CTR(Del) 558. It has been enunciated in Sandvik Asia Ltd. -vs-Commissioner of Income-Tax, [2006] 280 ITR 643(SC) thatinterest is payable by way of compensation on amounts wrongfully retained, including payment of interest on interestwrongfully retained. 16.As has already been noted above, computation of interestunder Section 132B(4) has been calculated with effect from1.11.2002 on which there is no contest at all. The BlockAssessment proceedings were completed in terms of AssessmentOrder dated 30.7.2004, pursuant to which the sum ofRs. 17,33,529/- was returned on 27.9.2004. No Appeal has beenpreferred by the Department on this score. So far as this sum ofRs.17,33,529/- is concerned, interest under Section 132B(4)became payable on 30.7.2004, which is the outer limit of theperiod prescribed under section 132B(4)(b). Since the paymentwas eventually made on 27.9.2004, the Petitioner would beentitled to compensation on account of delay for the period1.8.2004 to 27.9.2004. We direct that compensation/damages, interms of Sandvik Asia, be paid by the Respondents to thePetitioner on the sum of Rs.17,33,529/- for the period 1.8.2004 to27.9.2004 at the rate of nine (9) per cent per annum. 17.So far as the sum of Rs.15,66,471/- is concerned the Appealwas decided, (in favour of the Petitioner), by the CIT(A) by Orders WP(C) No.2959/2005 dated 15.12.2004. The Respondents are liable to pay interest onthe said sum from 1.11.2002 to 15.12.2004 under Section 132B(4)(b). The Respondents have without any justificationwhatsoever paid only a sum of Rs.31,328/- as interest for theperiod 1.9.2004 to 31.12.2004 (the date of the AO is 30-7-2004)glossing over and ignoring the period 1-11-2002 to 31-8-2004 (Itshould be recalled that the Assessment Order was passed on 30-7-2004 and thus there is no plausible reason for tenderingpayment with effect from 1-9-2004). The Respondents areaccordingly directed to pay interest under Section 132B(4)(b) onthe said sum of Rs.15,66,471/- for the period 1.11.2002 to15.12.2004 at the rate of 0.66 per cent per month upto 8-9-2003and thereafter at the rate of 0.5 per cent per month. Thequestion that arises is whether compensation/damages in theSandvik Asia mould should be granted in respect of sum ofRs.15,66,471/- also. Since the decision of the AO was reversed inAppeal, there may not have been any justification for grantingdamages. However, since the period envisaged under Section132B(4)(b) specifically commences from the expiry of 120 daysfrom the date on which the last of the authorisations for Searchwas executed (which in the present case is 1-11-2002), the factthat interest has inexplicably been tendered only commencing WP(C) No.2959/2005 from 1-9-2004 is indefensible. Therefore, in addition to paymentof interest at the aforementioned rate, the Petitioner shall alsobeentitledtoreceivefromtheRespondentcompensation/damages for the period 1-11-2002 to 1-9-2004 atthe rate of nine per cent per annum. 18.The writ petition is allowed in the above terms. ThePetitioner shall also be entitled to costs quantified at Rs.5,000/-. ( VIKRAMAJIT SEN )JUDGE April 2, 2007tp/n ( J.P. SINGH ) JUDGE