Pradeep Parikh, Accountant Member -
(1.) ALL these appeals are by the department against the orders of the Id. Dy. CIT(Appeals). As all the appeals pertain to common grounds, they are being disposed of by this common order for the sake of convenience.
(2.) Shri S.P. Singh appeared for the department and Shri U.C. Jain appeared for the assessee.
The grounds raised by the department are as under :
On the facts and in the circumstances of the case the Id. DCIT(Appeals) has erred in-
1. directing to allow interest on the seized cash of Rs. 59,462 from the date of seizure to the date of final refund ignoring the facts that-
(a) the directions are against the provisions of Section 132B(4)(a) & (b) of the IT Act, 1961.
(b) as per asst. orders framed in pursuance of order Under Section 132(5) passed and after levy of penalties no refund was due to the assessee,
(c) the waiver of penalties of Rs. 85,497 Under Section 273A(4) and Under Section 264 made vide order dated 25-5-1985 on the ground that assessee was too old and was not having any means to live and no one to support in old age,
(d) the waiver of penalties does not create a right to claim interest on the amount refunded as a result of above waiver.
2. accordingly the assessee's ground that demand was in dispute. In fact there was no dispute of the demand created which was final after decision of appeal and in fact a mercy petition of the assessee was entertained on the ground of old age, absence of sources of income and there was no one to look after him.
(3.) WE have heard the rival submissions and perused the material placed before us.
5 Briefly stated, the facts of the case are that a search operation had taken place at the assessee's residential and business premises on 4-4-1976. During the course of search cash of Rs. 59,462 was seized by the department and an order Under Section 132(5) was passed. As a result of the search the assessments in case of the assessee were reopened Under Section 147(a) for the assessment years 1968-69 to 1977-78. On finalisation of the re-opened assessments a final total demand of Rs. 33,927 was determined in respect of assessment years 1968-69, 1969-70 and from 1971-72 to 1977-78. Penalties were also levied Under Section 271(1)(c) for these years amounting to Rs. 85,497. Later on, the entire penalty was waived Under Section 273A.
6. On finalisation of assessment and waiver of penalties, a refund of Rs. 25,535 was due to the assessee from the cash seized. The assessee claimed interest on this refund Under Section 132(4)(b) from December 1976 to April 1982. This was denied by the Assessing Officer. Since we are unable to comprehend the reasons of this denial, either as to their logic or as to the provisions of law, we simply reproduce them hereunder :
The claim of the assessee for claiming the interest on the balance amount of Rs. 25,535 is hereby rejected on the following grounds:
(1) The Hon'ble CIT has nowhere mentioned in the order Under Section 273A(4) that the assessee will be given interest Under Section 132B(4)(a)(i). He has simply waived the amount of penalty and not quashed the penalty order itself which remains in existence even today.
(2) The liability towards payment of penalties Under Section 271(1)(a) and 271(1)(c) for the assessment year(s) 1968-69 to 1977-78 were remained outstanding till the date of waiver order passed by the Hon'ble CIT on 25-5-1985 Under Section 273A(4) vide letter No. Ju/BD/ 704/85-86. As such no interest can be paid to the assessee Under Section 132B(4)(a) & (b) from 4-11-1976 to May 1982. Since as discussed above from 4-11-1976 to May 1982 the liability towards payment of taxes and penalties Under Section 271(1)(a) and 271(1)(c) was outstanding against the assessee. It is only on 25-5-1985, the said liabilities towards payment of penalties and taxes came to an end.
Therefore, petition of the assessee Under Section 154 after verifying the facts from record is hereby rejected.
7. On appeal, the Ld. Dy. CIT(A) upheld the claim of the assessee as regards interest but gave a guarded direction that it should be allowed from the date of seizure, i.e., from 4-4-1976.
8. The ld. Departmental Representative pleaded that the assessee is not at all entitled to interest on the refund. He based his contention on the plain reading of Section 132B(4)(a) which is reproduced below :
132B(4)(a). The Central Government shall pay simple interest at the rate of fifteen per cent per annum on the amount by which the aggregate of money retained under Section 132 and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in Clause (iii) of Sub-section (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to in Clause (i) of Sub-section (1) of this section.
The above provision refers to Clause (i) of Sub-section (1) of Section 132B and hence it is also reproduced below to have a clear picture of the provisions involved :
132B(1). The assets retained under Sub-section (5) of Section 132 may be dealt with in the following manner, namely :-
(i) The amount of the existing liability referred to in Clause (HQ of the said sub-section and the amount of the liability determined on completion of the regular assessment or reassessment for all the assessment years relevant to the previous years to which the income referred to in Clause (i) of that sub-section relates (including any penalty levied or interest payable in connection with such assessment or reassessment) and in respect of which he is in default or is deemed to be in default may be recovered out of such assets.
9. The Ld. Departmental Representative contended that existing liability means the one determined Under Section 132(5)(iii) and if that is exceeding the assets retained, no interest will be due to the assessee. In the instant case, he contended that liability determined Under Section 132(5)(iii) along with the penalties imposed, far exceeded the cash of Rs. 59,462 retained and hence no interest Is payable by the assessee.
10. WE are unable to accept this contention of the department. A situation - which cannot be ruled out - may arise that on regular assessment the liability may reduce to nil. Then in that event the question of application of retained monies will not arise and will have to be refunded to the assessee in its entirety. In such a case, if the contention of the department is applied, the assessee will not be entitled to any interest despite the department having retained the monies of the assessee for a considerable period. This could never have been intended by the Legislature.
11. In the light of the arguments advanced by the department let us examine the provisions reproduced earlier.
12. Section 132(4)(a) creates a charge on the Central Government to pay interest. The interest is to be paid on monies retained by it in excess of certain liabilities. The monies retained comprises of two items, namely, money retained (Le., cash seized as well as money in the bank account) at the time of search and money received on assets sold to discharge the liability referred to in Section 132(5)(iii). These assets may be sold by the department in order to apply the sale proceeds towards the liabilities referred to in Section 132B(1)(i). Thus to put it simply, if the aggregate of monies retained, as mentioned above, exceeds the liabilities mentioned in Section 132B(1)(i), the liability to pay interest arises.
13. Now we shall examine Section 132B(1)(i) to see as to which liabilities it refers to. It refers to existing liability Under Section 132(5)(iii), liability on regular assessment or reassessment, penalties levied, interest payable and other liabilities in respect of which the assessee is in default or is deemed to be in default. All these liabilities have to be aggregated and if the monies retained, as discussed above, are in excess of these liabilities, the assessee shall be entitled to interest. However, the opening sentence in Clause (i) of Sub-section (1) of Section 132B viz. "the amount of the existing liability referred to in Clause (iii) of the said Sub-section (i.e., Section 132(5) and the amount of liability determined on completion of the regular assessment. ..." does not mean that these two liabilities are to be aggregated blindly. Sub-section (1) of Section 132B which deals with application of retained assets, in essence, conveys that the retained assets may be applied to the tax liability determined on regular assessment or reassessment as enhanced over and above the liability determined Under Section 132(5). If on regular assessment, there is no enhancement, then the liability determined Under Section 132(5) shall be the tax on regular assessment and further still the liability Under Section 132(5) may get reduced also on regular assessment. Thus the word 'and' in the opening sentence of Section 132B(1)(i) only connotes enhancement, if any, on regular assessment. It does not mean, and cannot mean that even if final liability is determined at a lower figure than the one determined Under Section 132(5)(iii), the two have to be aggregated to determine the excess under Section 132B(4)(a). Section 132B(4)(a) refers to the aggregation of all the liabilities mentioned earlier, le., tax liability, penalties etc, and interest has to be paid on monies which are in excess of these liabilities.
14. Thus, in the instant case since the final tax liability determined was Rs. 33,927 and the entire penalty was waived, the refund works out to Rs. 25,535 which shall bear interest @ 15%.
15. The interest, as provided in Section 132B(4)(b), shall start accruing immediately on the expiry of six months from the date of the order Under Section 132(5) up to the date of assessment or reassessment. When several years are involved in respect of the income referred to in Section 132(5)(i), then the interest will run up to the date of last such assessment. The relief to be given to the assessee in compliance of this order shall not exceed the relief already granted by the Id. CIT(A). The Assessing Officer is accordingly directed.
16. In the result, all the appeals are dismissed.;