Sree Balaji Refinery vs Deputy Commissioner Of Income Tax and Others

Antony Dominic, J.—Petitioner is a partnership firm engaged in the business of refining of goldbars, and is an assessee under the IT Act, on the rolls of the 1st respondent. On 15th Jan., 2009, a team led by the ITO from Palakkad conducted a search under s. 132 of the IT Act, 1961 in the premises of the petitioner. In the search, 4136.83 grams of gold was seized and Ext.P1 is the Panchanama prepared during the course of the search. Following the search and seizure, by Exts. P2 to P2(f) orders issued on31st Dec, 2010, assessment for the years 2003-04 to 2009-10 was completed under s. 153C of the IT Act. In these orders, it is also stated that penalty proceedings under s. 271(1)(c) of the IT Act are being initiated. Later the assessment orders for the asst. yrs. 2003-04 to 2006-07 were rectified as per Exts. P2(g) to P2(j). Case of the petitioner is that the liability under Ext. P2 series of orders was discharged by remitting the tax due as per Ext. P3 series of bank receipts. It is stated that they also filed Ext. P4 series of appeals against Ext. P2 series of orders, which are pending before the appellate authority, the 3rd respondent.

Subsequently, petitioner made Ext. P5 dt. 5th Aug 2009 requesting the 2nd respondent to return the gold since they have already paid the entire tax due under Ext. P2 series of orders. To that representation, they were given Ext. P6 reply requiring them to contact the AO. Subsequently. Ext. P7 dt. 18th Nov., 2011 was issued by the 1st respondent informing the petitioner that their request cannot be considered before the disposal of Ext. P4 series of appeals. It was in these circumstances, the writ petition was filed mainly contending that the petitioner having discharged the tax liability due under Ext. P2 series of orders, the pendency of Ext. P4 series of appeals filed by them cannot be a justification for the respondents for refusing to release the gold and appropriate orders are sought for.

A statement has been filed on behalf of the respondents, in which mainly three contentions are raised. First is that, as per Ext. P10 dt. 31stDec, 2010 and other similar notices issued under s. 271(1)(c) of the IT Act, penalty proceedings have already been initiated against the petitioner and that if penalty is Imposed, petitioner will have a liability between Rs. 14,72,494 and Rs. 44,17,482. It is also contended that subsequent to the issuance of the penalty notices, the assessment orders for the years 2005-06 to 2008-09 were again rectified by Ext. P8 series oforders issued on 19th Jan., 2012. Thirdly, it is contended that the petitioner has an interest liability, the total of which is Rs. 34,129 in terms of the provisions contained under s. 220(2) of the IT Act.

In the reply affidavit filed, insofar as Ext. P8 rectification orders are concerned, petitioner says that the tax liability under Ext. P8 series of orders has been discharged by them as per Ext. P9 series of receipts. In so far as the liability for interest, which is pointed out in the statement filed by the respondents is concerned, contention of the petitioner is that Ext. P8 series orders were issued on 19th Jan., 2012and that the amounts due there under were paid on 28th Jan., 2012,the receipts of which are Ext. P9 series. It is contended that since payments have been made within thirty days as per Ext. P8. there is noliability to pay interest as per the provisions contained in s. 220(2) of the IT Act. As far as the penalty proceedings initiated against the petitioner as per Ext. P10 and similar other notices issued on 31stDec, 2010 are concerned, the contention of the petitioner is that on the issuance of the notices, Ext. P10(a) and similar other replies have been given. It is also contended that the pendency of the penalty proceedings cannot be a justification for refusing to release the gold seized on 15thJan., 2009 and that such withholding is not permitted in terms of the provisions contained in s. 132B of the IT Act. In support of thiscontention, learned counsel for the petitioner placed reliance on the judgments in Naresh Kumar Kohli Vs. Commissioner of Income Tax and Another, , Commissioner of Income Tax Vs. Mukundray Kumar Shah, and J. R. Malhotra v. Additional Sessions Judge, Jullundur, (1976) 2 SCR 993 .

I heard the learned counsel appearing for the petitioner and the learned standing counsel appearing for the respondents and considered their submissions.

As far as the interest due from the petitioner and pointed out in the statement filed by the respondents, the liability indicated is that of Rs.34,129. Going by para 8 of the statement filed on behalf of the respondents, the averment is that as on date, towards the demands which were already made, there is a liability of interest accrued under s. 220(2) for belated payment. Therefore, the case of delay in payment and the liability for interest pleaded by the respondents is not with reference to Ext. P8 series of rectification orders for the asst. yrs. 2005-06 to 2008-09 alone but also in relation to Ext. P2 series of orders. Therefore, the fact that liability under Ext. P8 series has been discharged by Ext. P9series of receipts does not by itself indicate that the petitioner has no liability to pay interest under s. 220(2) of the IT Act.

Now what remains is the legality of the refusal of the respondents to release the gold seized. In Ext. P7 communication issued on 18th Nov2011, the reason stated by the respondents for refusing release of the gold is that the request cannot be considered before the disposal of the first appeal. However, in the statement filed, the justification offered is the pendency of the penalty proceedings evidenced by Ext. P10 and similar other notices. During the course of the hearing also, the groundurged for with holding the gold seized from the petitioner is the pendency of penalty proceedings. Therefore, the correctness of the stand taken by the respondents in refusing to release the gold to the petitioner has to be decided with reference to the pendency of the penalty proceedings unders. 271(1)(c) of the IT Act, 1961.

The case set up by the petitioner is that as at present, the liability that was due from them was only for tax under Ext. P2 and Ext. P8 series of orders and that these liabilities have been discharged by them as per Ext.P3 and P9 series of receipts. Therefore, according to them, there is no existing liability towards any liability determined and the possibility of a future liability for penalty cannot be a justification for withholding the gold seized.

Having considered the rival submissions made, I am of the view that this claim of the petitioner will have to be decided with reference to the provisions contained in s. 132B(1) of the IT Act, 1961. This section deals with application of seized or requisitioned assets under ss. 132 and 132Aof the Act. This section, being of relevance to the controversy, is extracted below for reference:

132B. Application of seized or requisitioned assets.-(1) The assets seized under s. 132 or requisitioned under s. 132A may be dealt with in the following manner namely :

(i) the amount of any existing liability under this Act, the WT Act, 1957(27 of 1957), the Expenditure-tax Act, 1987 (35 of 1987), the GT Act,1958 (18 of 1958) and the Interest-tax Act, 1974 (45 of 1974) and the amount of the liability determined on completion of the assessment(under s. 153A and the assessment of the year relevant to the previous year in which search is initiated or requisition is made, or the amount of liability determined on completion of the assessment under Chapter XIV-B for the block period, as the case may be) (including any penalty levied or interest payable in connection with such assessment) and in respect of which such person is in default or is deemed to be in default, may be recovered out of such assets :

A close reading of s. 132B(1)(i) of the Act shows that it consists of two parts. The former part provides for application of the seized assets against "the existing liability under the IT Act, WT Act, Expenditure-tax Act, GT Act and the Interest-tax Act". Thus it is clear that this part ofcl. (i) provides for application of the seized assets against "existingliability" under the aforesaid Acts only. On the other hand, the latter part of this clause provides for application of the seized assets towards "liability determined" in two situations. The first is to the liability determined on completion of the assessment under s. 153A and of the year relevant to the previous year in which search is initiated. The second is towards the liability determined on completion of the assessment under Chapter XIV-B of the Act for the block period. The further provision in this clause clarifies that the "liability determined "under both the aforesaid situations includes "any penalty levied or interest payable" in connection with such assessment under the Act. Assessments contemplated in this part of the section are initiated following the seizure and therefore the expression "liability determined" occurring in the section should be understood as liability to be determined in an assessment. Similarly the expression "penalty levied" should also be read as penalty to be levied in a proceeding under s. 271(1)(c) of the Act.

Insofar as this case is concerned, the respondents do not contend that the petitioner had any existing liability and therefore, the first part of s. 132B(1)(i) of the Act does not have any relevance. As already stated above, the contention of the petitioner is that the section entitles the respondents to apply the assets seized only towards existing liability, liability determined, penalty levied and interest payable. According to them, they have already paid the tax and interest due from them and that so far no penalty has been levied on them and that the section does not entitle the respondents to retain the assets seized, towards an anticipated future liability such as penalty to be levied. Therefore, they contend that the gold seized is liable to be returned to them.

Having considered this contention of the petitioner, I shouldcon fess my inability to accept the plea. The search under s. 132 of the Act led to the seizure of gold and the seizure resulted in the determination of liability of tax by virtue of the assessment orders passed against the petitioner. These orders itself stated that penalty proceedings under s. 271(1)(c) of the Act are being initiated and accordingly such proceedings have been initiated and are pending. This section admittedly entitles application of the seized assets towards tax liability to be determined. Going by the words of the statute, liability of tax determined includes penalty levied. When statute recognises the entitlement of the respondents to apply the asset seized towards the tax liability determined, which includes penalty, it is puerile to contend that the statute obliges the respondents to return the same on determination of the tax liability and before levying the penalty. Further, if the argument that the section does not permit retention of seized assets for application against liability to be determined either towards tax or penalty is accepted, application of such assets would be possible only against tax liabilities already determined or penalty already levied and in the absence of such existing liabilities, the assets will have to be returned to the person concerned. This interpretation will render the latter part of s. 132B(1)(i) meaningless and such a situation cannot be accepted. Therefore, I am of the view that the section entitles the respondents to retain the gold in question with them until penalty is levied and apply the same towards the liability so determined, provided the petitioner is in default or deemed to be in default. As far as the judgments in Naresh Kumar Kohli vs. CIT (supra) and CIT vs. Mukundray Kumar Shah (supra) relied on by the learned counsel for the petitioner are concerned, facts of these cases show that in those cases appeals were already decided in favor of the party concerned. On that basis, Courts took the view that there was no existing liability to justify withholding of the asset seized. Similarly, the apex Court judgment in J.R. Malhotra vs. Addl Sessions Judge, Jullundur (supra)was also a case where the seizure was already held illegal and it was on that basis the case was decided. Thus the facts of these cases are incomparable to the facts of this case and therefore these judgments are not of any assistance to the petitioner herein.

For the aforesaid reasons, this writ petition deserves to be dismissed and I do so. No costs.