No prohibition to adjust seized cash with self assessment tax – ITAT

There is no prohibition to adjust seized cash with self assessment tax. Only prohibited is for adjustment of seized cash with advance tax – ITAT

ABCAUS Case Law Citation:
ABCAUS 3720 (2023) (04) ITAT

Important Case Laws relied upon:
ACIT vs. Narendra N. Thacker 82 taxmman.com 64
Spaze Towers (P) Ltd Vs. DCIT 76 taxmann.com 371

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of the Assessing Officer (AO) denying credit for cash seized against tax liability by applying provisions of section 132B of the Income Tax Act, 1961 (the Act).

A search and seizure action u/s 132 of the Act was carried out and cash was recovered from the car owned by the appellant assessee.

In the statement recorded u/s 132(4) of the Act, the assessee accepted that the cash found and seized in the car belonged to him and the same was not recorded in his books of accounts. The assessee, in his statement accepted unaccounted income inclusive of cash seized. 

Later, the assessee filed return of income for the relevant assessment year had offered the income from other sources as admitted in the statement recorded u/s 132(4) of the Act.

Against his tax liability after adjustment of TDS, advance tax and self assessment tax, the assessee requested for adjustment of the seized cash towards remaining self assessment tax payable by the assessee. This claim was made by the assessee in the return of income itself.

However, the AO did not give credit for tax in the form of seized cash and raised a demand including interest u/s 234B.

The assessee filed a rectification application u/s 154 of the Act wherein, the assessee made a request to treat the seized cash as advance tax payable and accordingly requested for recalculating the interest u/s 234B of the Act.

However, the rectification application was disposed off by the AO against assessee by applying the provisions of Explanation-2 to section 132B of the Act which states that the “existing liability” does not include advance tax payable.

The CIT(A) upheld the action of AO stating that the existing liability does not include advance tax payable.

The Tribunal observed that the assessee, in the rectification application u/s 154 erroneously requested to treat the seized cash as advance tax payable. In fact the rectification application arose from the order u/s 143(3) of the Act passed by the AO wherein, he had failed to give credit for treatment of seized cash as self assessment tax.

The Tribunal expressed displeasure that undisputedly the assessee in the ITR made a claim for adjustment of seized cash with his self assessment tax payable and this was conveniently ignored by the lower authorities.

The Tribunal stated that a bare reading of provisions of section 132B of the Act together with Explanation-2 thereon shows that there is no prohibition to adjust the seized cash with self assessment tax. What is prohibited is  only  adjustment  of  seized  cash  with  the  advance  tax. 

The Tribunal also noted the decision of the coordinate bench and the decision of the Hon’ble High Court on this issue which was in favour of the assessee.

Accordingly, the ITAT held that the assessee was entitled for adjustment of seized cash with self assessment tax payable by the assessee in the return of income.

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