Existing liability may include Self Assessment Tax (SAT) – A justification for adjustment of cash seized against SAT

–      CA Naresh Jakhotia

There are many draconian provision in the Income Tax Act-1961. One such provision is in section 132B which elaborates the mode of adjustment of assets seized by Income Tax department.

Explanation 2 to Sec 132B as inserted w.e.f. 01.06.2013 provides that the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII.

An altogether different issue now is Whether

1. SAT can be distinguished from advance tax?
2. Whether Explanation2 to Sec 132B  is applicable for self assessment tax also?
3. Whether existing liability u/s 132B can include self assessment tax payable by the assessee while filing income tax return?

Taxpayer may carefully note that provisions regarding payment of self assessment tax are part of Chapter XIV u/s 140A of the Income Tax Act, 1961 whereas advance tax provisions are part of Part C of Chapter XVII.

Here, one need to carefully note the difference between SAT vis a vis Advance Tax.

Conditions for payment of advance tax even prior to the end of relevant Year on estimated basis is what is referred to as Advance Tax whereas self assessment tax is required to be paid after the end of the year at the time of filing ITR on the basis of actual tax liability self determined by the assessee on the basis of actual income self computed by assessee.

In short, the nature of payment under SAT vis a vis Advance Tax is totally diverse and distinguishable.

Explanation 2 as introduced from 2013 has exclusively referred to “advance tax payable” only. Nowhere it has mentioned “SAT”.

Given above analysis, one can draw a little conclusions that SAT operates on a different footing and may not be equated with Advance Tax.

If above justification is accepted, assessee whose cash is seized is allowed to adjust against SAT at the time of filing of the return of income. Not only it will avoid genuine hardship to the assessee, it will also enable assessee to comply with the law in true spirit.

Needless to say, given the wording of section 132B and the circular issued by CBDT on “existing liability”, I doubt whether the Department may not accept the above justification. The submission by department will be backed by only one ground that SAT & Advance tax payment operates on similar line & serve the single purpose of tax payment. And so may not treat SAT as Existing liability for its adjustment.

Somewhere and somehow the above difference is going to lead to some other round of litigation. The only submission I can make is that

“The amount seized is not demanded back by the assessee. The amount  is with the department only. Mere moving of money from one hand to other hand will not hamper the interest of revenue. In such a scenario, CBDT should consider distinguishing “advance tax” from “SAT” and may allow assessee to adjust the cash seized against the SAT liability. N

No matter what is the source of money, the seizure of cash affect the liquidity of the affected assessee. Above adjustment against the SAT may provide some sort of relief only.

Hope someone is listening.

For ease of reference,

For ease of reference, section 132B is reproduced here under:

Application of seized or requisitioned assets.

132B. (1) The assets seized under section 132 or requisitioned under section 132A may be dealt with in the following manner, namely:—

(i)  the amount of any existing liability under this Act, the Wealth-tax Act, 1957 (27 of 1957), the Expenditure-tax Act, 1987 (35 of 1987), the Gift-tax 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 section 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, or the amount of liability arising on an application made before the Settlement Commission under sub-section (1) of section 245C, may be recovered out of such assets :

Provided that where the person concerned makes an application to the Assessing Officer within thirty days from the end of the month in which the asset was seized, for release of asset and the nature and source of acquisition of any such asset is explained to the satisfaction of the Assessing Officer, the amount of any existing liability referred to in this clause may be recovered out of such asset and the remaining portion, if any, of the asset may be released, with the prior approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, to the person from whose custody the assets were seized:

Provided further that such asset or any portion thereof as is referred to in the first proviso shall be released within a period of one hundred and twenty days from the date on which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed;

(ii) if the assets consist solely of money, or partly of money and partly of other assets, the Assessing Officer may apply such money in the discharge of the liabilities referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied;

(iii) the assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the Assessing Officer or, as the case may be, the Tax Recovery Officer under authorisation from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner under sub-section (5) of section 226 and the Assessing Officer or, as the case may be, the Tax Recovery Officer may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule.

(2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid by any other mode laid down in this Act.

(3) Any assets or proceeds thereof which remain after the liabilities referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized.

(4) (a) The Central Government shall pay simple interest at the rate of one-half per cent for every month or part of a month on the amount by which the aggregate amount of money seized under section 132 or requisitioned under section 132A, as reduced by the amount of money, if any, released under the first proviso to clause (i) of sub-section (1), and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (i) of sub-section (1), exceeds the aggregate of the amount required to meet the liabilities referred to in clause (i) of sub-section (1) of this section.

(b) Such interest shall run from the date immediately following the expiry of the period of one hundred and twenty days from the date on which the last of the authorisations for search under section 132 or requisition under section 132A was executed to the date of completion of the assessment under section 153A or under Chapter XIV-B.

Explanation 1.—In this section,—

(i)  “block period” shall have the meaning assigned to it in clause (a) of section 158B;

(ii)  “execution of an authorisation for search or requisition” shall have the same meaning as assigned to it in Explanation 2 to section 158BE.

Explanation 2.—For the removal of doubts, it is hereby declared that the “existing liability” does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII.

CBDT circular on section 132B is also produced hereunder:

Circular No.20/2017

1. No. 279/Misc./140/2015/ITJ
   Government of India
   Ministry of Finance
   Department of Revenue
   Central Board of Direct Taxes

New Delhi, Dated12th June, 2017

Subject: Applicability of Explanation 2 to Section 132B of the I.T. Act, 1961- reg.

Section 132B of the Income Tax Act 1961, provides for adjustment of seized assets/requisitioned assets against the amount of any existing liability under the Income Tax Act, 1961, (the Act), the Wealth-tax Act, 1957, the Expenditure-tax Act, 1987, the Gift-tax Act, 1958 and the Interest-tax  Act, 1974, and the amount of the liability determined on completion of the assessment under section 153A of the Act 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, or the amount of liability arising on an application made before the Settlement Commission under sub-section (1) of section 245C of the Act.

2. Dispute arose between the Department and the assessees with regard to adjustment of such seized/requisitioned cash against advance tax liability Several Courts held that on an application made by the assessee, the seized money is to be adjusted against the advance tax liability of the assessee. Subsequently, Explanation 2 to Section 132B of the Act was inserted by the Finance Act, 2013 w.e.f. 01-06-2013, clarifying that “existing liability” does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII of the Act. However, the dispute continued on the issue as to whether the amendment was clarificatory in nature having retrospective applicability or it has only prospective applicability.
3. Several Courts have held that the insertion of Explanation 2 to section 1328 of the Act, is prospective in nature and not applicable to cases prior to 06.2013.The SLPs filed by the Department against the judgement of the Hon’ble Punjab and  Haryana  High Court in the case of Cosmos Builders and Promoters Ltd.(1) and the Hon’ble Allahabad High Court in the case of Sunil Chandra Gupta (2), have been dismissed . Subsequently, the CBDT has also accepted the judgment of the Hon’ble Punjab & Haryana High Court in the case of Spaze Towers Pvt. Ltd.(3) dated 17.11.2016, wherein it was held that the Explanation 2 to Section 132B of the Act is prospective in nature.
4. Accordingly, it has now been settled that insertion of Explanation 2 to Section 132B of the Act shall have a prospective application and so, appeals may not  be  filed  by  the  Department  on  this  issue  for  the  cases  prior to 01.06.2013 and those already filed may be withdrawn/ not pressed upon.
5. The above may be brought to the notice of all concerned.
6. Hindi version follows .

(Neetika Bansal)
Deputy Secretary to Government of India

Copy to :

1. The Chairperson, Members and officers of the CBDT of the rank of Under Secretary and above.
2. OSD to Revenue
3. All  Chief  Commissioners  of  Income -Tax  &  All  Directors  General  of Income-Tax with a request to bring to the attention of all officers .
4. The Comptroller and Auditor General of India
5. The Director General of Income-Tax, NADT, Nagpur.
6. The DGIT (Systems), ARA Centre , Jhandewalan Extension, New Delhi.
7. The Pr . DGIT (Vigilance), New Delhi
8. The ADG (PR . PP & OL) for circulation as per usual mailing list
9. ADG-4 (Systems) for uploading on lTD website
10. Database Cell for uploading on irsofficersonline
11. njrs_support@nsdl.co.in for uploading onNJRS
12. Hindi section for Hindi translation
13. Guard File

1 NJRS 2015-LL-0714-2, Order dated 14.07.2015 in ITA No. 425 of 2014 (P&H)
2 NJRS 2015-LL-0311-25, Order dated 11.03.2015 in ITA No. 182 of 2014 (AIId.)
3 NJRS 2016-LL-1117-5, ITA No.40 of 2015