Judgment:
All these four appeals preferred by the revenue involve a common issue and we find it convenient to dispose of the same by this common order.
The only issue arising out of these appeals relates to the adjustment of seized cash against the advance tax liability for the purpose of computation of interest leviable under sections 234A, 234B and 234C of the Income Tax Act.
The facts giving rise to these appeals are that a search was carried out on 14-12-1994, at the residential premises in which all the assessees were residing. During the course of search and seizure, cash of Rs. 13,41,008 was found out of which a sum of Rs. 12,90,000 was seized. As a consequence of search and seizure operations, all the four assessees gave a declaration on 16-12-1994, surrendering their undisclosed income for assessment year 1995-96 which included inter alia income on account of unexplained cash found during the search to the extent it was claimed to have been owned by the respective assessees. It was also requested by all the assessee's in the said declaration made on 16-4-1994, that the tax on the surrendered income be adjusted from the seized cash. Subsequently on 11-4-1995, the assessing officer passed an order under section 132(5) estimating the income of the assessees on the basis of declaration made on 16-12-1994, and after retaining the seized cash for adjustment towards the tax payable by them on such estimated income, the balance amount was released by the assessing officer.
During the course of assessment proceedings, it was pleaded before the assessing officer by the assessee that in view of the request made specifically by them on 16-12-1994, to adjust the seized cash against the tax liability on the surrendered income, the same be adjusted against the advance tax liability for assessment year 1995-96 and accordingly no interest under sections 234A, 234B and 234C be charged.
This plea of the assessees, however, was not accepted by the assessing officer and interest under section 234A, 234B and 234C was charged by him without adjusting the seized cash against the advance tax payable by the assessees. Aggrieved by the orders of the assessing officer on this issue, the assessees preferred appeals before the learned Commissioner (Appeals) who opined that in view of the specific request made by the assessees on 16-12-1994, itself, the seized cash to the extent it was ultimately retained, should be treated as advance tax payment. He also observed that the assessees could not be penalised because of the failure of the assessing officer to adjust the seized cash against the advance tax liability in time and directed the assessing officer to recompute the interest leviable under sections 234A, 234B and 234C by treating the amount of seized cash, to the extent it was ultimately retained, as advance tax payable in the month of December, 1994. Aggrieved by the orders of the learned Commissioner (Appeals), the revenue is in appeal before us.
The learned Departmental Representative submitted before us that the request of the assessees to adjust the seized cash made on 16-12-1994, was pre-matured as the assessing officer was not in the position to accept such request before passing the order under section 132(5). He, therefore, contended that the order under section 132(5) having been passed by the assessing officer on 11-4-1995, it was not possible for the assessing officer in spite of specific request made by the assessees to adjust the cash against the advance tax payable by the assessees during the financial year 1994-95. For this contention, he relied on the decision of Hon'ble Madhya Pradesh High Court in the case of Ramjilal Jagannath & Ors. v. Asstt. CIT (2000) 241 ITR 758 (MP). He, therefore, urged that the impugned orders of the learned-Commissioner (Appeals) directing the assessing officer to treat the seized cash as advance tax paid in the month of December, 1994, are liable to be set aside and that of the assessing officer on this issue deserve to be restored back.
The learned counsel for the assessee, on the other hand, submitted that the assessees had made request for adjustment of seized cash against the tax liability on income surrendered by him on 16-12-1994, itself.
He further submitted that the orders under section 132(5) were, however, passed by the assessing officer only on 11-4-1995, accepting income surrendered by the assessees and the seized cash was also adjusted against the tax liability vide the said orders. In this regard, his contention was that when the entire seized cash was available with the department and the assessee had made a request for adjustment of the same on 16-12-1994, itself, there was no reason for the assessing officer to deprive of the assessees from the benefit of adjustment of the said seized cash against the advance tax liability.
Merely because the orders under section 132(5) were passed in the next financial year, i.e., on 11-4-1994. According to him, the assessees were made to suffer with the levy of interest under sections 234A, 234B and 234C for no fault on their part. He, therefore, contended that the learned Commissioner (Appeals) was fully justified in directing the assessing officer to treat the seized cash as payment of advance tax in the month of December, 1994 for the purpose of computing interest under sections 234A, 234B and 234C. The learned counsel for the assessee also submitted that the issue raised by the revenue in these appeals is covered in favour of the assessees by the various decisions of the Tribunal including that of Nagpur Bench and cited the following cases in this regard : He further contended, relying on the decisions of Hon'ble Supreme Court Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 (SC) and Ganesh Dass Sreeram v. ITO (1988) 169 ITR 221 (SC) as well as that of Hon'ble Madhya Pradesh High Court Nemi Chand Jain v. Union of India (1998) 100 Taxman 549 (MP), of Hon'ble Punjab & Haryana High Court Sant Lal v. Union of India & Ors. (1996) 222 ITR 375 (P&H) and of Hon'ble Karnataka High Court, Union Home Products Ltd. v. Union of India & Anr.
(1995) 215 ITR 758 (Karn), that the levy of interest under sections 234A and 234B is compensatory in nature and considering the fact that the cash seized during the search and seizure operations on 16-12-1994, was available to the department, he emphasised that there was no reason for the assessing officer to levy interest under sections 234A, 234B and 234C.As regards the specific provisions contained in section 234A allowing credit only in respect of advance tax paid by the assessee and tax deducted at source alone for the purpose of computing interest under that section, he contended that if the purpose and manifest object of making the relevant provisions is being defeated, then the literal construction is to be avoided and a reasonable construction in such circumstances should be followed. For this contention, he derived support from the various decisions of Hon'ble Supreme Court Goodyear India Ltd. v. State of Haryana & Anr. (1991) 188 ITR 402 (SC), C.W.S.(India) Ltd. v. CIT & Ors. (1994) 208 ITR 649 (SC), CST v.Suraiya Chamber of Commerce (1987) 167 ITR 458 (SC) and CWT v.Kripashankar Dayashankar Worah (1971) 81 ITR 763 (SC). To summarise, he contended that considering the levy of interest under sections 234A, 234B and 234C being compensatory in nature and in view of the fact that a specific request was made by the assessees to adjust the cash seized on 16-12-1994, itself against the advance tax liability, there was no justification in the action of the assessing officer in levying interest under sections 234A, 234B and 234C and the learned Commissioner (Appeals), therefore, was fully justified in directing the assessing officer to recompute such interest by treating the seized cash as advance tax paid by the assessees in the month of December, 1994. He, therefore, urged that the impugned orders of the learned Commissioner (Appeals) on this issue deserve to be upheld and the appeals filed by the revenue are liable to be dismissed.
We have considered the rival submissions and also perused the relevant material on record to which our attention was drawn during the course of hearing. We have also carefully gone through the precedents relied upon at the Bar. It is observed that the main issue which requires our consideration for disposing of these appeals is whether the cash seized during the search and seizure operations can be adjusted against the advance tax liability of the assessees as per their request made on 16-12-1994, prior to the passing of order under section 132(5) on 11-4-1995. In this regard it is observed that a complete procedure has been provided in section 132(5) in relation to the application of seized cash/assets and as per the same, the seized assets cannot be dealt with in any manner unless the assessing officer makes an enquiry as may be prescribed and makes an order under section 132(5). This makes it clear that the occasion to refund or return the assets or to retain the assets or to adjust the same come into existence only after a final order is made by the assessing officer under section 132(5) and so long as such final order under section 132(5) is not passed, he cannot direct release of the remaining portion nor can he direct that the assets seized be adjusted towards advance tax. Obvious as it is, the right to receive the money accrues in favour of an assessee only after a final order under section 132(5) is made and one such an order is made, then only the assessee can make request to the assessing officer for adjustment of the cash seized towards the liability of the payment of advance tax.
A similar issue came up for consideration before the Hon'ble Madhya Pradesh High Court in the case of Ramjilal Jagannath & Ors. v. Asstt.
CIT (supra) wherein after considering the provisions of sections 132B, section 132(5) and section 211 in depth, their Lordships of Madhya Pradesh High Court have held that so long as a final order under section 132(5) is not passed, the assessing officer cannot direct that the seized money be adjusted towards the existing liability for advance tax and if the assessee has not paid the advance tax in accordance with the provisions of the Act, he cannot avoid his liability of interest.
Before us the learned counsel for the assessee has cited various decisions of the learned counsel for the assessee has cited various decisions of the Tribunal and from the perusal of the same, copies of which are placed in assessees' paper book, we find that most of these decisions have been rendered by the Tribunal prior to the aforesaid decision of the Hon'ble Madhya Pradesh High Court in the case of Ramjilal Jagannath & Ors. v. Asstt. CIT (supra) and, therefore, the benefit of the said decision was not available to the Tribunal while deciding the similar issue. It also appears that the adjustment of seized cash against the advance tax liability was allowed by the Tribunal on the basis of request to this effect specifically made by the assessees as well as considering the levy of interest under sections 234A, 234B and 234C being compensatory in nature, but the scope of section 132(5) or for that matter of the other relevant sections was neither argued nor considered to find out or ascertain as to whether such adjustment is permissible under the law or not. The legal position as regards adjustment of seized cash against the advance tax liability has however, now been clarified by the Hon'ble Madhya Pradesh High Court in its well discussed and well reasoned judgment in the case of RamjiIal Jagannath & Ors. v. Asstt. CIT (supra) which appear to be directly on the point in issue under consideration.
The learned counsel for the assessee has contended before us that this Bench of Tribunal in its consolidated order dated 10-8-2001, in ITA No.13/Nag/1998, 120/Nag/1998 and C.O. 58/Nag/1998, has distinguished the decision of Madhya Pradesh High Court in the case of Ramjilal Jagannath (supra). From the perusal of the said order of the Tribunal, it is, however, evident that the facts of the case before the Tribunal were found to be distinguishable from the facts in the case of Ramjilal Jagannath (supra) before the Hon'ble Madhya Pradesh High Court inasmuch as in the case before the Tribunal, the assessee had made a request for adjustment of seized cash against the self-assessment, tax payable by him only after the date of passing of a final order under section 132(5) and the Tribunal, therefore, allowed such adjustment considering the facts and circumstances of that case. In another case of Tribunal, Nagpur Bench cited by the learned counsel for the assessee in ITA No.358/Nag/1996, the decision of Hon'ble Madhya Pradesh High Court in the case of Ramjilal Jagannath (supra) was cited by the learned Departmental Representative and respectfully following the same, the Tribunal opined in para No. 6 of its order dated 11-4-2001, that the cash seized cannot be adjusted against the advance tax liability before 30-3-1990, that is the date on which the order under section 132(5) was passed. As such, considering that the Tribunal has followed the decision of Hon'ble Madhya Pradesh High Court in the case of Ramjilal Jagannath (supra) on the similar issue in the aforesaid judgments delivered recently and there being no contrary decision of any other High Court brought to our notice, we find no reason to take any contrary view in the matter. We, therefore, hold that the order under section 132(5) in the present cases having been passed on 11-4-1995, the adjustment of seized cash against the advance tax payable by the assessee during the financial year 1994-95 was not permissible under the law and the same could have been or rather should have been treated as the self-assessment tax paid by the assessee on I l-4-1995, when the order under section 132(5) was passed.
Relying on the decisions of Honble Supreme Court as well as that of different High Courts, the learned counsel for the assessee has emphasised that levy of interest under sections 234A, 234B and 234C is compensatory in nature. In our opinion, this legal position propounded by the various cCourts including the Hon'ble Apex Court is well settled and there is no dispute about the same. However, the compensatory nature of interest leviable under sections 234A, 234B and 234C should not be viewed in narrow isolationism but on much wide spectrum and in this connection, the objects behind the introduction of these sections as well as the observations made by Hon'ble Karnataka High Court in the case of Dr. S. Reddappa & Ors. v. Union of India & Ors. (1998) 232 ITR 62 (Karn) being relevant are worth consideration. One of the objects behind the introduction of the Direct Tax Laws Amendment Bill, 1987 (which introduced sections 234A, 234B & 234C was to remove the uncertainty in the matter of assessment by cutting down areas of subjective decisions of tax authority with a view to ensure uniform treatment of persons similarly placed to reduce litigation. The very fact that the new system introduced by the provisions of sections 234A, 234B and 234C relating to payment of mandatory interest was also meant to deter the assessees from repeatedly committing default. The provisions of sections 234A, 234B and 234C are also meant to cater to different situations, each being distinctly different from other and attracts a liability by way of interest. In the case of Dr. S. Reddappa & Ors. v. Union of India & Ors. (supra) the Hon'ble Karnataka High Court has observed that failure of the assessee to abide by certain provisions of the Act has been made a basis for forcing him to compensate society by paying interest in terms of the offending sections 234A, 234B and 234C. Explaining further, their Lordships of Karnataka High Court has observed that in the case of failure to perform the statutory and social obligation, an assessee can be directed to compensate society for its acts of commission and omission, as appears to have been done by incorporating sections 234A, 234B and 234C in the Act. The Hon'ble Karnataka High Court has also observed that if despite full knowledge of the date and time when the return is to be filed or tax is to be paid, an assessee commits a default, he has rightly been made liable to compensate the revenue because such failure on his part reflects his intention to avoid the tax or create circumstances to avoid the same.
After taking into consideration the objects and purpose behind the introduction of sections 234A, 234B and 234C in the Act as laid down in the statement of objects and reasons and as further spelt out by the Hon'ble Karnataka High Court, it becomes abundantly clear that the compensatory nature of levy of interest under sections 234A, 234B and 234C does not merely confine or purports to compensate the government for the loss of revenue alone, but the same is also meant to compensate the society for the acts of commission and omission on the part of an assessee in performing the statutory and social obligation and despite full knowledge of the date and time when the return is to be filed, an assessee commits default, he has been made liable to compensate the revenue. The fact that each situation envisaged in sections 234A, 234B and 234C is distinctly different from the other and attracts a liability by way of interest, explicitly shows that the assessee has been made liable to compensate the revenue by way of levy of interest in the given situations and the liability to pay such interest arises in case of each situation separately as well as simultaneouly. The levy of interest under sections 234A, 234B and 234C is computed on a different basis provided specifically in the relevant provisions and a careful reading of the same shows that the levy of interest under section 234B has been provided to compensate the financial loss resulting from the default in payment of advance tax by the assessee and, therefore, credit for all the taxes paid by the assessee including the tax paid under section 140A or otherwise is taken into consideration for computing the amount of interest whereas for levy of interest under section 234A which is provided to compensate for the omission and commission on the part of the assessee in furnishing of return of income-tax paid under section 140A or otherwise is not taken into consideration for computing the amount of interest and only advance tax paid as well as tax deducted at source during the relevant financial year alone is taken into consideration for computing the said interest amount. As such, considering the true compensatory nature of the levy of interest under sections 234A, 234B and 234C in the light of the objects and intentions of the legislature as well as the observations of the Honble Karnataka High Court in the case of Dr. S.Reddappa & Ors. (supra) discussed herein above, we are of the view that if the said objects are understood in the right perspective, then the basis for computation of such interest specifically provided in the relevant provisions appears to be in consonance with the legislative intentions in enacting the same.
Reliance was placed by the learned counsel for the assessee before us on the decisions of Hon'ble Supreme Court in 188 ITR 401 (supra), 208 ITR 649 (supra), 167 ITR 458 (supra) and 81 ITR 763 (supra) to contend that literal construction is to be avoided if it defeats the manifest, purpose and the objects of the statute. In this regard we have already dealt with the purpose and object of levy of interest under sections 234A, 234B and 234C elaborately in the preceding paras of this order before finally coming to the conclusion that the relevant provisions are in consonance with the legislative intentions. In any case, the question of avoiding the literal construction and following reasonable construction arises, as held by the Hon'ble Supreme Court in 188 ITR 402 (supra) only when the relevant provisions of the law are ambiguous and more than one interpretation of the same is possible. The Hon'ble Apex Court has also made it very clear in the said judgment that fiscal laws must be strictly construed, words therein must say what they mean and nothing should be presumed or implied. The Hon'ble Apex Court has also observed that in interpretation of fiscal laws true test must always be the language used and assumptions and presumptions are not permissible. As a matter of fact, the provisions of sections 234A, 234B and 234C appear to be very clear and unambgious and no attempt in this regard has been made by the learned counsel for the assessee to point out any possibility of more than one interpretation in the construction of the said sections.
Reliance was also placed by the learned counsel for the assessee before us on the decision of this Bench in the case of Murtazabhai Mohammadbhai v. ITO rendered on 31-12-1996, in ITA No. 296/Nag/1995, in support of his contention that the seized cash adjusted by the assessing officer against the tax liability should be taken into consideration for the purpose of computing interest under section 234A.In this regard, it is observed that this Bench in its recent decision rendered in the case of Pokarmal Umashankar v. Asstt. CIT (ITA No.13/Nag/1998 and 120/Nag/1998) on 10-8-2001 has distinguished its earlier decision in the case of Murtazabhai Mohammabhai (supra) and taken a different view by observing as under : "We cannot direct that credit of Rs. 4,68,877 treated as self-assessment tax under section 140A may be given while calculating interest payable under section 234A of the Act as this section specifically provides for giving credit for advance tax and tax deducted at source. There is no provision under this section to give credit for any other payment. Besides, the period of default is to be computed for late filing or non-filing of returns of income. In the case of Union Home Products Ltd. v. Union of India & Anr. (1995) 215 ITR 758 (Karn), the Honble Karnataka High Court held that the interest chargeable under sections 234A and 234B of the Income Tax Act is compensatory in nature, but there is no discussion on mode of computation and period of default for computation of interest under section 234A.While upholding constitutional validity of sections 234A and 234B, at the end it was held by the Honble High Court that the petitioner shall be at liberty to urge all such grounds as may be otherwise open to him before the authorities concerned, against the levy of recovery of the interest payable under sections 234A, 234B and 234C of the Act.
We find that section 234A provides for charging of interest for defaults in furnishing belated return of income. Where the return is furnished after due date, interest under sections 234A of the Act will be charged upto the date of filing the return on the amount of tax on the total income as determined under section 143(1) and 143(3) as reduced by the advance tax, if any, paid and any tax deducted or collected at source. (Ref. to the case of Promila Bajaj v. ITO (1994) 51 ITD 532 (Asr-Trib).
All the judgments of Hon'ble Supreme Court and Hon'ble High Courts speak about compensatory nature of levy of interest under sections 234A and 234B, etc. A few Benches of Tribunal held that payment of taxes paid in whatever manner should be given credit while charging interest under section 234B and these decisions do not touch upon the issue of levying of interest under section 234A of the Income Tax Act except in the case of ITA No. 296/Nag/1995 dated 31-12-1996. Even in this case relief was allowed on the ground that the issue of charging interest under section 234A is debatable as the case was processed under section 143(1)(a) of the Income Tax Act. Sub-section (2) of section 234B provides for giving credit to the payment of tax under section 140A or otherwise whereas section 234A provides for giving credit to the payment of advance tax and tax collected at source.
Therefore, we hold that as per provisions of law credit can only be allowed for payment of advance tax and tax deducted at source and no credit can be allowed for payment of tax under section 140A or any other payment." In view of the decision made by us on this issue in the preceding paras of this order and considering the aforesaid observations of the Tribunal in the light of specific and clear provisions of section 234A, we find ourselves in full agreement with the aforesaid view taken by the Tribunal in its decision rendered recently on 10-8-2001.
As such, considering all the facts of the case and in the light of aforesaid discussion, the conclusion drawn by us on the issues under consideration can be summarised as under: (a) The seized cash cannot be adjusted against the tax liability so long as the order under section 132(5) is not passed and the same having been passed in the present cases only on 11-4-1995, the seized cash cannot be adjusted against the advance tax for assessment year 1995-96 payable by the assessees during the financial year 1994-95. The same, however, has to be treated as available for adjustment against the self-assessment tax on I I-4-1995.
(b) The seized cash, not being treated as available for adjustment against advance tax, cannot be taken into consideration for computing interest under section 234A. However, the same being treated as available for adjustment against self assessment tax on 11-4-1995, interest under section 234B should be computed after giving credit for the same.
The impugned orders of the learned Commissioner (Appeals) are, therefore, set aside and the assessing officer is directed to recompute the interest under sections 234A, 234B and 234C as per our decision given above.