The Finance Bill, 2013 has inserted an Explanation to section 132B of Income Tax Act, 1961, which states that the “existing liability” does not include any advance tax payable by the assessee according to the provisions of Part C of Chapter XVII of the Act.
Consequences of the amendment:
The earlier provisions contained in section 132B of the Income Tax Act provide that the seized assets and cash may be adjusted against any existing liability under the Income Tax Act, Wealth Tax Act, etc. and the amount of liability, including penalty or interest payable and for which the assessee is in default shall be determined after a search.
The Finance Bill, 2013 has amended the provision to clarify that the existing tax liability does not include any advance tax payable as per Part C of Chapter XVII of the Act. The amendment is applicable on and from 1.6.2013.
Different courts in India have expressed the view that “existing liability” includes advance tax liability of the assessee, which was not the intention of the legislature.
The object behind this provision was to ensure the recovery of outstanding dues and to provide for the recovery of taxes or penalty, which may arise after conducting a search.
Previous decisions overruled:
After the amendment, an assessee from whose possession, cash or assets have been seized cannot claim adjustment of such seized cash against his advance tax liability or the demand created on the assessee and shall be liable to pay interest due as per sections 234A, 234B and 234C of the Income Tax Act, 1961.
A number of judicial precedents have been overruled by such amendment.
In the case of Nikka Mal Babu Ram vs. Asst. Commissioner of Income Tax (2010) 41 SOT 407 (Chd.) and also in the case of Shri Ram S. Sarda vs. Deputy Commissioner of Income Tax, ITAT Rajkot, I.T.A. No.1172 of 2010 by a judgment dated 02.11.2011 it was held that the amount of cash or assets seized from an individual during search proceedings under section 132 or requisitioned under section 132A of the Act can be utilized for the purpose of recovery and adjustment of the amount of any existing tax liability and the amount of the liability shall be determined on completion of the assessment in pursuance to the search. It was further held in those cases that the levy of interest under sections 234A, 234B and 234C of the Act was not justified in law.
At present after the amendment it has been declared that the “existing liability” does not include advance tax payable by the assessee in accordance with the provision of part C of chapter XVII of the Act.