Vishwanath Khanna vs Union Of India & Others
2011 Latest Caselaw 2981 Del

*          IN THE HIGH COURT OF DELHI AT NEW DELHI

+                      W.P. (C) No.21428 of 2005


                                   Reserved On: March 08, 2011
%                                   Pronounced On: June 03, 2011

     VISHWANATH KHANNA                               . . . APPELLANT

                       through :          Mr. C.S. Gupta, Advocate for
                                          the petitioner.

                             VERSUS


     UNION OF INDIA & OTHERS                       . . .RESPONDENT

                       through:           Mr. Sanjeev Sabharwal, Sr.
                                          Standing Counsel for the
                                          Revenue.

CORAM :-
    HON'BLE MR. JUSTICE A.K. SIKRI
    HON'BLE MR. JUSTICE M.L. MEHTA

     1.    Whether Reporters of Local newspapers may be allowed
           to see the Judgment?
     2.    To be referred to the Reporter or not?
     3.    Whether the Judgment should be reported in the Digest?

A.K. SIKRI, J.

1. The petitioner is a proprietor of M/s Foto Traders, a firm started

in the year 1993 to trade in gold, silver and bullion. Income

Tax Department conducted a search and seizure operations on

04.02.1995 whereby cash and silver were restrained initially

but subsequently seized as under:

           Cash        `49,86,500/-





            Silver       222 bars of total weight 70003.859Kgs.

                        Having     market        value     estimated      at

                        `4,44,66,395/-      by     the     Income        Tax

                        Department.

2. The Assistant Commissioner of Income Tax, Investigation Circle

(20)(1), New Delhi passed order under Section 132(5) of the

Income Tax Act (hereinafter referred to as „the Act‟) dated

02.06.1995 declaring that cash found during search as

unexplained and hence, cash seized of `49,86,500/- was

retained and not released. Subsequently, vide another order

under Section 132(5) dated 19.06.2005, various disputed

additions were made and tax and penalty @200% were raised.

Therefore, entire silver seized valuing `4,44,66,395/- was

retained and not released. We may mention at this state that

the Income Tax Department disputed the status of M/s Foto

Traders, as according to it, it was an unregistered partnership

firm. Therefore, the Department intended to tax income in the

hands of this firm. The concerned Assessing Officer (AO)

passed the assessment order under Section 143(3) in the name

of M/s Foto Traders after making huge additions of

`10,49,53,527/- on protective basis. In the appeal filed against

the said order, additions of `6,32,84,274/- were deleted and

rest additions were confirmed. We may also mention at this

stage that in the meantime and before the aforesaid protective

assessment orders were passed in the case of M/s Foto Traders,

the petitioner had approached the Department to allow him to

sell the seized silver after deposing the amount of equal value.

As no heed was paid to this request, the petitioner filed Writ

Petition (Civil) No.4767/1998 in this Court. While disposing of

the writ petition, this Court directed the Department to release

seized silver after depositing rotational deposits of `50 lacs or

equal amount of silver to be released. In this manner, the

Department released silver in installments against deposit of

`50 lacs each time. The entire silver was, thus, released

against total payment of `4,20,50,000/- deposited by the

petitioner from time to time on the sale of released silver.

Details of this deposit are as under:

           "Date of Deposit                  Amt. Deposited
           05-02-1999                                  50,00,000
           15-02-1999                                  46,00,000
           01-03-1999                                  60,00,000
           29-10-1999                                  25,00,000
           05-11-1999                                  25,00,000
           15-11-1999                                  25,00,000
           22-11-1999                                  25,00,000
           26-11-1999                                  44,00,000
           14-12-1999                                  24,00,000
                                                       16,00,000
           14-02-2000                                  50,00,000
           05-04-2000                                  30,50,000
           Total                                    4,20,50,000





            Cash    seized and                             49,86,500
           retained on 04-02-



           Grand Total                                 4,70,36,500"




3.   The      necessary      consequence         of       the         aforesaid

     developments/orders       was      that     against        deposit       of

`4,70,36,500/- lying with the Department, liability of the

petitioner was ascertained to `17,22,608/- and thus, he was

entitled to refund of the balance amount along with interest.

To give effect of the orders of the Settlement Commission, the

Deputy Commissioner of the Income Tax [Investigation Circle,

20 (1)] passed the orders dated 11.03.1999 under Section 250

of the Act. The net demand after giving effect was arrived at

`3,57,73,695/- including interest under Section 234A of

`10,63,883/-, interest under Section 234B of the Act of

`1,27,66,599/-, interest under Section 234C of the Act of

`6,142/-, interest under Section 220(2) of the Act of

`50,66,660/-. This amount, however was not released to the

petitioner, in spite of his request to release the same and also

return Original Title Deeds of the property kept as security.

4. In the meantime, the petitioner also approached the Settlement

Commission by moving application under Section 245C of the

Act to determine his income for the Assessment Year 1995-96.

This application was admitted on 07.03.2000 for assessment.

During the pendency of this application, certain events which

took place and have bearing on the dispute involved in this writ

petition may now be recapitulated. As mentioned above,

according to the petitioner, the amount deposited with the

Department was much more than the tax liability and

therefore, he had been making request for refund of the same

and till it is refunded, to keep the same in the fixed deposit

bearing interest. This was not done. The petitioner was

supposed to file the income tax return for the successive years,

i.e., Assessment Years 1999-2000, 2000-01, 2001-02, 2002-03

and 2003-04. He filed these returns. He was also required to

pay the advance tax due and payable in respect of these

income tax returns. According to the petitioner, since he was

facing cash flow problems in his business and there was

sufficient surplus money lying with the Department which

belonged to the petitioner, he made request vide various

letters for adjusting the advance tax payable out of the

aforesaid amount lying with the Department. Separate letters

and reminders were written in respect of each of the aforesaid

assessment year. These requests of the petitioner also

remained unattended. On the contrary, the AO while passing

the assessment order imposed levied interest under Section

234B, Section 234C and Section 220 of the Act for making

deposit of advance tax. A total demand raised was as under:

Assessment Year 1999-2000 `15,86,347/-

             Assessment Year 2000-01           `22,75,638/-

             Assessment Year 2001-02           `8,30,476/-
                                  Total =      `46,92,461/-

5. Letter dated 11.02.2002 was written by the Department stating

that the aforesaid amount would be adjusted in P.D. account

with which deposit of the petitioner was lying. The petitioner

objected to levy of these interest & demand and filed

rectification application under Section 154 of the Act in respect

of these assessment years.

6. While this was pending, the Income Tax Settlement

Commission finally disposed of settlement application preferred

by the petitioner vide order dated 07.07.2003 passed under

Section 245D(4) of the Act. Vide this order, income of the

petitioner for the assessment year 1995-96 was assessed at

`43,69,023/- on which tax was of `1,78,430/-. After this order

was passed, the petitioner again requested for release of the

amount as the final tax payable for the assessment year 1995-

96 was only `17.22 lacs. The petitioner approached various

authorities in this behalf including the ITO, CBDT, Commissioner

of Income Tax, etc. He even faced claim from one M/s. Inter

Gold (India) Limited, his supplier whom he could not make

payment who filed OMP No.61 of 2004. In that OMP, this Court

directed the Department to issue refund due to the petitioner

by making the payment of `4,20,00,000/- to the said M/s. Inter

Gold (India) Limited.

7. Ultimately, order dated 27.09.2004 was passed by the AO

giving effect to the orders of the Income Tax Settlement

Commission. As per this order, refund payable to the petitioner

was `4,69,50,288/- and since the sum of `4,20,00,000/- was

already paid to the Inter Gold (India) Limited, balance amount

of `49,50,288/- was refunded to the petitioner. While

computing the amount, the AO adjusted the interest charged

from the petitioner in respect of non-payment of advance tax

pertaining to the Assessment Years 1999-2000, 2001-02. That

is the first grievance of the petitioner. The interest charged is

as under:

Asst. Yr.       1995-96       1999-00    2000-01    2001-02    2003-04   Total

Interest        68,226        --         --         --
under Section
234A
Interest        8,18,712      5,30,541   5,54,920   1,03,581   38,391
under Section
234B            2,75,491                            5,06,491

Interest        --            55,042     90,471     38,220
under
Section234C





 Total             11,62,429      5,85,583   6,45,391     6,48,292   38,391   30,80,086



              INTEREST UNDER SECTION 220(2)

                                                                             TOTAL

Interest          3,33,960       3,70,798   5,31,927     57,220     15,310
under section     4,64,886                               30,105
220 (2)
TOTAL             7,98,846       3,70,798   5,31,927     87,325     15,310   18,04,206
              "

8. Secondly, while calculating interest payable to the petitioner,

the Department has admitted that an amount of `4,39,91,00/-

against the amount of `4,70,36,500/-. However, the alleged

draft of `30.50 lacs dated 05.04.2000 to have been paid finds

no mention in the Public Deposit account of M/s. Foto Traders.

No original record is available in this regard with the

Department. We are not concerned with this, as it is fairly

stated that in this regard, litigation between the parties is

pending in this Court.

9. Insofar as interest payable to the petitioner on the aforesaid

deposit is concerned, the Department has calculated the same

with effect from the date when the amount was transferred into

the account of AO from P.D. Account. The petitioner claims

that he is entitled to interest under Section 132B of the Act at

least till the time order is passed by the Income Tax Settlement

Commission on 07.07.2003d, whereas the Department on

27.09.2004, the Department had granted interest under

Section 244A of the Act ignoring provisions of Section 132B

completely. The claim of the petitioner is that under Section

132B of the Act, he is entitled to interest after six months from

the date of order passed under Section 132(5) of the Act on

initial seized amount of `49,86,500/- minus tax due/payable

and on further deposits in P.D. Account from the date of such

deposit. In this backdrop, following reliefs are sought by the

petitioner in this petition:

"a.(i) Issue appropriate writ, direction or order to the respondents declaring that no interest could be charged on such alleged demands raised for Assessment Years 1995-96, 1999-2000, 2000-01, 2001-02, 2002-03 and 2003-04 in view of the sufficient amount lying and deposited with the Income Tax Department since 1995.

a(ii) Issue appropriate writ, direction or order to the respondent to quash and/or set aside impugned actions of respondents in levying interest charged for Assessment years 1995-96, 1999-2000, 2000-01, 2001-02, 2002-03, 2003-04 in view of sufficient amount lying and deposited with the Income Tax Department since 1995.

a(iii) Issue appropriate writ, direction or order to the respondents that they should refund an amount of `48,16,066/- as being interest illegally recovered (as per statement marked as Annexure - 43 enclosed) by deducting from amount refundable.

b.(i) Issue appropriate writ, direction or order to the respondent that petitioner is entitled for interest from the date of deposit of money in Public Deposit Account and consequentially, respondent be directed to pay the petitioner the interest amount in accordance with law and as described in statement enclosed marked as ANNEXURE - 42.

b.(ii) Issue appropriate writ, direction or order to the respondents that petitioner is entitled for interest on the amount illegally adjusted from refund. Interest has already been covered in the statement marked as ANNEXURE -42.

            c.     Award cost to the petitioner.

            d.     Pass such further order or orders as this Court may

deem fit and proper in the facts and circumstances of the case."

10. It would be clear from the above that this petition basically

raises two issues, viz.,

(i) Whether interest under Sections 234A, 234B, 234C

and 220 (2) of the Act could be charged when

according to the petitioner, sufficient amount of the

petitioner was lying deposited with the Department

wherever advance tax could be adjusted?

(ii) From which date the petitioner is entitled to

interest on the amount which became refundable

after giving effect to the orders passed by the

Income Tax Settlement Commission?

ISSUE NO.(1):

11. Submissions made by the learned counsel for the petitioner on

the basis of which he has argued that no interest could be

charged for non-payment of advance tax was that there was

sufficient amount was already lying with the Department. The

Department, however, contends that it was not permissible for

the petitioner to seek adjustment from the amount lying with

the Department, which in fact belonged to M/s. Foto Traders

and the same was assessed as unregistered partnership and

not as the sole proprietorship of the petitioner. To support this

plea, the Department has relied upon the statement of the

petitioner himself at the time of search/survey, which was

given on oath stating that material seized belonging to M/s.

Foto Traders. The Panchnama was also prepared at the

address of M/s. Foto Traders at Chandni Chowk. It is the

petitioner who had changed the stand later on contending that

M/s. Foto Traders was not a partnership firm, but his sole

proprietorship, a protective assessment order was passed in

the status of firm. This order was even confirmed by the CIT

(A) vide order dated 17.03.1999 and only thereafter,

adjustments from P.D. Account of M/s. Foto Traders beginning

from 31.03.1999 were made. Therefore, as per the

Department, there was a dispute about the amounts seized

and/or rotational payments either belonged to M/s. Foto

Traders or Mr. Khanna in his personal capacity. That dispute

was ultimately settled vide order under Section 245D(4) of the

Act dated 07.07.2003 passed by the Income Tax Settlement

Commission. Hence, no amount was available for adjustment

of the demands raised in the case of Shri V.N. Khanna upto

07.07.2003.

12. Under Section 234B of the Act, interest is payable by the

assessee if there is default in payment of advance tax.

Likewise, under Section 234C of the Act, interest can be

charged for deferment of advance tax. On the other hand,

when the income is assessed and the tax is payable for which

notice of demand under Section 156 of the Act is issued and

the tax payable is not deposited within 30 days of the service,

the assessee would be deemed in default.

13. Taking shelter of all these provisions, the Department has

levied the interest. It is not in dispute that when the assessee

filed his income tax returns for the Assessment Years 1999-

2000 to 2003-04, he did not deposit advance tax due and

payable in respect of these income tax returns. However, his

case is that sufficient amount was tending to his credit with the

Department and his request for adjustment of the advance tax,

etc. was legitimate which should have been allowed by the

Department. It is also not in dispute that at least `4.2 Crores

were lying with the Department. The only reason given by the

respondent for not making adjustment from this account is that

it was not permissible for the petitioner to seek adjustment

from this amount, as this belonged to M/s Foto Traders which

was assessed as unregistered partnership and not as the sole

proprietorship of the petitioner.

14. However, to our mind, this plea taken by the respondent is

totally misconceived. No doubt, M/s Foto Traders was assessed

as unregistered partnership. However, the petitioner was

clamouring that it was his sole proprietorship concern and had

submitted proofs in respect thereof. If the plea of the petitioner

was not accepted erroneously by the Department, it cannot

take advantage of its own wrong. Ultimately, the petitioner

was vindicated when the Settlement Commission accepted that

he was the sole proprietor of M/s Foto Traders. There is an

ample discussion in this behalf in the order of the Settlement

Commission. The arguments of the learned counsel for the

respondent that it is only on 07.07.2003 when the Settlement

Commission passed the orders under Section 245D(4) of the

Act that the amount became available to the petitioner, is

without any substance. As stated above, the petitioner was

questioning the assessment of M/s Foto Traders as unregistered

partnership firm. He has been proved correct. Merely because

order to this effect passed by the Settlement Commission on

07.07.2003 would not mean that it is on this date the amount

became available at the hands of the petitioner. What is held

by the Settlement Commission is that M/s Foto Traders is the

sole proprietorship concern of the petitioner and it would follow

from this finding that the request of the petitioner to adjust the

advance tax from the amount lying deposited with the

Department in the accounts of M/s Foto Traders was justified,

which was unnecessarily turned down by the Department.

15. We are of the view that the respondent would not be justified in

levying interest, as the amount of advance tax payable by the

petitioner for these assessment years could be adjusted from

the amount lying with the Department in the petitioner‟s own

account.

ISSUE NO.(2):

16. Insofar as the petitioner‟s entitlement to interest on the amount

which became refundable after giving effect to the orders

passed by the Settlement Commission, it cannot be disputed

that the petitioner is entitled to interest on such an amount

under Section 132D (4) of the Act. This provision clearly

mandates the Central Government to pay simple interest @

1 ½ % for every month on amount by which the credit money

seized under Section 132, etc. of the Act. Clause (b) sub-

Section (4) of Section 132B of the Act stipulates that such

interest shall run from the date immediately following the

expiry of the period of 120 days from the date on which the last

of the authorizations for search under Section 132 or requisition

under Section 132A was executed to the date of completion of

the assessment. In accordance with this provision, from the

date of search and seizure of the gold, 120 days would be

calculated and from the expiry of this period, the interest shall

become payable.

17. This interest is upto the date of assessment. However, in the

present case, even after giving effect to the orders of the

Settlement Commission, the excess amount was not refunded

to the petitioner. On this count, the petitioner has demanded

interest under Section 132A of the Act.

18. The petitioner would, thus, be entitled to interest under Section

244A of the Act from the date of amount transferred into the

account of AO from PD account after adjusting `49,86,500/-,

which was the tax due/payable. The amount shall be

calculated accordingly.

19. Writ petition is allowed in the aforesaid terms. The petitioner

shall also be entitled to cost quantified at `10,000/-.

(A.K. SIKRI) JUDGE

(M.L. MEHTA) JUDGE JUNE 03, 2011/pmc