Facts of the Case

Search and seizure operations under Section 132 were conducted on the Purwar group on 25 February 2011, during which substantial cash amounting to approximately ₹4.73 crore was seized. The assessee, a Hindu Undivided Family (HUF), later filed its return declaring income including certain unexplained cash.

Subsequently, the assessee approached the Settlement Commission, which settled the income at a significantly higher figure and treated a substantial portion of seized cash as undisclosed income. The Assessing Officer passed a consequential order to give effect to the Settlement Commission’s order and levied interest under Sections 234A and 234B.

Issues Involved

  1. Whether interest under Section 234B is leviable when sufficient seized cash is available with the department to cover tax liability.
  2. Whether interest under Section 234A is justified where delay in filing return was allegedly due to non-supply of seized documents.
  3. To what extent seized cash can be treated as payment towards tax liability.

Petitioner’s (Assessee’s) Arguments

  • A substantial amount of cash seized during search was available with the department and should be adjusted against tax liability.
  • Interest under Section 234B should not be levied once adequate funds were in the custody of the department.
  • Delay in filing return was due to failure of the department to supply seized material in time; hence interest under Section 234A was unjustified.
  • Requests for adjustment of seized cash against tax dues had been made earlier.

Respondent’s (Revenue’s) Arguments

  • Seized cash cannot automatically be treated as advance tax or payment unless properly offered and determined.
  • Interest is compensatory and arises due to delay in payment of tax and filing of return.
  • The assessee had not immediately admitted undisclosed income nor filed correct estimates promptly.

Court Order / Findings

  • The assessee was not entitled to complete relief from interest under Section 234B.
  • Since the assessee did not initially declare true income and disputed taxability of seized cash, interest liability existed up to the date of filing of return.
  • However, once the return was filed and sufficient seized cash was available with the department to meet tax liability, interest under Section 234B could not be charged beyond that date.
  • The Assessing Officer was directed to recompute interest accordingly.

Important Clarification

  • Seized cash does not automatically extinguish interest liability from the date of seizure.
  • Adjustment becomes relevant once tax liability is crystallized and return is filed.
  • Interest under Section 234B is compensatory and continues until tax payment is effectively available for adjustment.
  • Availability of seized funds can limit future interest liability but does not nullify past liability.

Link to download the order - https://itat.gov.in/public/files/upload/1630413411-suresh%20new.pdf

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