ORDER

G.S. Pannu, Accountant Member. - This appeal by the assessee is directed against the order of the CIT (Appeals) dated 30-9-2009 pertaining to the assessment year 2007-08.

2. The only dispute raised by the assessee in this appeal relates to denying its liability to pay interest under sections 234A, 234B and 234C of the Income-tax Act, 1961 (in short 'the Act'). The assessment was finalized under section 143(3) read with section 153A of the Act. The primary cause of the dispute arises from the action of the Assessing Officer in denying adjustment of cash seized during search towards the advance tax liability of the assessee. The CIT (Appeals) has held that the cash seized during search cannot be adjusted towards advance tax liability as the same does not fall within the meaning of 'existing liability' in section 132B of the Act. Against the aforesaid decision, the appellant is in further appeal before us.

3. Before us, learned counsel for the appellant submitted that the cash seized during the course of search & seizure operation at the business premises of the assessee was liable to be adjusted against the advance tax liability payable by the assessee. The learned counsel submitted that during the course of search & seizure operation on 27-10-2006 at the business premises of the assessee firm and the residence of its partners, apart from other assets, cash amounting to Rs. 30 lakhs was seized. A statement under section 132(4) of the Act was also recorded of the partner in which an income of Rs. 70 lakhs was surrendered subject to no penalty and prosecution. A reference has been made to assessee's communication dated 1-12-2006 addressed to the Additional Director (Investigation), Panchkula stating that part of the seized cash be adjusted against the tax liability on the income surrendered and the balance of the seized cash be returned. Further, on 15-3-2007, assessee again requested the Assistant Commissioner of Income-tax, Central Circle, Chandigarh to treat a sum of Rs. 23,20,000 out of the total cash seized of Rs. 30 lakhs as payment towards advance tax liability for the assessment year 2007-08. It is submitted that in spite of the aforesaid communications, the Assessing Officer while finalizing the assessment under section 143(3) read with section 153A of the Act on 30-10-2008 has not allowed the requested credit for advance tax payment. The learned counsel pointed out that from the date of seizure of cash, the money remained with the Department all along and in spite of written requests, the seized amount was not adjusted as payment towards advance tax liability. The interest under sections 234B and 234C of the Act has been wrongly levied. As per the learned counsel, dispute in question is fully covered by the decision of the Mumbai Bench of the Tribunal in the case of Sudhakar M. Shetty v. ACIT [2008] 10 DTR 173. In this connection, reliance has also been placed on the judgment of Hon'ble Delhi High Court in the case of CIT v. K.K. Marketing [2005] 278 ITR 596 .

4. With regard to the charging of interest under section 234A of the Act, the learned counsel pointed out that the return of income was filed on 2-11-2007 whereas the last date for filing of return had been extended up to 15-11-2007 for the assessment year 2007-08. In this connection, a copy of the Notification No. F.225/147/2007-ITA-II(Pt.), dated 31-10-2007 was relied upon. It was submitted that no interest under section 234A is leviable under these circumstances.

5. On the other hand, learned DR has relied upon the orders of the lower authorities in support of the case of the Revenue. The learned DR has referred to the discussion made by the CIT (Appeals) in para 3.1 of his order wherein it is noted that there are divergent decisions of the Courts as regards the application of seized cash towards the advance tax liability. According to the learned DR, the CIT (Appeals) was justified in holding that the advance tax liability cannot be covered by the phrase 'existing liability' as used in section 132B(1)(i) of the Act and therefore, in the present case, the application of seized cash towards advance tax liability for the assessment year 2007-08 has been rightly declined by the lower authori-ties.

6. We have considered rival submissions carefully. Before we proceed to adjudicate the precise controversy, it would be appropriate to note certain pertinent facts. A search & seizure action under section 132 of the Act took place at the business premises of the assessee firm and the residences of the partner on 27-10-2006. In the course of such operation, certain seizures were made which included Rs. 30 lakhs in cash. The assessee also surrendered an income of Rs. 70 lakhs on account of diamond stock, cash in hand and renovation of a house etc. Consequently, a return of income declaring income of Rs. 84,21,120 was filed on 2-11-2007 for assessment year 2007-08, which inter alia included the surrendered income. In the assessment finalized under section 143(3) read with section 153A of the Act on 30-10-2008, the returned income has been accepted by the Assessing Officer. The only point agitated in appeal by the assessee is that in this assessment, it has been wrongly charged interests under sections 234A, 234B and 234C of the Act. Sections 234B and 234C of the Act prescribe for levy of interest for defaults and deferment in payment of advance tax respectively. As per the assessee, the seized cash of Rs. 30 lakhs was liable to be adjusted against advance tax liability for the assessment year 2007-08. The liability for payment of advance tax is governed by provisions of sections 208 to 210 of the Act. Section 211 lays down the instalment of advance tax and due dates by which the amount of advance tax is payable by the assessee. In this case, cash of Rs. 30 lakhs was seized in the search & seizure operation on 27-10-2006. As per the assessee, it surrendered an income of Rs. 70 lakhs consequent to the search operation and the income-tax payable on the surrendered income amounted to Rs. 23,52,000, and there was no other tax liability. The assessee sought adjustment of seized cash against such liability and return of the balance seized cash as per the proviso to section 132B(1)(i) of the Act on 1-12-2006, a copy of which is placed at pages 6-7 of the Paper Book. Similar request was made by the assessee on 15-3-2007 addressed to the Assistant Commissioner of Income-tax, Central Circle, Chandigarh copy of which is placed at page 8 of the Paper Book. On 15-3-2007 the assessee submitted that out of the seized cash of Rs. 30 lakhs, Rs. 23,20,000 may be adjusted against advance tax liability for the assessment year 2007-08. Be that as it may, none of the aforesaid requests have been shown to have been rejected by the Department by way of any speaking order.

7. The moot question is as to whether the amount of cash seized under section 132 of the Act can be adjusted against advance tax liability of the assessee for the assessment year in question. In this regard, section 132B(1)(i) of the Act prescribes the manner of application of seized or requisitioned assets. The relevant portion of section 132B reads as under :

"132B. (1) The assets seized under section 132 or requisitioned under section 32A 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, may be recovered out of such assets:"

8. Quite clearly, it prescribes that the assets seized under section 132 can be adjusted (a) against the amount of any existing liability under this Act; (b) against the amount of liability determined on completion of assessment under section 153A; (c) against the amount of liability determined on completion of assessment under Chapter XIV-B for the block period; and (d) against any penalty levied or interest payable in connection with such assessment. In other words, section 132B(1)(i) of the Act empowers the Assessing Officer to recover the prescribed liabilities out of the assets seized under section 132 of the Act. As per the CIT (Appeals) and which has been supported by learned DR, the liability towards advance tax does not form a part of the expression 'existing liability' appearing in section 132B(1)(i) of the Act. In our considered opinion, even liability to pay advance tax is per the statutory provisions and we find no plausible reason to ascribe a restricted meaning to the expression 'existing liability' appearing in section 132B(1)(i) of the Act, as being contended by the Revenue. The argument set up by the Revenue is that the expression 'existing liability' is referred in the context of the Income-tax Act, 1961, The Wealth-tax Act, 1957, The Expenditure-tax Act, 1987, the Gift-tax Act, 1958, and the Interest-tax Act, 1974, and since in the other Statutes, there is no concept of advance tax, therefore the expression 'existing liability' used in section 132B(1)(i) cannot be understood to mean advance tax liability under the Income-tax Act, 1961. In our considered opinion, interpretation placed by the Revenue is misplaced and would lead to absurd results.

9. It is well understood that as per section 4 of the Act, an assessee is chargeable to income-tax in respect of his total income. Sub-section (2) of section 4 prescribes that the income-tax so chargeable shall be deducted at source or paid in advance, where it is so deductible or payable under any provision of the Act. We have observed earlier that advance tax liability is governed by sections 208 to 210 of the Act. Similarly, section 140A provides for payment of self-assessment tax on the basis of any return of income required to be filed by the assessee. The relevant provisions also prescribe the dates and the amount of tax required to be paid by an assessee. Therefore, the expression 'existing liability in section 132B(1)(i) cannot be read to exclude a particular tax liability, if it can be shown to have existed on a particular date. If the liability to pay advance tax had arisen, it would certainly constitute a part of the 'existing liability' used in section 132B(1)(i ) of the Act.

10. In our considered opinion, the doctrine of purposive construction has to prevail in this situation. In the present situation, it is evident that cash was seized from the assessee during search operation and, assessee requested the Department to adjust a part of such cash receipts against the liability of advance tax which arose on account of the income surrendered during the search operation. The Department does not deny possession of the cash since the time of search. Thus, we find no justification for the Revenue to interpret the expression 'existing liability' in section 132B(1)(i ) as not referring to liability of advance tax. Under the Income-tax Act, liability towards advance tax is a part of the scheme of recovery of taxes and such liability definitely falls in the expression 'existing liability' used in section 132B(1)(i) in the facts and circumstances of the case. The reliance pleaded by the CIT (Appeals) on the judgment of the Hon'ble Madhya Pradesh High Court in the case of Ramjilal Jagannath v. Asstt. CIT [2000] 241 ITR 758 is quite misplaced. As per the Revenue, in terms of the said judgment, the seized cash cannot be adjusted towards advance tax liability. We have carefully perused the said judgment and find that the same does not prohibit adjustment of seized assets towards liability to pay advance tax. In any case, we find that judgment of the Hon'ble Madhya Pradesh High Court is relevant in a situation when section 132(5) was on the Statute, which has since been deleted by the Finance Act, 2002 with effect from 1-6-2002. Section 132(5) of the Act required the Assessing Officer to make an enquiry and thereafter make an order to deal with the seized assets. Section 132(5) of the Act authorizes the Assessing Officer to retain in his custody such assets as in his opinion were sufficient to satisfy the aggregate amounts referred to in clauses (ii), (iia) and (iii ) of section 132(5) and obligated him to release the remaining seized assets. In this background, the Hon'ble High Court, on the facts of the case before it, held that unless an order under section 132(5) of the Act is passed, the Assessing Officer could not direct that the assets seized be adjusted towards advance tax liability. The Hon'ble High Court specifically noted that it is only after an order under section 132(5) is passed that the assessee can make a request that the seized amount which is sought to be released in his favour be adjusted or appropriated towards the liability to pay advance tax. Though, in the context of the present assessment year before us, the provisions of section 132(5) are not applicable and therefore, strictly speaking, the ratio of the judgment of the Hon'ble Madhya Pradesh High Court does not apply, so however it is pertinent to observe that the Hon'ble High Court has not read any blanket prohibition in the Act against adjusting the seized assets against liability for payment of advance tax. Therefore, there is no justification for the CIT (Appeals) to rely upon the order of the Madhya Pradesh High Court in the case of Ramjilal Jagannath (supra) and deny the claim of the assessee.

11. On the other hand, a Co-ordinate Bench of the Tribunal in the case of Sudhakar M. Shetty ( supra) has clearly laid down that the Revenue is liable to adjust the seized amounts towards the liability of advance tax having regard to the provisions of section 132B of the Act. Before parting, we may refer to an observation made in the assessment order that the CBDT has purportedly clarified in its letter F. No. 286/15/2005-IT (Investigation-II), dated 13-7-2006 that the provisions of Income-tax Law do not permit application of the seized cash against advance tax liability of the assessee for the year in which search took place. In this regard it is to be noted that no such letter has been placed on record by the Revenue. In any case it is also not clear under which statutory powers, such a letter has been issued by the CBDT. Thus, in the absence of any details in this regard the observation of the Assessing Officer does not justify his stand. The action of the Assessing Officer is contrary to the law. In any case, in the present case there is no case set up by the Revenue that the cash seized was liable to be appropriated against any other liability under this Act when the assessee made the request to adjust the same against advance tax liability for the assessment year 2007-08. Therefore, in view of the aforesaid discussion, we set aside the order of the CIT (Appeals), and direct the Assessing Officer to allow adjustment of seized cash against advance tax liability of the assessee as contended in the written communications dated 1-12-2006 and 15-3-2007 and thereafter recompute, if any, interest chargeable under sections 234B and 234C of the Act.

12. Insofar as the liability for payment of interest under section 234A for delayed filing of return is concerned, having regard to the Notification of the CBDT dated 31-10-2007 (supra), we find no justification for the same. The same is hereby directed to be deleted.

13. In the result, appeal of the assessee is allowed, as above.