Exception Under Rule 112F(Ii) I-T Rules Will Apply Only If Seized Assets Have Nexus With Ongoing Election In Assembly Or Parliamentary Constituency: Madras HC
While dismissing a petition challenging the order rejecting applicability of Rule 112F of the Income Tax Rules, 1962 with respect to initiation of post-search assessments, the Madras High Court held that exception under Rule 112 F (ii) will apply only where the assets so seized or requisitioned are in any manner connected with the ongoing election in an assembly or Parliamentary constituency.
The High Court therefore clarified that such exception is not applicable to the facts of the present case, as records indicate that it was the practice of the petitioner in earlier years to withdraw the cash of staffs/employee at least from January 2021.
A Single Judge Bench of Justice C. Saravanan observed that “Merely because, search was conducted or requisition was made when the Tamil Nadu State Assembly Model Code of Conduct from the State Assembly Election in Tamil Nadu was in force could not mean the issuance of notice under Section 153 A or Section 153C would be automatically excluded and exception under Rule 112F(ii) of the Income tax Rules, 1962 would get triggered”.
Therefore, “unless, the cash that was seized was in connection with the assembly election, question of excluding the petitioners from the purview of proceeding under Section 147, 153A/153C of the Income Tax Act, 1961 cannot be countenanced”, added the Bench.
Advocate N.R.S. Ganesan appeared for the Petitioner/ Assessee while the Respondent/ Revenue was represented by Advocate A.P. Srinivas.
The assessee in this case, an educational society and its President/Chairman had filed applications under Rule 112F contending that Sections 153A or 153C cannot be invoked since search or requisition was made in a territorial area of an assembly or parliamentary constituency during the ongoing election. In the relevant A.Y, the Tamil Nadu state surveillance team seized cash from two officers of the Bank of Baroda, when Tamil Nadu State Assembly Model Code was in force. The Revenue Department, after recording statements of one of the said officers under Section 131(1A), found that the said cash was being carried to one of the Assessee's (Society's President/Chairman), representing the salary paid to employees of the society received back in cash. Accordingly, the AO held that the present case was not covered under Rule 112F and therefore, rejected the applications filed by the Assessees.
After considering the submission, the Bench analysed Rule 112F which provides that no notice can be issued by the Revenue to a class or classes of cases for assessing or reassessing an assessee for the AYs immediately preceding the AY in which search was conducted or requisition was made, where such search or requisition was made in a territorial area of an assembly or parliamentary constituency in respect of which a notification has been issued under Section 30 read with Section 56 of the Representation of the People Act, 1951.
The Bench went on to refer to the CBDT Circular No. 10/2012 dated Dec 31, 2012, which clarifies that Rule 112F was introduced with a view to reduce infructuous and unnecessary proceedings in cases where a search is conducted and cash or other assets are seized during the election period, generally on a single warrant, and no evidence is available, or investigation required, for any assessment year other than year in which search is conducted or requisition is made.
Considering the statement by Society's Chairman and bank officials wherein it was admitted that it was the practice of the Assessee to credit the salary of staff/employees into their personal savings account and thereafter withdraw the same by collecting self-drawn cheques duly signed by them, the Bench noted that the seizure of cash from the possession of the bank officers merely coincided with the implementation of the Tamil Nadu State Assembly Model Code for the ensuring Tamil Nadu Assembly Election.
Accordingly, the High Court concluded that Rule 112F does not apply to the present case since the said cash seized is not in connection with the election.
Cause Title: St. Antony Educational and Social Society v. The Central Board of Direct Tax and Ors.