CBDT Clarification on Explanation 2 to IT Sec. 132B being Prospective

CBDT Clarification on Explanation 2 to IT Sec. 132B (inserted by the Finance Act, 2013 w.e.f. 1 June 2013) being Prospective, i.e. Not Retrospective

The CBDT has issued a Clarification, vide Circular No. 20/2017 dt. 12 June 2017, stating settled position of law on Explanation 2 to IT Sec. 132B (inserted by the Finance Act, 2013 w.e.f. 1 June 2013) which can be applied only prospectively, i.e. Not Retrospectively, as under:

CBDT Clarification on Explanation 2 to Sec. 132B: Circular 20/2017 dt. 12 June 2017

1. Section 132B of the Income Tax Act 1961, provides for adjustment of seized assets/ requisitioned assets against the amount of any existing liability under the Income Tax Act, 1961, (the Act), the Wealth-tax Act, 1957, the Expenditure-tax Act, 1987, the Gift-tax Act, 1958 and the Interest-tax Act, 1974, and the amount of the liability determined on completion of the assessment under section 153A of the Act 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, or the amount of liability arising on an application made before the Settlement Commission under sub-section (1) of section 245C of the Act.

2. Dispute arose between the Department and the assessees with regard to adjustment of such seized/ requisitioned cash against advance tax liability, etc. Several Courts held that on an application made by the assessee, the seized money is to be adjusted against the advance tax liability of the assessee. Subsequently, Explanation 2 to Section 132B of the Act was inserted by the Finance Act, 2013 w.e.f. 01-06-2013, clarifying that “existing liability” does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII of the Act. However, the dispute continued on the issue as to whether the amendment was clarificatory in nature having retrospective applicability or it has only prospective applicability.

3. Several Courts have held that the insertion of Explanation 2 to section 132B of the Act, is prospective in nature and not applicable to cases prior to 01.06.2013. The SLPs filed by the Department against the judgement of the Hon’ble Punjab and Haryana High Court in the case of Cosmos Builders and Promoters Ltd. and the Hon’ble Allahabad High Court in the case of Sunil Chandra Gupta, have been dismissed. Subsequently, the CBDT has also accepted the judgment of the Hon’ble Punjab & Haryana High Court in the case of Spaze Towers Pvt. Ltd. dated 17.11.2016, wherein it was held that the Explanation 2 to Section 132B of the Act is prospective in nature.

4. Accordingly, it has now been settled that insertion of Explanation 2 to Section 132B of the Act shall have a prospective application and so, appeals may not be filed by the Department on this issue for the cases prior to 01.06.2013 and those already filed may be withdrawn/ not pressed upon.

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