* HON BLE SRI JUSTICE V.RAMASUBRAMANIAN AND HON BLE SMT. JUSTICE T.RAJANI + WRIT PETITION No.25470 of 2017 % Date: 11-10-2017 #Between: # M/s. Jaya Balajee Real Media Pvt. Ltd., Corporate Office: H.No.8-3-224/D/I/G-113, Madhura Nagar, Hyderabad-38, Rep. by its Director Ramesh Tandra Petitioner Vs. $ 1. Prl. Commissioner of Income Tax (Central), 7th Floor, Aayakar Bhavan, Basheer Bagh, Hyderabad-04 2. Asst. Director of Income Tax (Inv.), Unit-II(1), Aayakar Bhavan, Basheer Bagh, Hyderabad-04 Respondents Counsel for Petitioner: Dr. C.P. Ramaswami Counsel for Respondents 1&2: Mr. J.V. Prasad, Senior Standing Counsel Gist: Head Note: ? Cases referred: 1. (2008) 298 ITR 1 (SC) 2 VRS, J. & TR, J. wp_25470_2017 HON BLE SRI JUSTICE V.RAMASUBRAMANIAN AND HON BLE SMT. JUSTICE T.RAJANI WRIT PETITION No.25470 of 2017 ORDER: (per V.Ramasubramanian, J.) petitioner has come up with above writ petition challenging action of 2nd respondent viz., Assistant Director of Income Tax in effecting seizure of sum of Rs.20 Crores lying in current account of petitioner in Canara Bank and also seeking direction to 1st respondent to release amount of Rs.5 Crores from out of seized amount and to confer all benefits of scheme known as Pradhan Mantri Garib Kalyan Yojana Scheme, 2016 . 2. We have heard Dr. C.P. Ramaswami, learned counsel appearing for petitioner and Mr. J.V. Prasad, learned Senior Standing Counsel appearing for respondents. 3. petitioner is producer of feature films in Telugu and Tamil languages. According to petitioner, he deposited sum aggregating to Rs.40 Crores during period from 23-12-2016 to 27-12-2016 into their current account with Canara Bank, after Government of India notified demonetisation of certain currencies. Thereafter, Warrants of Authorisation were issued on 30-12-2016, followed by Prohibitory Order dated 31-12-2016 under Section 132(3) of Income Tax Act, 1961. Searches were conducted at various places in Chennai and Hyderabad and 3 VRS, J. & TR, J. wp_25470_2017 sworn statement was recorded from Director of petitioner-company on 02-01-2017 and 03-01-2017. Thereafter, sum of Rs.22.99 Crores was ordered to be seized on 04-01-2017 followed by order for seizure of another amount of Rs.13.98 Crores, both of which were lying in current account of petitioner. 4. After more than 50 days of seizure of aforesaid amounts, petitioner gave sworn statement expressing willingness to disclose amount of Rs.20 Crores under scheme known as Pradhan Mantri Garib Kalyan Yojana Scheme, 2016 , hereinafter referred to as PMGKY Scheme . Actually said scheme viz., PMGKY Scheme, introduced under Taxation Laws (Second Amendment) Act, 2016 mandated two conditions to be satisfied before declaration in Form-I could be accepted from person willing to come under scheme. These conditions are (i) payment of 30% of income disclosed under Act towards tax, payment of 10% of undisclosed income as penalty and payment of 33% of tax towards surcharge and (ii) deposit of 25% of declared income in RBI Bonds. 5. Section 199M of Income Tax Act, introduced by said amendment, made it clear that declaration filed under scheme without payment of tax and surcharge under Section 199D or without payment of penalty under 4 VRS, J. & TR, J. wp_25470_2017 Section 199E or without depositing 25% in RBI Bonds as per Section 199F, shall be void. 6. Since entire amount available to credit of petitioner in their current account, totalling to Rs.36.97 Crores had been seized by Department and also taken away by them, petitioner was left with no funds to make payment under Sections 199D, 199E and 199F. Finding themselves in fix, petitioner came up with writ petition in W.P.No.9262 of 2017, challenging one portion of Circular bearing No.2/2017, dated 18-01-2017, in and by which Board disabled person from seeking adjustment of cash seized by Department and deposited into public deposit account, towards payment of tax, surcharge and penalty under PMGKY Scheme. 7. Pending writ petition W.P.No.9262 of 2017, petitioner sought interim prayer to direct 2nd respondent to release sum of Rs.20 Crores (i) for payment of tax, surcharge and penalty and (ii) for depositing 25% of declared income in RBI Bonds, so as to enable petitioner to file valid declaration under scheme. 8. said writ petition W.P.No.9262 of 2017 came up for first time for orders as to admission, on 16-3-2017. Since deadline for filing declaration under scheme was closing on 31-3-2017, we ordered on 16-3-2017, notice returnable by one week. To credit of Department, Department filed counter affidavit on 23-3-2017 itself. 5 VRS, J. & TR, J. wp_25470_2017 9. In counter affidavit, Department itself conceded that Department has no objection to appropriate, out of seized amount, amount sufficient for payment of tax, surcharge and penalty under PMGKY Scheme, which worked out to Rs.9.98 Crores. But Department objected to interim prayer for keeping Rs.5 Crores out of seized amount, in RBI Bonds, in terms of Section 199F, on ground that same may tantamount to releasing amount from out of clutches of Department. 10. After hearing arguments on both sides, this Court passed interim order on 23-3-2017 to following effect: 8. Therefore, we are of considered view that by act of balancing rights of both sides, this application could be disposed of with following directions: 1) 2nd respondent, without prejudice to contentions to be raised, shall keep out of seized cash, sum of Rs.5.00 crores in RBI Bonds, but to keep bonds with 2nd respondent himself in safe custody, without releasing same to petitioner; 2) 2nd respondent shall issue letter to effect that amount has been kept in RBI bonds to enable petitioner to file declaration; 3) petitioner shall file declaration under Section 199-C, in form prescribed, on or before 31-3-2017; 4) declaration so submitted shall be treated as validly made, at least insofar as twin conditions are concerned. If there are non-compliance with any other conditions, which are not subject matter of writ petition, same may have to be addressed to petitioner. 6 VRS, J. & TR, J. wp_25470_2017 11. Pursuant to said order, Department kept in RBI Bonds, sum of Rs.5 Crores, from out of seized amount (representing 25% of declared income) in terms of Section 199F of Act. Thereafter, petitioner filed Form-I Declaration on 28-3-2017, declaring undisclosed income of Rs.20 Crores under PMGKY Scheme. 12. Thereafter, petitioner gave letter to respondents on 06-4-2017 to release balance amount of Rs.5 Crores (out of declared income of Rs.20 Crores), on ground that there can be no claim by Department on said amount, as whatever had to be done with declared income of Rs.20 Crores, had already been done. Since claim of petitioner for release of amount of Rs.5 Crores, could be understood much better in terms of numbers than in terms of prose, we shall present their contention as follows: (i) Amount seized from current account of petitioner = Rs.36.97 Crores (ii) Amount that petitioner wanted to declare under PMGKY Scheme, 2016 = Rs.20 Crores (iii) amount of tax, penalty and surcharge payable under Sections 199D and 199E, appropriated by Department itself towards scheme, from out of seized cash = Rs.9.98 Crores (iv) amount kept in RBI Bonds in terms of Section 199F by Department pursuant to interim order of this Court = Rs.5 Crores (v) amount, which petitioner is seeking release of = Rs.5 Crores 7 VRS, J. & TR, J. wp_25470_2017 (Rs.20 Crores - Rs.9.98 Crores - Rs.5 Crores) 13. request made by petitioner in their letter dated 06-4-2017 for release of Rs.5 Crores from out of seized amount, was rejected by Principal Commissioner of Income Tax, who is 1st respondent herein, by order dated 27-7-2017. Aggrieved by said order of 1st respondent dated 27-7-2017, petitioner has come up with above writ petition. 14. main prayer of petitioner in Writ Petition comprises of three parts, viz., (a) to declare as illegal seizure effected by 2nd Respondent on 04.01.2017 and 05.01.2017, of amount lying in Canara bank to extent of Rs.20 Crores; (b) to quash letter dated 27.07.2017 issued by 1st respondent refusing to release amount of Rs.5 Crores from out of seized amount; and (c) to direct 1st respondent to confer all consequential benefits under PMGKY Scheme including release of Rs.5 Crores. 15. careful look at all three components of prayer made in writ petition would show that main object of petitioner is to have direction to respondents to accept his declaration of undisclosed income of Rs.20 Crores under PMGKY Scheme. Once this relief is granted, sum of Rs.5 Crores representing 25% of disclosed income would come back to petitioner automatically as consequence. 8 VRS, J. & TR, J. wp_25470_2017 16. Though first component of prayer made in main writ petition is to declare seizure of cash to tune of Rs.20 Crores as illegal, said prayer may become redundant once seized amount of Rs.20 Crores is treated as income declared under PMGKY Scheme. In fact total amount seized from bank accounts of petitioner was Rs.36.97 Crores. petitioner is not seeking declaration that seizure of entire amount of Rs.36.97 Crores is illegal. petitioner has limited his prayer only in respect of part of seized amount namely Rs.20 Crores, which he had declared under PMGKY Scheme. 17. As we have pointed out earlier, all pre- conditions to be satisfied by person to come under PMGKY Scheme have been satisfied by petitioner in following manner: 1. By department themselves appropriating Rs.9.98 Crores out of seized amounts towards tax, surcharge and penalty in terms of Sections 199D and 199E. 2. department converting sum of Rs.5 Crores into RBI bonds as required by Section 199F, pursuant to interim orders passed in W.P.No.9262 of 2017. 3. petitioner filing declaration in Form-I on 28.03.2017 as stipulated by Section 199C. 9 VRS, J. & TR, J. wp_25470_2017 18. But it must be pointed out that only first out of aforesaid three pre-conditions, was fulfilled by petitioner with consent of department as department had no objection to appropriate out of seized amount, sum of Rs.9.98 Crores towards tax, surcharge and penalty. other two pre-conditions for accepting petitioner under PMGKY Scheme were satisfied by petitioner pursuant to interim orders passed by this court in W.P.No.9262 of 2017. Therefore entitlement of petitioner to come under PMGKY Scheme in respect of disclosed income of Rs.20 Crores, is subject to outcome of W.P.No.9262 of 2017. When question of entitlement of petitioner to come under PMGKY Scheme in respect of Rs.20 Crores has not reached finality, but is subject to outcome of W.P.No.9262 of 2017, petitioner is not entitled to come up with 2nd Writ Petition. 19. As we have pointed out earlier, second and third pre-conditions for acceptance of declaration of petitioner under PMGKY Scheme were fulfilled pursuant to interim orders passed in W.P.No.9262 of 2017. In case said W.P.No.9262 of 2017 is allowed eventually, petitioner will be entitled automatically to balance amount of Rs.5 Crores, which represents 25% of income declared under PMGKY Scheme. 20. Therefore petitioner ought not to have come up with above writ petition as rightly contended by Mr. J.V. 10 VRS, J. & TR, J. wp_25470_2017 Prasad, learned Senior Standing Counsel for department. But at same time, petitioner could have come up with miscellaneous petition in previous writ petition itself, for direction to release amount of Rs.5 Crores. After all petitioner came up with miscellaneous petition in previous writ petition for release of Rs.5 Crores for being deposited into RBI bonds, for compliance with Section 199F. Therefore, petitioner could have come up with another miscellaneous petition in very same writ petition. 21. However, we do not wish to dismiss this writ petition on sole ground that petitioner could not have converted into fresh writ petition, what could have been filed as miscellaneous petition in previous writ petition. If we dismiss this writ petition on this sole ground, petitioner can come up with miscellaneous petition in previous writ petition and same will only be multiplication. Therefore, we shall decide here and now, whether petitioner is entitled to reliefs prayed for. 22. As we have indicated earlier, prayer of petitioner in this writ petition comprises of three parts, first part challenging seizure of amount to extent of Rs.20 Crores, second part challenging rejection of request for release of Rs.5 Crores, and third part seeking direction to release amount of Rs.5 Crores. first part of prayer will lose its meaning and significance, if we grant substantial relief of release of Rs.5 Crores to 11 VRS, J. & TR, J. wp_25470_2017 petitioner, since out of sum of Rs.20, Crores declared by petitioner under PMGKY Scheme, portion equivalent to 75% has already appropriated by Government towards tax, surcharge, penalty and investment in RBI Bonds. Therefore, only significant question that we have to address ourselves in this writ petition is, as to whether petitioner will be entitled to release of Rs.5 Crores. 23. Before we find answer to above question, we should settle small area of dispute between petitioner and respondents. As we have pointed out earlier, total amount seized from current account of petitioner was Rs.36.97 Crores, out of which sum of Rs.20 Crores is sought to be brought under PMGKY Scheme. Therefore, claim of petitioner is that sum of Rs.16.97 Crores is available with department, over and above amount of Rs.5 Crores liable to be refunded to them under PMGKY Scheme. In other words, claim of petitioner is that if amount of Rs.5 Crores forming part of amount of Rs.20 Crores declared under Scheme is released to them, department will still be left with Rs.16.97 crores, to take care of any contingency that may arise in future. 24. But department filed counter affidavit to rejoinder filed by petitioner, claiming that sum of Rs.8.61 Crores has been adjusted towards demand in relation to assessment year 2012-2013, leaving only 12 VRS, J. & TR, J. wp_25470_2017 balance of Rs.13.39 Crores, and sum of Rs.2.95 Crores may become payable by petitioner as per returns filed under Section 153A, as self assessment tax. This will leave only sum of Rs.10.44 Crores available with department, as per counter to rejoinder filed by department. 25. In other words, claim of petitioner is that even after releasing sum of Rs.5 Crores forming part of disclosed income of Rs.20 Crores, department will be left with Rs.16.97 Crores. But according to department, they will be left only with sum of Rs.10.44 Crores, inclusive of amount of Rs.5 Crores now sought to be released. 26. We do not think that we need to go into dispute with regard to above issues. Even if we go by counter filed by department to rejoinder filed by petitioner, department has surplus amount of Rs.10.44 Crores, which is twice amount now sought by petitioner to be released. Therefore, department will still have sum of Rs.5.44 Crores, which is not adjustable (1) either towards any disputes under PMGKY Scheme; (2) or towards any other dues payable by petitioner. Keeping this fundamental fact in mind, let us now go to contentions raised. refusal of department to release amount of Rs.5 Crores sought for by petitioner, is on account of fact that seizure was effected under Section 132B of Income Tax Act. It is stated by respondents in their counter affidavits that after Government of India notified demonetisation of 13 VRS, J. & TR, J. wp_25470_2017 certain currencies, petitioner started depositing cash into current account and also started effecting withdrawals and diversions. huge amount of Rs.40 Crores came to be deposited by petitioner on two dates, viz., 23.12.2016 and 27.12.2016, forcing department to issue prohibitory order under Section 132(3). It is further claimed by department that Director of petitioner gave sworn statement under Section 132(4) on 02.01.2017 to disclose income of Rs.40 Crores. But after receiving advice from seasoned (?) professionals, petitioner sought to declare only sum of Rs.20 Crores under Scheme. Therefore, contention of Mr. J.V. Prasad, learned Senior Standing Counsel for petitioner is that in view of Section 132B, petitioner is not entitled to release of amount of Rs.5 Crores, especially when declaration under PMGKY Scheme was made after seizure was effected. learned Senior Standing Counsel also drew our attention to Section 199-I, under which amount of undisclosed income declared in accordance with Section 199C shall not be included in total income of declarant for any assessment year. According to respondents, petitioner did not file returns of income for assessment years 2014- 2015, 2015-2016 and 2016-2017. Therefore, it is contended by Mr. J.V. Prasad, learned Senior Standing Counsel that petitioner is not entitled to release of aforesaid amount. 14 VRS, J. & TR, J. wp_25470_2017 27. In response to above contentions, it was argued by Mr. C.P. Ramaswamy learned counsel for petitioner that as per decision of Supreme Court in K.C.C Software Ltd., v. Director of Income Tax1, cash in bank is conceptually different from cash in hand and that it is not permissible to convert assets to cash and thereafter impound same. More over, PMGKY Scheme does not allow all provisions of Income Tax Act to come into play. Under Section 199N, provisions of Chapter-XV of Income Tax Act relating to liability in special cases and of Sections 119, 138 and 189 of Act, so far as may be, shall apply in relation to proceedings under Scheme as they apply in relation to proceedings under Income Tax Act. Therefore, it is contended by Mr. C.P. Ramaswamy learned counsel for petitioner that Section 132B would have no application. 28. But contentions of Mr. C.P. Ramaswamy, learned counsel for petitioner do not merit acceptance. As rightly pointed out by Mr. J.V. Prasad, learned Senior Standing Counsel for department, demonetisation was notified on 08.11.2016. petitioner started depositing huge amounts of cash into their current account. Within couple of days from 23.12.2016 to 27.12.2016, petitioner deposited amount of nearly Rs.40 Crores. Taxation Laws (Second Amendment) Act, 2016 was notified in Government Gazette on 15.12.2016. But petitioner did 1 (2008) 298 ITR 1 (SC) 15 VRS, J. & TR, J. wp_25470_2017 not make use of same. Therefore, department issued warrant of authorisation on 30.12.2016, followed by prohibitory order under Section 132(3) on 31.12.2016. sworn statement was recorded under Section 132(4) on 02.01.2017, in and by which petitioner agreed to disclose Rs.40 Crores under PMGKY Scheme. search was conducted on 04.01.2017 and amounts lying in bank were seized on 04.01.2017 and 05.01.2017. first writ petition was filed in March, 2017. 29. Therefore, in timeline of events, seizure was effected first and petitioner s offer to come under Scheme came later. Hence, petitioner cannot fall back upon Section 199N to contend that provisions of Section 132B will not apply to case covered by Chapter IX-A. 30. Section 132B (1) deals with assets seized under Section 132 or requisitioned under Section 132A. We do not know how amount lying in current account of person, on particular day, would not constitute asset. Let us take hypothetical case where person is in enjoyment of overdraft facility. amounts withdrawn by person under overdraft facility will surely be shown as liability by that person. As corollary amount standing to his credit in books of accounts will also be shown as asset. 31. reliance placed upon decision of Supreme Court in KCC Software does not appeal to us. In 16 VRS, J. & TR, J. wp_25470_2017 that case contention of assessee was that bank accounts, which were disclosed in regular books of account, were seized by department and money lying therein to credit of assessee were withdrawn. In other words, Supreme Court was dealing in KCC Software, amount which was accounted for in books of accounts. In this case what was seized by department from petitioner s current account was unaccounted money. Therefore, decision in KCC Software would have no application to case on hand. 32. Apart from legal arguments, learned counsel for petitioner also appealed for mercy on ground that since entire account has been dried up, petitioner is not even in position to pay salaries to their employees and release of feature films was also stuck. Therefore, learned counsel for petitioner pleaded that even if everything goes against petitioner, department will be left with surplus amount far greater than Rs.5 Crores and that therefore, release of same to petitioner, while saving petitioner from bankruptcy, would not prejudice case of department in any manner. 33. As we have pointed out earlier, amount taken away from current account of petitioner was Rs.36.98 Crores. Out of said amount, sum of Rs.20 Crores has been disclosed under PMGKY Scheme. If declaration filed by petitioner under Section 199C is accepted by 17 VRS, J. & TR, J. wp_25470_2017 department, department will have to do two things, viz., (a) to release amount of Rs.5 Crores; and (b) to allow petitioner to encash amount of Rs.5 Crores invested in RBI bonds under Section 199F. In other words if declaration under PMGKY Scheme is accepted by department, petitioner will get release of Rs.5 Crores. 34. Let us take hypothetical case where declaration under PMGKY Scheme is rejected. Even in such case, petitioner may lose, may be about 70% of total amount seized. Still petitioner will get back 30%. 35. Though according to petitioner department will be left with surplus of Rs.16.97 Crores, even after release of Rs.5 Crores, case of department is that they left only with sum of Rs.5 Crores after releasing sum of Rs.5 Crores, after adjusting amount payable under all heads for all these years. Therefore, we are of considered view that release of Rs.5 Crores will not hamper either any investigation or further proceedings on part of department. 36. There is also one more aspect. If declaration under PMGKY Scheme is accepted by department, petitioner will not only get immediate release of Rs.5 Crores, but will get RBI bonds encashable after four years to total value of Rs.5 Crores together with interest. amount lying in RBI bonds, if allowed to be retained as security for any eventuality, till conclusion of all proceedings, 18 VRS, J. & TR, J. wp_25470_2017 department s interest will be more safeguarded, even if they release amount of Rs.5 Crores. 37. Therefore, in fine, writ petition is disposed of directing respondents to release amount of Rs.5 Crores to petitioner within two weeks. amount of Rs.5 Crores lying in RBI bonds, shall be kept by department as security for release of amount hereby ordered, until conclusion of any proceedings pending or to be initiated by department. If declaration under PMGKY Scheme is finally accepted, RBI bonds may also be released to petitioner, provided no other dues are found payable by petitioner. 38. As sequel, miscellaneous petitions, if any, pending in this writ petition shall stand closed. There shall be no order as to costs. V.RAMASUBRAMANIAN, J. T.RAJANI, J. 11th October, 2017. Ak/Js. L.R. copy to be marked 19 VRS, J. & TR, J. wp_25470_2017 HON BLE SRI JUSTICE V.RAMASUBRAMANIAN AND HON BLE SMT. JUSTICE T.RAJANI WRIT PETITION No.25470 of 2017 (per VRS, J.) 11th October, 2017. Ak/Js. Jaya Balajee Real Media Pvt. Ltd. v. Prl. Commissioner of Income-tax (Central), Hyderabad-04 / Asst. Director of Income-tax (Inv.), Hyderabad-04