challenging the action of the 2nd respondent viz., the Assistant Director of Income Tax in effecting the seizure of a sum of Rs.20 Crores lying in the current account of the petitioner in Canara Bank and also seeking a direction to the 1st respondent to release an amount of Rs.5 Crores from out of the seized amount and to confer all the benefits of the scheme known as Pradhan Mantri Garib Kalyan Yojana Scheme, 2016.= Let us take a hypothetical case where the declaration under PMGKY Scheme is rejected. Even in such a case, the petitioner may lose, may be about 70% of the total amount seized. Still the petitioner will get back 30%.=There is also one more aspect. If the declaration under PMGKY Scheme is accepted by the department, the petitioner will not only get immediate release of Rs.5 Crores, but will get RBI bonds encashable after four years to the total value of Rs.5 Crores together with interest. The amount lying in RBI bonds, if allowed to be retained as security for any eventuality, till the conclusion of all the proceedings, the departments interest will be more safeguarded, even if they release the amount of Rs.5 Crores. Therefore, in fine, the writ petition is disposed of directing the respondents to release an amount of Rs.5 Crores to the petitioner within two weeks. The amount of Rs.5 Crores lying in RBI bonds, shall be kept by the department as security for the release of the amount hereby ordered, until the conclusion of any proceedings pending or to be initiated by the department. If the declaration under PMGKY Scheme is finally accepted, the RBI bonds may also be released to the petitioner, provided no other dues are found payable by the petitioner.

HONBLE SRI JUSTICE V.RAMASUBRAMANIAN AND HONBLE SMT. JUSTICE T.RAJANI                

WRIT PETITION No.25470 of 2017  

11-10-2017

 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

1.The Prl. Commissioner of Income Tax (Central), 7th Floor, Aayakar Bhavan, Basheer Bagh, Hyderabad-042. The Asst. Director
 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)

HONBLE SRI JUSTICE V.RAMASUBRAMANIAN          
AND
HONBLE SMT. JUSTICE T.RAJANI    
WRIT PETITION No.25470 of 2017  
ORDER: (per V.Ramasubramanian, J.)  
      The petitioner has come up with the above writ petition
challenging the action of the 2nd respondent viz., the Assistant
Director of Income Tax in effecting the seizure of a sum of
Rs.20 Crores lying in the current account of the petitioner in
Canara Bank and also seeking a direction to the
1st respondent to release an amount of Rs.5 Crores from out of
the seized amount and to confer all the benefits of the scheme
known as Pradhan Mantri Garib Kalyan Yojana Scheme,  
2016.
      2. We have heard Dr. C.P. Ramaswami, learned counsel
appearing for the petitioner and Mr. J.V. Prasad, learned
Senior Standing Counsel appearing for the respondents.
      3. The petitioner is a producer of feature films in Telugu
and Tamil languages. According to the petitioner,
he deposited a sum aggregating to Rs.40 Crores during the
period from 23-12-2016 to 27-12-2016 into their current
account with Canara Bank, after the Government of India
notified the demonetisation of certain currencies. Thereafter,
Warrants of Authorisation were issued on 30-12-2016,
followed by a Prohibitory Order dated 31-12-2016 under
Section 132(3) of the Income Tax Act, 1961. Searches were
conducted at various places in Chennai and Hyderabad and
a sworn statement was recorded from the Director of
petitioner-company on 02-01-2017 and 03-01-2017.
Thereafter, a sum of Rs.22.99 Crores was ordered to be seized
on 04-01-2017 followed by an order for seizure of another
amount of Rs.13.98 Crores, both of which were lying in the
current account of the petitioner.
      4. After more than 50 days of the seizure of the aforesaid
amounts, the petitioner gave a sworn statement expressing
willingness to disclose an amount of Rs.20 Crores under the
scheme known as Pradhan Mantri Garib Kalyan Yojana  
Scheme, 2016, hereinafter referred to as PMGKY Scheme.
Actually the said scheme viz., PMGKY Scheme, introduced  
under the Taxation Laws (Second Amendment) Act, 2016  
mandated two conditions to be satisfied before
a declaration in Form-I could be accepted from a person
willing to come under the scheme. These conditions are
(i) payment of 30% of the income disclosed under the Act
towards tax, payment of 10% of the undisclosed income as
penalty and payment of 33% of the tax towards surcharge and
(ii) the deposit of 25% of the declared income in RBI Bonds.
      5. Section 199M of the Income Tax Act, introduced by the
said amendment, made it clear that a declaration filed under
the scheme without payment of tax and surcharge under
Section 199D or without payment of penalty under Section
199E or without depositing 25% in RBI Bonds as per Section
199F, shall be void.
      6. Since the entire amount available to the credit of the
petitioner in their current account, totalling to Rs.36.97 Crores
had been seized by the Department and also taken away by
them, the petitioner was left with no funds to make payment
under Sections 199D, 199E and 199F. Finding themselves in a
fix, the petitioner came up with a writ petition in W.P.No.9262
of 2017, challenging one portion of a Circular bearing
No.2/2017, dated 18-01-2017, in and by which the Board
disabled a person from seeking adjustment of the cash seized
by the Department and deposited into the public deposit
account, towards payment of tax, surcharge and penalty under
the PMGKY Scheme.  
      7. Pending the writ petition W.P.No.9262 of 2017, the
petitioner sought an interim prayer to direct the
2nd respondent to release a sum of Rs.20 Crores  (i) for
payment of tax, surcharge and penalty and (ii) for depositing
25% of the declared income in RBI Bonds, so as to enable the
petitioner to file a valid declaration under the scheme.
      8. The said writ petition W.P.No.9262 of 2017 came up
for the first time for orders as to admission, on 16-3-2017.
Since the deadline for filing a declaration under the scheme
was closing on 31-3-2017, we ordered on 16-3-2017, notice
returnable by one week. To the credit of the Department, the
Department filed a counter affidavit on 23-3-2017 itself.
      9. In the counter affidavit, the Department itself conceded
that the Department has no objection to appropriate, out of the
seized amount, an amount sufficient for payment of tax,
surcharge and penalty under the PMGKY Scheme, which  
worked out to Rs.9.98 Crores. But the Department objected to
the interim prayer for keeping
Rs.5 Crores out of the seized amount, in RBI Bonds, in terms
of Section 199F, on the ground that the same may tantamount
to releasing the amount from out of the clutches of the
Department.
      10. After hearing the arguments on both sides, this Court
passed an interim order on 23-3-2017 to the following effect:
8. Therefore, we are of the considered view that by an
act of balancing the rights of both sides, this application
could be disposed of with the following directions:
       1) the 2nd respondent, without prejudice to the
contentions to be raised, shall keep out of the seized
cash, a sum of Rs.5.00 crores in RBI Bonds, but to keep
the bonds with the 2nd respondent himself in safe
custody, without releasing the same to the petitioner;
       2) the 2nd respondent shall issue a letter to the
effect that the amount has been kept in RBI bonds to
enable the petitioner to file a declaration;
       3) the petitioner shall file a declaration under
Section 199-C, in the form prescribed, on or before 31-3-
2017;
       4) the declaration so submitted shall be treated as
validly made, at least insofar as the twin conditions are
concerned. If there are non-compliance with any other
conditions, which are not the subject matter of the writ
petition, the same may have to be addressed to the
petitioner.

      11. Pursuant to the said order, the Department kept in
RBI Bonds, a sum of Rs.5 Crores, from out of the seized
amount (representing 25% of the declared income) in terms of
Section 199F of the Act. Thereafter, the petitioner filed Form-I
Declaration on 28-3-2017, declaring an undisclosed income of
Rs.20 Crores under the PMGKY Scheme.  
      12. Thereafter, the petitioner gave a letter to the
respondents on 06-4-2017 to release the balance amount of
Rs.5 Crores (out of the declared income of Rs.20 Crores), on
the ground that there can be no claim by the Department on
the said amount, as whatever had to be done with the declared
income of Rs.20 Crores, had already been done. Since the
claim of the petitioner for the release of
an 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 the current
          account of the petitioner             = Rs.36.97 Crores

      (ii) Amount that the petitioner
           wanted to declare under
           PMGKY Scheme, 2016           = Rs.20 Crores

      (iii) The amount of tax, penalty
            and surcharge payable under
            Sections 199D and 199E,
            appropriated by the Department
            itself towards the scheme, from
            out of the seized cash              = Rs.9.98 Crores

      (iv) The amount kept in RBI Bonds
            in terms of Section 199F by the
            Department pursuant to the
            interim order of this Court         = Rs.5 Crores

      (v) The amount, which the petitioner
           is seeking release of                        = Rs.5 Crores
           (Rs.20 Crores - Rs.9.98 Crores - Rs.5 Crores)

      13. The request made by the petitioner in their letter
dated 06-4-2017 for the release of Rs.5 Crores from out of the
seized amount, was rejected by the Principal Commissioner of
Income Tax, who is the 1st respondent herein, by an order
dated 27-7-2017. Aggrieved by the said order of the
1st respondent dated 27-7-2017, the petitioner has come up
with the above writ petition.
        14. The main prayer of the petitioner in the Writ Petition
comprises of three parts, viz., (a) to declare as illegal the
seizure effected by the 2nd Respondent on 04.01.2017 and
05.01.2017, of the amount lying in Canara bank to the extent
of Rs.20 Crores; (b) to quash the letter dated 27.07.2017
issued by the 1st respondent refusing to release an amount of
Rs.5 Crores from out of the seized amount; and (c) to direct the
1st respondent to  confer all consequential benefits under the
PMGKY Scheme including the release of Rs.5 Crores.
      15. A careful look at all the three components of the
prayer made in the writ petition would show that the main
object of the petitioner is to have a direction to the respondents
to accept his declaration of undisclosed income of Rs.20
Crores under the PMGKY Scheme. Once this relief is granted, a
sum of Rs.5 Crores representing 25% of the disclosed income
would come back to the petitioner automatically as a
consequence.
      16. Though the first component of the prayer made in the
main writ petition is to declare the seizure of cash to the tune of
Rs.20 Crores as illegal, the said prayer may become redundant
once the seized amount of Rs.20 Crores is treated as an
income declared under the PMGKY Scheme. In fact the total
amount seized from the bank accounts of the petitioner was
Rs.36.97 Crores. The petitioner is not seeking a declaration
that the seizure of the entire amount of Rs.36.97 Crores is
illegal. The petitioner has limited his prayer only in respect of a
part of the seized amount namely Rs.20 Crores, which he had
declared under the PMGKY Scheme.  
      17. As we have pointed out earlier, all the pre-conditions
to be satisfied by a person to come under the PMGKY Scheme  
have been satisfied by the petitioner in the following manner:
1.      By the department themselves appropriating Rs.9.98
Crores out of the seized amounts towards tax, surcharge
and penalty in terms of Sections 199D and 199E.
2.      The department converting a sum of Rs.5 Crores into RBI
bonds as required by Section 199F, pursuant to the
interim orders passed in W.P.No.9262 of 2017.
3.      The petitioner filing a declaration in Form-I on
28.03.2017 as stipulated by Section 199C.
      18. But it must be pointed out that only the first out of
the aforesaid three pre-conditions, was fulfilled by the
petitioner with the consent of the department as the
department had no objection to appropriate out of the seized
amount, a sum of Rs.9.98 Crores towards tax, surcharge and
penalty. The other two pre-conditions for accepting the
petitioner under the PMGKY Scheme were satisfied by the
petitioner pursuant to the interim orders passed by this court
in W.P.No.9262 of 2017. Therefore the entitlement of the
petitioner to come under the PMGKY Scheme in respect of the
disclosed income of Rs.20 Crores, is subject to the outcome of
W.P.No.9262 of 2017. When the question of entitlement of the
petitioner to come under the PMGKY Scheme in respect of
Rs.20 Crores has not reached finality, but is subject to the
outcome of W.P.No.9262 of 2017, the petitioner is not entitled
to come up with the 2nd Writ Petition.
      19. As we have pointed out earlier, the second and third
pre-conditions for the acceptance of the declaration of the
petitioner under the PMGKY Scheme were fulfilled pursuant to
the interim orders passed in W.P.No.9262 of 2017. In case the
said W.P.No.9262 of 2017 is allowed eventually, the petitioner
will be entitled automatically to the balance amount of Rs.5
Crores, which represents the 25% of income declared under
the PMGKY Scheme.  
      20. Therefore the petitioner ought not to have come up
with the above writ petition as rightly contended by Mr. J.V.
Prasad, learned Senior Standing Counsel for the department.
But at the same time, the petitioner could have come up with a
miscellaneous petition in the previous writ petition itself, for a
direction to release an amount of Rs.5 Crores. After all the
petitioner came up with a miscellaneous petition in the
previous writ petition for the release of Rs.5 Crores for being
deposited into RBI bonds, for compliance with Section 199F.
Therefore, the petitioner could have come up with another
miscellaneous petition in the very same writ petition.
      21. However, we do not wish to dismiss this writ petition
on the sole ground that the petitioner could not have converted
into a fresh writ petition, what could have been filed as a
miscellaneous petition in a previous writ petition. If we dismiss
this writ petition on this sole ground, the petitioner can come
up with a miscellaneous petition in the previous writ petition
and the same will only be a multiplication. Therefore, we shall
decide here and now, whether the petitioner is entitled to the
reliefs prayed for.
      22. As we have indicated earlier, the prayer of the
petitioner in this writ petition comprises of three parts, the first
part challenging the seizure of the amount to the extent of
Rs.20 Crores, the second part challenging the rejection of the
request for release of Rs.5 Crores, and the third part seeking a
direction to release the amount of Rs.5 Crores. The first part of
the prayer will lose its meaning and significance, if we grant the
substantial relief of release of Rs.5 Crores to the petitioner,
since out of the sum of Rs.20, Crores declared by the petitioner
under the PMGKY Scheme, a portion equivalent to 75% has  
already appropriated by the Government towards tax,
surcharge, penalty and investment in RBI Bonds. Therefore,
the only significant question that we have to address ourselves
in this writ petition is, as to whether the petitioner will be
entitled to release of Rs.5 Crores.
      23. Before we find an answer to the above question, we
should settle a small area of dispute between the petitioner and
the respondents. As we have pointed out earlier, the total
amount seized from the current account of the petitioner was
Rs.36.97 Crores, out of which a sum of Rs.20 Crores is sought
to be brought under the PMGKY Scheme. Therefore, the claim
of the petitioner is that a sum of Rs.16.97 Crores is available
with the department, over and above the amount of Rs.5
Crores liable to be refunded to them under the PMGKY
Scheme. In other words, the claim of the petitioner is that if the
amount of Rs.5 Crores forming part of the amount of Rs.20
Crores declared under the Scheme is released to them, the
department will still be left with Rs.16.97 crores, to take care of
any contingency that may arise in future.
      24. But the department filed a counter affidavit to the
rejoinder filed by the petitioner, claiming that a sum of Rs.8.61
Crores has been adjusted towards the demand in relation to
the assessment year 2012-2013, leaving only a balance of
Rs.13.39 Crores, and a sum of Rs.2.95 Crores may become  
payable by the petitioner as per the returns filed under Section
153A, as self assessment tax. This will leave only a sum of
Rs.10.44 Crores available with the department, as per the
counter to the rejoinder filed by the department.
      25. In other words, the claim of the petitioner is that even
after releasing a sum of Rs.5 Crores forming part of the
disclosed income of Rs.20 Crores, the department will be left
with Rs.16.97 Crores. But according to the department, they
will be left only with a sum of Rs.10.44 Crores, inclusive of the
amount of Rs.5 Crores now sought to be released.
      26. We do not think that we need to go into the dispute
with regard to the above issues. Even if we go by the counter
filed by the department to the rejoinder filed by the petitioner,
the department has a surplus amount of Rs.10.44 Crores,
which is twice the amount now sought by the petitioner to be
released. Therefore, the department will still have a sum of
Rs.5.44 Crores, which is not adjustable (1) either towards any
disputes under the PMGKY Scheme; (2) or towards any other
dues payable by the petitioner. Keeping this fundamental fact
in mind, let us now go to the contentions raised. The refusal of
the department to release the amount of Rs.5 Crores sought for
by the petitioner, is on account of the fact that the seizure was
effected under Section 132B of the Income Tax Act. It is stated
by the respondents in their counter affidavits that after the
Government of India notified demonetisation of certain
currencies, the petitioner started depositing cash into the
current account and also started effecting withdrawals and
diversions. A huge amount of Rs.40 Crores came to be
deposited by the petitioner on two dates, viz., 23.12.2016 and
27.12.2016, forcing the department to issue a prohibitory
order under Section 132(3). It is further claimed by the
department that the Director of the petitioner gave a sworn
statement under Section 132(4) on 02.01.2017 to disclose an
income of Rs.40 Crores. But after receiving advice from
seasoned (?) professionals, the petitioner sought to declare only
a sum of Rs.20 Crores under the Scheme. Therefore, the
contention of Mr. J.V. Prasad, learned Senior Standing Counsel
for the petitioner is that in view of Section 132B, the petitioner
is not entitled to the release of the amount of Rs.5 Crores,
especially when the declaration under the PMGKY Scheme was  
made after the seizure was effected. The learned Senior
Standing Counsel also drew our attention to
Section 199-I, under which the amount of undisclosed income
declared in accordance with Section 199C shall not be
included in the total income of the declarant for any
assessment year. According to the respondents, the petitioner
did not file returns of income for the assessment years 2014-
2015, 2015-2016 and 2016-2017. Therefore, it is contended
by Mr. J.V. Prasad, learned Senior Standing Counsel that the
petitioner is not entitled to the release of the aforesaid amount.
      27. In response to the above contentions, it was argued
by Mr. C.P. Ramaswamy learned counsel for the petitioner that
as per the decision of the Supreme Court in K.C.C Software
Ltd., v. Director of Income Tax , cash in bank is
conceptually different from cash in hand and that it is not
permissible to convert assets to cash and thereafter impound
the same. More over, PMGKY Scheme does not allow all  
provisions of the Income Tax Act to come into play. Under
Section 199N, the provisions of Chapter-XV of the Income Tax
Act relating to liability in special cases and of Sections 119,
138 and 189 of the Act, so far as may be, shall apply in relation
to proceedings under the Scheme as they apply in relation to
proceedings under the Income Tax Act. Therefore, it is
contended by Mr. C.P. Ramaswamy learned counsel for the  
petitioner that Section 132B would have no application.
      28. But the contentions of Mr. C.P. Ramaswamy, learned
counsel for the petitioner do not merit acceptance. As rightly
pointed out by Mr. J.V. Prasad, learned Senior Standing
Counsel for the department, demonetisation was notified on
08.11.2016. The petitioner started depositing huge amounts of
cash into their current account. Within a couple of days from
23.12.2016 to 27.12.2016, the petitioner deposited an amount
of nearly Rs.40 Crores. The Taxation Laws (Second
Amendment) Act, 2016 was notified in Government Gazette on
15.12.2016. But the petitioner did not make use of the same.
Therefore, the department issued warrant of authorisation on
30.12.2016, followed by a prohibitory order under Section
132(3) on 31.12.2016. A sworn statement was recorded under
Section 132(4) on 02.01.2017, in and by which the petitioner
agreed to disclose Rs.40 Crores under the PMGKY Scheme. A  
search was conducted on 04.01.2017 and the amounts lying in
bank were seized on 04.01.2017 and 05.01.2017. The first writ
petition was filed in March, 2017.
      29. Therefore, in the timeline of events, the seizure was
effected first and the petitioners offer to come under the
Scheme came later. Hence, the petitioner cannot fall back upon
Section 199N to contend that the provisions of Section 132B
will not apply to a 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 the amount lying in the current account of a person,
on a particular day, would not constitute an asset. Let us take
a hypothetical case where a person is in enjoyment of overdraft
facility. The amounts withdrawn by the person under the
overdraft facility will surely be shown as a liability by that
person. As a corollary the amount standing to his credit in the
books of accounts will also be shown as an asset.
      31. The reliance placed upon the decision of the Supreme
Court in KCC Software does not appeal to us. In that case the
contention of the assessee was that the bank accounts, which
were disclosed in the regular books of account, were seized by
the department and the money lying therein to the credit of the
assessee were withdrawn. In other words, the Supreme Court
was dealing in KCC Software, an amount which was accounted  
for in the books of accounts. In this case what was seized by
the department from the petitioners current account was
unaccounted money. Therefore, the decision in KCC Software
would have no application to the case on hand.
      32. Apart from the legal arguments, the learned counsel
for the petitioner also appealed for mercy on the ground that
since the entire account has been dried up, the petitioner is not
even in a position to pay salaries to their employees and the
release of feature films was also stuck. Therefore, the learned
counsel for the petitioner pleaded that even if everything goes
against the petitioner, the department will be left with a surplus
amount far greater than Rs.5 Crores and that therefore, the
release of the same to the petitioner, while saving the petitioner
from bankruptcy, would not prejudice the case of the
department in any manner.
      33. As we have pointed out earlier, the amount taken
away from the current account of the petitioner was Rs.36.98
Crores. Out of the said amount, a sum of Rs.20 Crores has
been disclosed under the PMGKY Scheme. If the declaration
filed by the petitioner under Section 199C is accepted by the
department, the department will have to do two things, viz., (a)
to release the amount of Rs.5 Crores; and (b) to allow the
petitioner to encash the amount of Rs.5 Crores invested in RBI
bonds under Section 199F. In other words if the declaration
under PMGKY Scheme is accepted by the department, the  
petitioner will get release of Rs.5 Crores.
      34. Let us take a hypothetical case where the declaration
under PMGKY Scheme is rejected. Even in such a case, the  
petitioner may lose, may be about 70% of the total amount
seized. Still the petitioner will get back 30%.
      35. Though according to the petitioner the department
will be left with a surplus of Rs.16.97 Crores, even after the
release of Rs.5 Crores, the case of the department is that they
left only with a sum of Rs.5 Crores after releasing a sum of Rs.5
Crores, after adjusting the amount payable under all heads for
all these years. Therefore, we are of the considered view that
the release of Rs.5 Crores will not hamper either any
investigation or further proceedings on the part of the
department.
      36. There is also one more aspect. If the declaration
under PMGKY Scheme is accepted by the department, the  
petitioner will not only get immediate release of Rs.5 Crores,
but will get RBI bonds encashable after four years to the total
value of Rs.5 Crores together with interest. The amount lying in
RBI bonds, if allowed to be retained as security for any
eventuality, till the conclusion of all the proceedings, the
departments interest will be more safeguarded, even if they
release the amount of Rs.5 Crores.
      37. Therefore, in fine, the writ petition is disposed of
directing the respondents to release an amount of Rs.5 Crores
to the petitioner within two weeks. The amount of Rs.5 Crores
lying in RBI bonds, shall be kept by the department as security
for the release of the amount hereby ordered, until the
conclusion of any proceedings pending or to be initiated by the
department. If the declaration under PMGKY Scheme is finally
accepted, the RBI bonds may also be released to the petitioner,
provided no other dues are found payable by the petitioner.
      38. As a 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.

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