Treatment of govt.money lying in personal deposit
Anil Kumar-Advocate
(Querist) 15 February 2014
This query is : Resolved
AN ASSESSEE WHO IS A PUBLIC SERVANT AND BROUGHT VARIOUS FUNDS IN CASH AFTER ENCASHING CHEQUE ISSUED BY HIS CONTROLLING OFFICER .IN COURSE OF HIS OFFICIAL BUSINESS AND MEETING HIS OFFICIAL EXPENDITURE, HE USED TO DEPOSITS BALANCE AMOUNT IN BANK WHICH WAS OPENED EXCLUSIVELY FOR OFFICIAL WORK.THE A/C WAS IN THE NAME OF ASSESSEE. UN-FORTUNATELY, THE CASH DEPOSITS DURING THE EXCEEDED 30 LAKHS AND WAS SERVED NOTICE FROM INCOME-TAX. HE HIMSELF APPEARED BEFORE THE A.O. AND FURNISHED DOCUMENTS. THE DEPT. OF INCOME-TAX ALSO CROSS EXAMINED THOSE TRANSACTION FROM ASSESSEE SUPERIOR OFFICER. THE OFFICER ALSO CONFIRMED THAT THERE IS NO DEFALCATION AGAINST ASSESSEE. THE ASSESSEE ALSO FURNISHED FUND UTILIZATION CERTIFICATE GIVEN BY THE AG.NOW THE QUESTION IS "1.IF THE FUND/MONEY BELONGS TO GOVT-HOW IT COUDL BE PROVED.2.IF THE UTILIZATION CERTIFICATE HAS BEEN FURNISHED THEN HOW THE RESIDUE BALANCE APPEARING IN AND BANK A/C.3.IF THE RESIDUE AMOUNT IS APPEARING IN THE A/C- WHY THE SAME SHOULD NOT BE TREATED AS ASSESSEE INCOME AND BE BROUGHT UNDER TAXATION.KINDLY SOME VIEW ON THIS MATTER WITH SOME INSTANCES WHERE COURT HAS GRANTED RELIEF.
ajay sethi
(Expert) 15 February 2014
you can raise query in CA clubindia .com
Guest
(Expert) 15 February 2014
Any public money is prohibited to be deposited in the personal account of the official, as that is treated as misappropriation and embezzlement of the public funds for the purpose of misuse or to earn interest income for the individual, himself.
If the withdrawals were of substantial amount, his controlling Officer could have managed to get additional account opened as a Government account for making transactions authorising the official to operate the account. The money withdrawn by the official through cheques were required to be kept in office safe for expenditure purpose, not for deposit in his personal account.
About your queries my views are as follows:
1) Only if the particulars of cheques issued in the individual's name appear in his imprest or temporary account of the department and a certificate is issued by the Accounts Officer of the department that no amount of cash or through cheques, other than the cheques issued by the controlling officer and that the amount was meant for official use, which the official duly accounted for after making expenditure for official use only.
2) Balance amount of the cheques lying in the official's individual account should be refunded to the office forthwith and receipt taken.
3) Of course that can be treated as personal income if residue amount is not deposited back to Government and remains as balance in his personal account.
BAALASUBRAMANNYAMM
(Expert) 15 February 2014
Here we have to observe two things (1) When the acts of the Assessee was acceptable one in nature by his officials, the assessee has not committed any misappropriations of government funds. (2) The assessee is liable to be made accountable for the deposits made in his bank account, irrespective of the funds to whom it belongs. And hence he finally has to pay the Income Tax.
Sudhir Kumar, Advocate
(Expert) 16 February 2014
Agreeing with Mr Dhingra I will add.
This person has clearly done a fraud with public money.
He has embezzeled (even if temporarily )Govt money and put in his personal account which funds in lakhs. I am not going into details as to what was his charter of duties and what was his designation. But his action is a departmental misconduct fit enough for major penalty (including removal/dismissal)and is also criminal misconduct under Prevention of Corruption Act and section 406 of IPC.
Income Tax deptt is justified in charging tax on income and they do not have jurisdiction to see whether income is bonafide or a result of fraud.
If IT Authorities are pestered then one need to forget that being Govt deptt they can refer matter to his employer deptt and even to CBI, EOW of Police.
If they let him go in this circumstances and do not charge tax then they are party to fraud and liable for disciplinary action.
It is in his interest that he does not rake the issue and pays the income tax from his own pocket with penalty and let the chapter be closed and let the deptt not wake up against him.
Sudhir Kumar, Advocate
(Expert) 16 February 2014
Further, his senior officer is also liable for action and culpability of AG office staff can be seen only if the said certificate issued by them is read.
Mere fact that his senior officer is also in connivance cannot wipe out the fact that embezzlement stands committed (even if temporary )
Income Tax officials are not justified in accepting this plea.
P. Venu
(Expert) 16 February 2014
Theoretically, the action of the official amounts to embezzlement, misappropriation, misconduct etc. etc. The fact of the matter is that this is the way in which the day-to-day affairs of governance in our country is run. It gives many 'advantages' for smooth administration. Audit teams are well aware of it and much of the hospitality they (expect and) enjoy during the audit comes out of such arrangements.
Faults could always be found with such arrangements. And this is taken care of by making some innocent person a scapegoat. There are no immediate remedies available for a public servant caught in the web of this perversity because of the all round institutional failure. The immediate reward would be branded as indisciplined and declared as 'personna non grata'.
Anil Kumar-Advocate
(Querist) 16 February 2014
Without commenting on views of the expert,i have to bring before you all that the Office of the Assessee was at remote Naxal place and there was no instruction as to where those huge amount should be kept. In office- no safety measure were provided. Thus , the assessee kept those amount in bank a/c running in his own name. The Govt.as well as the Public Accounts Committee is aware with such incidence that crore of unutilisaed funds belonging to Govt. is lying in the personal deposits a/c of the respective heads of department. In the instant case Rs.5880000/- deposited in the bank and the income tax department added all deposits u.s.69A of the income tax act'61 which does not belong to Assessee as confirmed by him on oath before the adjudicating officer. The Assessee is a small earner of Rs.8000/- per month or so and now retired. The employer of the Assessee has also issued a certificate that there is no embezzlement,misappropriation and misconduct. Now the department of income tax said that Rs.5880000/- belongs to assessee , meaning thereby it has been earned from illegal business, because being an govt. employee he can not do any other business. As you all expert might be aware that it is one of the inexplicable ironic of tax law that an assessee carrying on an illegal business can claim deduction of expenses or losses incurred in course of that business. The Supreme Court has held that a person carrying on smuggling activities can claim deduction of the currency notes seized from him[CIT V Piara Singh 124 ITR 40; AIR 1980SC 1271,(1980)3 SCR1122] This was on the ground that even if the business is illegal, only the profit of such such business can be taxed and not the gross receipt. Under such circumstances will you all agree that Tax should be levied on all amount or the Assessee should be given chance to explain that if there was deposits,there is withdrawal also and if the imposition of tax is must - the Assessee must furnish a details of debit from 5880000/- .Kindly comments on this.
Anirudh
(Expert) 16 February 2014
Dear Mr. Anil Kumar,
Now the government servant concerned is retired. After retirement, did he return the entire amount lying in his personal account to the Department? If not why not?
Anil Kumar-Advocate
(Querist) 17 February 2014
Dear Mr. Anirudh, the said Assessee has surrendered the whole amount to the Govt. dept. and the interest amount appearing in the account has been attached by the income tax department.
Anirudh
(Expert) 17 February 2014
Dear Mr. Anil,
Then you have a very strong case as explained by you that the entire amount belongs to the Govt. and the amount is being operated by the assessee for and on behalf of the Government. Put everything in writing in a cogent manner. If the AO does not agree but any adverse order is passed, then take it on appeal. Perhaps, you may have to take it up to the last forum i.e. SC. But the Assessee must have proper receipt/acknowledgement from the Govt. department to which he surrendered the money.
Please do not get into CIT V Piara Singh 124 ITR 40 as that was a clear case of illegal activity. In the present case, due to peculiar circumstances explained by you, there is no such illegal activity.
Kumar Doab
(Expert) 17 February 2014
You have posted that:
"The employer of the Assessee has also issued a certificate that there is no embezzlement,misappropriation and misconduct."
Why don't it step forward and bear the Income tax too.
If mere issuance of certificate is not sufficient to rescue the employee then the employer may send his representative to depose before AO.
Anirudh
(Expert) 17 February 2014
Dear Mr. Kumar Doab,
Government is not liable to pay any income tax.
Kumar Doab
(Expert) 17 February 2014
Yes. Mr. Anirudh that is precisely what shall happen.
In this case the interest accrued on funds in account is also not earned by employee.
The whole arrangement was by government for the government.
The ignorant employee earning mere Rs.8000/ is trapped. He never imagined this that is why like many others he shall suffer.
The govt should rescue him.
The certificate issued by the govt. should be of more help the employee if representative of the govt also appears before AO.
If employee succeeds it is better for him.
P. Venu
(Expert) 18 February 2014
In day to day functioning, many a Government Department is no different from the Khap Panchayats; the only difference is that the administration will not accept the responsibility for the mistake/mischief it has induced.
Anirudh
(Expert) 18 February 2014
By leading appropriate and adequate evidence, I am sure the employee can come out successful. But, proper care should be taken to represent him appropriately right from the beginning.
Sudhir Kumar, Advocate
(Expert) 23 February 2014
Mr Anirudh may be right that Govt is not liable to pay income tax.
As observed by Mr Kumar Doab, it is not Govt rather the employee who kept lakhs of embezzled amount in his personal account. He has to bear tax.
even if he has retired action under Pension Rules can be taken upto 4 years of misconduct. It appears he has escaped action due to blessing of senior officer who himself may land in trouble.
P. Venu
(Expert) 25 February 2014
May be a misconduct; but it is a system induced misconduct.
And there is no remedy since, in the existing milieu of public service, discipline is synonymous with servitude i.e. succumbing to the dictates of the official superior without examining its legality.
Guest
(Expert) 26 February 2014
Mr. Venu,
I would have to differ with your statement, "there is no remedy since, in the existing milieu of public service, discipline is synonymous with servitude i.e. succumbing to the dictates of the official superior without examining its legality".
In fact the the money transaction and custody of Government money is regulated by the General Financial Rulres and the Central Trasury Rules. The disctates of the official superior, if there is any, needs be in writing with official permission of the competent authority in relaxation of Rules of GFRs and CTRs. Further, there is also a provision that the Rules of GFRs and CTRs are not within the competence of any authority other the Ministry of Finance. If the "Assessee was at remote Naxal place and there was no instruction as to where those huge amount should be kept," he or his superior was not supposed to flout the prescribed rules. It was incumbent upon the concerned Assessee to point out to the concerned superior authorities to make suitable arrangements for opening of account or custody of cash in consonance of the provisions of the rules. He or his his superior was not supposed to have taken the relaxation as granted without appropriately taking up on record with the competent authority or the MOF.
Guest
(Expert) 26 February 2014
Mr. Venu,
I would have to differ with your statement, "there is no remedy since, in the existing milieu of public service, discipline is synonymous with servitude i.e. succumbing to the dictates of the official superior without examining its legality".
In fact the the money transaction and custody of Government money is regulated by the General Financial Rulres and the Central Trasury Rules. The disctates of the official superior, if there is any, needs be in writing with official permission of the competent authority in relaxation of Rules of GFRs and CTRs. Further, there is also a provision that the Rules of GFRs and CTRs are not within the competence of any authority other the Ministry of Finance. If the "Assessee was at remote Naxal place and there was no instruction as to where those huge amount should be kept," he or his superior was not supposed to flout the prescribed rules. It was incumbent upon the concerned Assessee to point out to the concerned superior authorities to make suitable arrangements for opening of account or custody of cash in consonance of the provisions of the rules. He or his his superior was not supposed to have taken the relaxation as granted without appropriately taking up on record with the competent authority or the MOF.
Guest
(Expert) 26 February 2014
Sorry for double post on repeated click due to extraordinarily slow working site!
Guest
(Expert) 26 February 2014
Dear Anil Kumar,
So far as offence is concerned that is much more grave on the part of the superior authorities, rather than the official concerned, who failed to make appropriate arrangements as per the provisions of the existing rules. Of course, the Assessee cannot be put at loss to pay tax for discharging his job as per the direction of his superiors.
On the other hand, the Assessment Officer cannot also be blamed for his assessment, as he is merely discharging his duties as a Taxman of the Government of India to recover tax on deposits in individual's account. He does not enjoy any power to waive of tax.
So, if there is no instance of bungling of funds or irregularities in the use of money, say for personal use of the official, the only remedy lies in sanction of the amount of tax to be paid to the IT Department, if that falls within the delegated powers of any authority of the department. The alternative route to get the problem solved lies in getting post-facto regularisation of the arrangements made for receipt and payments of the Government funds by the official. But, that is a very complex issue, as none else, other than the Ministry of Finance has the power to relax the provisions of Financial/ Treasury Rules, which have to be observed scrupulously by all the Officers/ officials of Government departments.
Anil Kumar-Advocate
(Querist) 26 February 2014
I am thankful to all Ld. Expert Advocates for their valuable comments which may extend light to me while presenting the matter before Hon'ble ITAT Bench.The outcome of ITAT shall be brought to notice to all of you for your future reference.Further, if any one of you get some valuable information so as to save the client, please sent your comments through this media.Thanking you all once again.
H.M.Patnaik
(Expert) 15 March 2016
As per normal accounting practice whenever a cheque or D.D. is drawn in the name of a official out of Govt. deposit for withdrawal of cash for a temporary period to meet any explainable expenditure, such payment to the officer concerned is to be reflected in the Cash Book of the Establishment as advance to the officer with suitable narration and duly recorded in course of official notings. In the instant case deposit of Govt. funds to the tune of Rs. 30.00 lakhs in personal account is of very high order.However, such payments are seen towards the fag end of the financial year where Utilisation of funds against budgeted expenditure are to be passed in the book of entry by end of the year and for some reason or other Vouchers could not be arranged by that date.Otherwise the allotment against a particular expenditure would have lapsed. After introduction of Budget & Expenditure Act by State Govt.and banking facility like RTGS and NEFT, such situations no longer takes place these days .
