Facts of the Case

The petitioner, S.K. Jain, was subjected to a search and seizure operation under Section 132(1) of the Income Tax Act on 16.02.2005 at his residential premises. During the search, cash amounting to ₹8,83,800/- was found, out of which ₹6,33,800/- was seized by the Income Tax Department.

The petitioner repeatedly explained the source of the seized cash before the authorities. Assessments for Assessment Years 1999–2000 to 2004–2005 under Section 153A were completed and no tax liability arose against the petitioner.

Subsequently, in assessment proceedings for Assessment Year 2005–06 under Section 143(3), the seized cash was treated as unexplained income. The petitioner challenged the assessment before the appellate authorities. The Income Tax Appellate Tribunal eventually held that the cash belonged to M/s S.K. Industries Pvt. Ltd., resulting in a revised assessment with nil tax demand.

Although the Revenue's appeal was dismissed, the seized amount was released only on 24.05.2011. The petitioner thereafter sought payment of interest for the prolonged delay in release of the seized amount.

 

Issues Involved

  1. Whether the petitioner was entitled to interest on the seized cash amount for the period after completion of assessment until the date of actual release of the amount?
  2. Whether the Income Tax Department could retain seized cash after completion of proceedings despite absence of any outstanding tax demand?
  3. Whether interest at 12% could be awarded for delayed release of seized cash in the absence of an express statutory provision covering such period?

 

Petitioner's Arguments

The petitioner argued that:

  • The cash seized had ultimately resulted in no outstanding tax liability.
  • Under Section 132B of the Act, seized assets remaining after adjustment of liabilities are required to be returned immediately.
  • There was an unreasonable and inordinate delay in releasing the amount.
  • Reliance was placed upon:
    • Sandvik Asia Ltd. v. CIT & Ors. (2006) 280 ITR 643
    • Ajay Gupta v. CIT (2008) 297 ITR 125
    • G.L. Jain v. CIT & Ors.

The petitioner contended that interest at 12% should be granted for the period beyond completion of assessment till actual payment.

 

Respondent's Arguments

The Revenue argued that:

  • The Supreme Court judgment in Sandvik Asia Ltd. had subsequently been doubted in CIT v. Gujarat Fluoro Chemicals.
  • Therefore, reliance upon Sandvik Asia for grant of interest beyond statutory provisions was not justified.

The Revenue contended that statutory provisions under Section 132B did not specifically provide for such additional interest after completion of assessment proceedings.

 

Court Findings / Order

The Delhi High Court observed that:

  • Section 132B(4) expressly grants interest up to completion of assessment proceedings.
  • However, no provision existed regarding interest for the period after completion of assessment till actual release of seized cash.
  • The Revenue had unjustifiably retained the amount despite no tax demand remaining against the petitioner.
  • The earlier decision in G.L. Jain v. CIT had already dealt with an identical issue and granted interest at 12%.
  • The Court held that Sandvik Asia Ltd. continued to operate as binding precedent at the relevant time.

Accordingly, the Court issued a writ of mandamus directing payment of:

Interest @ 12% on ₹6,33,800/- for the period from 27.12.2006 to 24.05.2011.

The Revenue was directed to make payment within six weeks. The writ petition was allowed without costs.

 

Important Clarification

  • Interest under Section 132B(4) is statutorily available only up to completion of assessment proceedings.
  • Courts may grant equitable relief and compensation in cases where Revenue retains money without legal justification after completion of proceedings.
  • Retention of seized assets after cessation of liability may result in judicially directed payment of interest.
  • The decision reinforces that the Revenue cannot unjustly withhold taxpayer funds.

 

Sections Involved

Income Tax Act, 1961

  • Section 132(1) – Search and Seizure
  • Section 132B(3) – Release of Seized Assets
  • Section 132B(4)(a) and (b) – Interest on Seized Assets
  • Section 143(3) – Assessment
  • Section 153A – Assessment in Search Cases
  • Section 244A(1)(b) – Interest on Refunds

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2013:DHC:1333-DB/RVE12032013CW75512012.pdf

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