Facts of the Case

A search and seizure operation was conducted on 16.02.2005, during which cash amounting to Rs.96,14,700/- was found and Rs.92,82,700/- was seized by the authorities.

The petitioner requested release of the amount on 28.03.2005. Following issuance of notice under Section 153A of the Income Tax Act, returns for relevant assessment years were filed and assessment proceedings were completed on 27.12.2006 resulting in NIL tax demand.

Despite repeated representations by the petitioner to the Assessing Officer and Commissioner seeking release of the seized amount, the authorities did not release the amount for several years.

During this period:

  • Rs.33,72,907/- was adjusted against the petitioner's brother's outstanding demand.
  • Rs.54,09,793/- was released on 09.03.2011.
  • Remaining Rs.5,00,000/- was released on 05.04.2011.

The petitioner thereafter claimed interest for the prolonged withholding of money for nearly six years.

Issues Involved

  1. Whether the petitioner was entitled to interest under Section 132B(4) on the entire seized amount of Rs.92,82,700/-.
  2. Whether adjustment of Rs.33,72,907/- against the petitioner's brother's liability under Section 132B(1)(i) was legally sustainable.
  3. Whether interest under Section 244A could be claimed on delayed release of seized cash.
  4. Whether interest was payable for the period after completion of assessment where the statute did not expressly provide for such payment.

Petitioner's Arguments

The petitioner contended that:

  • Interest was payable under Section 132B(4) read with Section 244A on the entire seized amount.
  • The Department unlawfully withheld the amount for nearly six years.
  • Adjustment of Rs.33,72,907/- against another person's liability was unauthorized and contrary to Section 132B(1).
  • The petitioner relied upon:
    • Ajay Gupta v. CIT
    • Sandvik Asia Ltd. v. CIT & Ors.

to argue that interest liability survives even where there is no express statutory provision for prolonged retention of money.

Respondent's Arguments

The Income Tax Department argued that:

  • Interest liability arose only under Section 132B(4).
  • Interest had already been paid for the prescribed statutory period.
  • The Department had correctly reduced Rs.33,72,907/- while computing interest due to adjustment towards liability.
  • Section 244A was inapplicable because it applies only to refund of taxes paid, advance tax, or tax deducted at source and not to money seized during search proceedings.

Court Findings / Order

The Court held:

1. Section 244A not applicable

The Court clarified that Section 244A specifically governs refund of taxes and does not extend to seized cash in search proceedings.

2. Entire amount should have been considered for interest calculation

The Department incorrectly reduced the principal amount by deducting Rs.33,72,907/- while computing statutory interest because the adjustment occurred after completion of assessment.

The petitioner was therefore held entitled to interest on the entire amount of Rs.92,82,700/-.

3. Restitutionary principle applies

The Court held that absence of an express statutory provision does not permit the Department to retain a citizen's money indefinitely without compensatory liability.

4. Interest after assessment period

Applying equitable principles and relying upon judicial precedents, the Court directed payment of interest at 12% per annum for the delayed period after completion of assessment.

Final Directions:

  • Interest for 16 months on Rs.92,82,700/- amounting to Rs.7,42,616/- was directed to be paid after adjusting already paid interest.
  • Interest at 12% per annum on Rs.59,09,793/- from 01.03.2007 to 01.03.2011 was directed.
  • Assessing Officer was directed to provide hearing regarding adjustment of Rs.33,72,907/- and pass a speaking order.

The writ petition was allowed.

Important Clarification

The Court clarified that:

  • Section 132B(4) cannot be interpreted in a manner that defeats the assessee's right to property.
  • Statutory silence regarding payment of interest beyond assessment completion cannot absolve authorities of liability.
  • Courts exercising jurisdiction under Article 226 can apply restitutionary principles to ensure fairness.
  • Search and seizure powers must be exercised with promptness and accountability.

Sections Involved

Income Tax Act, 1961

  • Section 132
  • Section 132A
  • Section 132B(1)(i)
  • Section 132B(2)
  • Section 132B(4)
  • Section 153A
  • Section 153B
  • Section 244A

Constitution of India

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2012:DHC:5272-DB/SRB28082012CW8762012.pdf

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