INTEREST ON REFUND OF SEIZED CASH

[Mr. M. GOVINDARAJAN]

Section 132B of the Income Tax Act, 1961 (‘Act’ for short) provides for the application of seized or requisitioned assets. Under sub section (3) any assets or proceeds thereof which remain after the liabilities of the assessee are discharged, shall have to forthwith make over or paid to the persons from whose custody the assets were seized. Sub-section (4) provides for the payment of simple interest at the rate of half per cent every month or part thereof on the amount by which the aggregate amount of money seized under Section 132, as reduced by the amount of money released to the assessee and the amount of proceeds, if any, of the assessee towards the discharge of the existing liability of the assessee, exceeds the aggregate of the amount required to meet the liabilities of the assessee.   The interest shall run from the date immediately following the expiry of the period of 120 days from the date on which the last of the authorizations for the search was executed, to the date of completion of the assessment under Section 153A of the Act.   This interest is to be paid to the assessee without any demand from him.

In ‘Ajay Gupta V. Commissioner of Income Tax’ – 2007 (4) TMI 42 - HIGH COURT, NEW DELHI the High Court directed that it would be reasonable and equitable to order interest to be paid at the rate of 12% on the cash seized in respect of the period beyond the date on which the assessment was completed.

In ‘S.K. Jain V. Commissioner of Income Tax and others’ –2013 (3) TMI 333 - DELHI HIGH COURT a search was conducted at the residential premises of the petitioner on 16.02.2005.   In the course of search cash of Rs. 8,83,800 was found out of which Rs.6,33,800 was seized. The petitioner attempted to explain the source of cash found in his letters to the income tax department. The returns were filed on 08.09.2006, for the assessment years 1999-2000 to 2004-05 were accepted and assessments were completed under Section 153A of the Act.   There was no liability pursuant to the assessment.

The petitioner, therefore, approached the Department and sought for the release of the cash seized on the ground that it was disclosed to the Department.   The same was rejected by the Assessing officer holding that till the finalization of the proceedings under Section 153A of the Act, it was not possible to ascertain whether the cash seized was out of disclosed cash or otherwise.

The petitioner filed his return for the assessment year 2005-06. The assessment was completed under Section 143(3) of the Act in which the cash found during the search was held unexplained.   The petitioner requested the department to adjust the cash seized against the existing tax liability as contained in Section 132B of the Act.   The request of the petitioner for adjustment of the tax was not accepted.

The petitioner filed an appeal before the Commissioner of Income Tax (Appeals) against the assessment order for the assessment year 2005- 06.   The Commissioner (Appeals) confirmed the addition the cash found.   The petitioner further filed appeal before the Tribunal.   The Tribunal held that the cash found from the possession of the assessee actually belonged to M/s S.K. Industries Limited.   The Assessing Officer gave effect to the order of the Tribunal and revised the assessment by which a NIL tax demand is resulted.

The petitioner further requested the Department to release the cash seized as there was no demand outstanding against him.   In the meantime the Department filed appeal before the High Court against the order of the Tribunal which was dismissed by the High Court. On the next day the seized amount was released to the petitioner i.e., on 24.05.2011. The petitioner asked for interest for the inordinate delay in releasing the amount under Section 132B (3) of the Act. Since no fruitful action was there the petitioner filed the present writ petition.   The relief sought for by the petitioner is to issue a writ of mandamus or any other writ/direction or order to grant the interest for the inordinate delay in releasing the amount of Rs. 6,33,800 under Section 132B(3) of the Act seized during the course of search under Section 132(1) of the Act on 17.02.2005, as per provisions of sections 132B(4)(a)(b) and 244A(1)(b) or under any other relevant provisions of the law along with interest on the date of interest due till the date of payment.

The High Court held that in the present case, there is no dispute that the assessee is entitled to interest. The dispute is only whether the petitioner is entitled to any interest on the seized cash from the date on which the assessment was completed under Section 153A of the Act i.e., December 26, 2006 till it was actually released to him on 24.05.2011 and if so, at what rate. The High Court held that the petitioner is entitled to be paid interest @ 12% in respect of the amount seized from him for the period from 26.12.2006 to 24.05.2011.