2021 (10) TMI 1464 - HC - Income Tax

Seizure of cash by police officials - petitioner is seeking refund of cash seized under the provisions of Income Tax Act together with interest - information was passed on to the Income Tax Authorities who requisitioned the entire money intercepted by the police authorities u/s 132A HELD THAT - Keeping in mind the provisions of Section 132B (4) (b) r.w.s. 244A (1) (b) the petitioner is further found entitled to interest at the rate of 1 and 1/2 per cent per month from the expiry of 20 Corrected to 120 days by Correction Application days from the last authorization issued against him arising from the seizure/detention of Rs. 32, 34, 600/- made by the police authorities on 03.06.1998. Thus the petitioner would be entitled to a refund of Rs. 16, 00, 000/- together with interest as above. The interest at that rate would be applied from that start date up to the date of actual payment made to the petitioner on the amount of 16, 00, 000/- only. As to the balance amount of the other persons namely Sri Ram Kirshna Agarwal (vis-a-vis for seizure of Rs. 8, 00, 000/-) and Sri Deepak Kumar Agarwal (vis-a-vis for seizure of Rs. 8, 34, 600) they may remain similarly entitled. We find that interest of justice has been met in the present case inasmuch as the block assessment order arising from the seizure was made in the status of A.O.P. While that finding may have been erroneous the Tribunal quashed the entire assessment proceedings without allowing the revenue authorities to make a regular reassessment. Hence we do not find it a fit case to award any further amount to the petitioner by way of cost or compensation.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the petitioner is entitled to refund of Rs. 16,00,000/- seized under the provisions of the Income Tax Act, 1961, along with interest.

- Whether the amount seized constituted disclosed or undisclosed income under the Act.

- Whether the block assessment order framed under the status of Association of Persons (A.O.P.) was valid and sustainable.

- Whether the reassessment order framed subsequent to the quashing of the block assessment order was valid.

- The applicability and computation of interest under Section 132B(4)(b) read with Section 244A(1)(b) of the Income Tax Act on the seized amount.

- Whether the petitioner is entitled to any costs or compensation beyond the refund and interest.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Refund of Seized Amount

Relevant Legal Framework and Precedents: The Income Tax Act, 1961, particularly Sections 132A (seizure of money), 132B (refund of seized money), and 244A (interest on refunds), govern the seizure and refund procedure. The petitioner initially filed a writ petition asserting that the Rs. 16,00,000/- seized was disclosed income. The Court had earlier directed that the amount be kept in fixed deposit with interest pending final adjudication.

Court's Interpretation and Reasoning: The Court noted that the block assessment order, which included the seized amount as income, was quashed by the Tribunal, and subsequent reassessment orders were set aside. There was no existing demand or charge against the petitioner related to the seized amount. Thus, no lawful basis existed for retention of the sum by the Revenue.

Key Evidence and Findings: The Tribunal disbelieved the existence of the AOP and quashed the block assessment order dated 29.06.2000. The reassessment order dated 22.12.2006 was also set aside by the CIT (Appeal) and upheld by the Tribunal. The Revenue's appeal against the Tribunal's order was dismissed by this Court, rendering the Tribunal's orders final.

Application of Law to Facts: Since the block assessment and reassessment orders were quashed and set aside, the seized amount cannot be treated as undisclosed income. Accordingly, the petitioner is entitled to refund of Rs. 16,00,000/-.

Treatment of Competing Arguments: The Revenue argued for retention based on the seizure and assessment orders. However, the Court found these orders invalid and without legal effect, thus rejecting the Revenue's contention.

Conclusion: The petitioner is entitled to refund of Rs. 16,00,000/- seized on 03.06.1998.

Issue 2: Validity of Block Assessment Order under A.O.P. Status

Relevant Legal Framework and Precedents: Block assessments under the Income Tax Act allow the Revenue to assess undisclosed income for a block of years. The status of the assessee, whether individual or AOP, affects the assessment process.

Court's Interpretation and Reasoning: The Tribunal disbelieved the existence of the AOP and quashed the block assessment order. The Court noted that the Tribunal's order attained finality as further appeals were dismissed or withdrawn.

Key Evidence and Findings: The block assessment order dated 29.06.2000 treated the petitioner and others as an AOP with total income including seized cash. The Tribunal found no credible basis for such association and quashed the order.

Application of Law to Facts: Since the AOP status was disbelieved, the block assessment order was invalid. The Revenue was not entitled to proceed under the AOP status.

Treatment of Competing Arguments: The Revenue maintained the validity of the block assessment; however, the Tribunal and Court rejected this on evidentiary and legal grounds.

Conclusion: The block assessment order under AOP status was invalid and quashed.

Issue 3: Validity of Reassessment Order Post Quashing of Block Assessment

Relevant Legal Framework and Precedents: Reassessment under the Income Tax Act requires valid initiation and basis. If the original assessment is quashed, reassessment must be justified on fresh grounds.

Court's Interpretation and Reasoning: The reassessment order dated 22.12.2006 was set aside by the CIT (Appeal) and the Tribunal upheld the appellate order. The Court confirmed the finality of these orders.

Key Evidence and Findings: The reassessment was framed despite the Tribunal's quashing of the block assessment. The appellate authorities found no justification for reassessment.

Application of Law to Facts: The reassessment lacked a valid foundation and was rightly set aside.

Treatment of Competing Arguments: The Revenue challenged the setting aside of reassessment, but the Court upheld the appellate decisions.

Conclusion: The reassessment order was invalid and set aside.

Issue 4: Computation and Applicability of Interest on Refund

Relevant Legal Framework and Precedents: Section 132B(4)(b) provides for refund of seized money with interest if no demand is outstanding. Section 244A(1)(b) governs interest on refunds. The Court considered these provisions in determining the interest rate and period.

Court's Interpretation and Reasoning: The Court initially directed interest at 1.5% per month from 20 days after authorization. However, a corrigendum corrected the period to 120 days, consistent with the statutory provision under Section 132B(4)(b). The rate of interest was maintained at 1.5% per month cumulatively.

Key Evidence and Findings: The corrigendum clarified the typographical error in the order regarding the period for interest computation. The Court declined to alter the interest rate as it was an exercise on merits.

Application of Law to Facts: Interest on Rs. 16,00,000/- is payable at 1.5% per month from expiry of 120 days from the last authorization till actual payment.

Treatment of Competing Arguments: The petitioner sought correction of interest period and rate; the Court corrected only the period and declined to change the rate.

Conclusion: Interest at 1.5% per month is payable from 120 days after authorization till payment on the refunded amount.

Issue 5: Entitlement to Costs or Compensation

Relevant Legal Framework and Precedents: Courts may award costs or compensation in appropriate cases to meet the ends of justice.

Court's Interpretation and Reasoning: The Court found that the block assessment was made under an erroneous AOP status and was quashed without allowing regular reassessment. Considering these facts, the Court held it not a fit case for awarding costs or compensation beyond refund and interest.

Key Evidence and Findings: The petitioner relied on a prior decision for compensation, but the Court distinguished the facts and declined additional relief.

Application of Law to Facts: Since the Revenue's actions were not found to be mala fide or unreasonable to an extent warranting compensation, no further amount was awarded.

Treatment of Competing Arguments: The petitioner sought further compensation; the Court denied it based on the case circumstances.

Conclusion: No costs or compensation beyond refund and interest are awarded.

3. SIGNIFICANT HOLDINGS

"The existence of the AOP had been disbelieved by the Tribunal vide its order dated 20.01.2005 while quashing the block assessment order. That order has attained finality owing to the further appeal filed by the Revenue being dismissed."

"There exists no demand against the petitioner arising from the seizure of the cash. No other demand is claimed to be existing against the petitioner as may allow the revenue authorities to detain any part of that amount."

"Keeping in mind the provisions of Section 132B(4)(b) read with Section 244A(1)(b), the petitioner is further found entitled to interest at the rate of 1 and 1/2 per cent per month from the expiry of 120 days from the last authorization issued against him."

"We do not find it a fit case to award any further amount to the petitioner, by way of cost or compensation."

Core principles established include the finality of Tribunal orders disbelieving the AOP status and quashing block assessments, the entitlement to refund of seized money where no valid demand exists, and the application of statutory interest on such refunds from the prescribed period. The judgment clarifies that erroneous block assessments cannot be used to withhold seized amounts indefinitely, and reassessments without valid basis are liable to be set aside.

Final determinations on each issue confirm the petitioner's right to refund Rs. 16,00,000/- seized, with interest at 1.5% per month from 120 days after authorization, no valid assessment or demand exists against the petitioner, and no costs or compensation beyond refund and interest are warranted.