Case Law Details
Kamal Kumar Khetawat Vs Union of India (Jharkhand High Court)
Summary: The Jharkhand High Court considered a petition that, after release of the seized cash of ₹9,00,000 during the pendency of proceedings, was confined to the claim for interest on the refunded amount. The search and seizure under Section 132 of the Income Tax Act took place on 30.04.2019/01.05.2019, and no assessment proceedings were initiated within 120 days. Referring to Section 132B(4), the Court held that interest at one-half per cent per month (6% per annum) was payable from the expiry of 120 days from 01.05.2019 until the refund on 05.06.2026. The Court observed that the absence of assessment could not be used by the Revenue to deny interest and stated that the Court’s jurisdiction under Article 226 was not precluded from awarding compensatory interest where refunds were unduly delayed despite no assessment. The Court rejected the contention that the pending vigilance reference justified withholding interest, directed payment of the interest within six weeks, and ordered that failure to do so would attract interest at 12% per annum. It also clarified that the vigilance proceedings could continue independently and would not be affected by the order.
Issue: Whether interest is payable on cash seized under Section 132 where no assessment proceedings are initiated and the seized amount is refunded after several years?
Brief facts: FA search under Section 132 of the Income-tax Act was conducted on 30.04.2019/01.05.2019. Cash of ₹9,00,000 was seized from the petitioner. No assessment proceedings were initiated within the statutory period. Despite repeated requests, the seized cash was not refunded. During the pendency of the writ petition, the Department refunded the principal amount on 5 June 2026, but did not pay any interest. Consequently, the dispute before the High Court was confined to the petitioner’s claim for interest on the seized amount.
Court’s Observations: The Jharkhand High Court allowed the writ petition and held that Interest under Section 132B(4) cannot be denied merely because the Department failed to complete any assessment. The Revenue cannot take advantage of its own default by retaining seized money indefinitely without assessment.
Court’s Decision: The petitioner was entitled to statutory interest at 0.5% per month (6% per annum) from the expiry of 120 days after execution of the search authorisation till the actual date of refund. The interest was directed to be paid within six weeks, failing which the Department would be liable to pay 12% per annum thereafter. The Court observed that Section 132B(4)(a) prescribes simple interest at 0.5% per month on excess seized money. Under Section 132B(4)(b), such interest ordinarily runs till completion of assessment. Where no assessment is completed at all, the Department cannot contend that no interest is payable. Accepting such a contention would allow the Revenue to profit from its own inaction and prejudice the taxpayer. Although the statute specifies the normal period for interest, the High Court, exercising jurisdiction under Article 226, can grant appropriate relief where the Department’s failure causes unjust enrichment. The Court relied upon Sandvik Asia Ltd. v. Commissioner of Income Tax I, Pune and Umang Agrawal v. Commissioner of Income Tax (Central Circle)
FULL TEXT OF THE JUDGMENT/ORDER OF JHARKHAND HIGH COURT
1. Heard learned counsel for the parties.
2. The rule is made returnable forthwith at the request of and with the consent of the learned counsel for the parties.
3. The petitioner, by instituting this petition, had sought for the release of the seized cash amount of Rs. 9,00,000/- along with statutory rate of interest in terms of Section 132 of the Income Tax Act, 1961.
4. During the pendency of this petition, the seized cash amount of Rs. 9,00,000/- was released to the petitioner. However, no interest was paid to the petitioner on this amount. Hence, Mr Sumeet Gadodia, the learned counsel for the petitioner, made it clear that this petition is now restricted to the payment of interest @ 18% per annum on the seized amount of Rs. 9,00,000/-.
5. Mr Kumar Vaibhav, the learned counsel for the Income Tax Department, submitted that this matter has been referred to the Director General of Income Tax (Vigilance), New Delhi, inter alia, to fix responsibility for how no assessment proceedings were carried out within the statutorily prescribed period despite there being a seizure as contemplated under Section 132 of the I.T. Act. He therefore submitted that the matter may be remanded to the Principal Commissioner of Income Tax, Ranchi, to decide on the issue of payment of interest.
6. Mr Kumar Vaibhav, without prejudice to the above, submitted that the claim of interest for 18% per annum is not justified because Section 132(B)(4)(a) provides for simple interest at the rate of only one-half per cent for every month or part of a month and further, even such interest, runs from the date immediately following the expiry of the period of 120 days from the date on which the last of the authorisations for search under Section 132 or requisition under Section 132A was executed to the date of completion of the assessment or reassessment or recomputation. In short, he submitted, without prejudice, that the interest, if at all, would be at the rate of 6% per annum, and that, too, up to the date of completion of the assessment.
7. The rival contentions now fall for our determination.
8. In this case, search and seizure operations were carried out against the petitioner on 30.04.2019/01.05.2019 under Section 132 of the I.T. Act.
During these search and seizure operations, Rs. 9,00,000/- in cash was seized from the petitioner and deposited into the personal deposit account of the 2nd respondent.
9. Admittedly, within 120 days from the date on which the last of the authorisations for search under Section 132 or requisition under Section 132A was executed, no assessment proceedings were taken. Therefore, upon the expiry of the statutorily prescribed period, the petitioner represented to the respondents for a refund of the seized amount of Rs. 9,00,000/- together with interest at the statutorily prescribed rate. Since the amount with interest was not refunded, the petitioner instituted the present petition.
10. As noted earlier, during the pendency of this petition, an amount of Rs. 9,00,000/-, which was seized, has been refunded to the petitioner, i.e. on 5th June 2026. However, no interest has been paid on this refunded amount.
11. Section 132B (4) of the I.T. Act, which is relevant to decide this petition, reads as follows: –
“(4) (a) The Central Government shall pay simple interest at the rate of [one-half per cent for every month or part of a month] on the amount by which the aggregate amount of money seized under section 132 or requisitioned under section 132A, as reduced by the amount of money, if any, released under the first proviso to clause (i) of sub-section (1), and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (i) of sub-section (1), exceeds the aggregate of the amount required to meet the liabilities referred to in clause (i) of sub-section (1) of this section.
(b) Such interest shall run from the date immediately following the expiry of the period of one hundred and twenty days from the date on which the last of the authorisations for search under section 132 or requisition under section 132A was executed to the date of completion of the assessment [or reassessment or recomputation].”
12. Based on the same, we are satisfied, at least presently, that the respondents must pay to the petitioner interest on the refunded amount at the rate of one-half per cent per month, or 6% per annum. In terms of Section 132B(4)(b), such interest should run from the date immediately following the expiry of the period of 120 days from the date on which the last of the authorisations for search under Section 132 or requisition under Section 132A was executed to the date of completion of the assessment, reassessment or recomputation.
13. However, in this case, no assessment was undertaken. Therefore, Mr. Gadodia argued that compensatory interest must be awarded to the petitioner. He relied upon the decisions of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd. Vs. Commissioner of Income Tax I, Pune and others, (2006) 2 SCC 508 and of the Allahabad High Court in the case of Umang Agrawal Vs. Commissioner of Income Tax (Central Circle) and others, 2015 SCC OnLine All 10003.
14. Under Section 132B(4)(b), interest on refunds runs up to the date of completion of the assessment. Since no assessment was made in this case, the Revenue cannot argue that no interest is payable. In fact, it is possible to contend that compensatory interest must be paid in such a situation, as held by the Allahabad High Court after considering Sandvik Asia Ltd. (supra). Otherwise, the Revenue would be allowed to benefit from its own default, and correspondingly, the assessee would be forced to suffer for the Revenue’s failure to act or to act within the period prescribed by law.
15. The Court held that interest beyond the period specified under the above statute may not be allowed at the statutory rate prescribed in that provision. However, that does not preclude a Court from exercising its extraordinary jurisdiction under Article 226 of the Constitution of India to award compensatory interest where, despite seizure, no assessment is made and refunds are unduly delayed.
16. Insofar as the argument about the reference of the matter to the Director General of Income Tax (Vigilance) is concerned, we do not consider it a sufficient ground to withhold interest from the petitioner at this stage. Such a reference is intended to determine, and hopefully fix, responsibility on officials who failed to hold assessment proceedings within the statutorily prescribed period, thereby requiring the Revenue to refund the seized amount and pay interest thereon to the assessee. The payment of interest to the assessee cannot be further delayed on account of such a reference.
17. Further, we clarify that this order shall not affect or influence the reference proceedings referred to by Mr Kumar Vaibhav. They can always proceed in accordance with the law. However, for the reasons discussed above, the pendency of such a reference will not be a sufficient reason to further delay payment of interest to the petitioner.
18. Accordingly, we allow this petition and direct the respondents to pay the petitioner interest at the rate of one-half per cent per month or 6% per annum on the amount of Rs. 9,00,000/- commencing from the expiry of 120 days from 01.05.2019 till the date of refund of this amount, i.e. on 5th June 2026. This interest component must be paid to the petitioner within six weeks from today, failing which, the respondents will be liable to pay interest at the rate of 12% per annum.
19. If at all the situation arises for payment of interest at the rate of 12% per annum, the respondents must hold the errant officials responsible for the delay and consider recovering this additional amount from such officers, no doubt after complying with the principles of natural justice and fair play. But we do hope that such a situation will not arise. Rule is made absolute to the above extent without any order for costs.
20. Pending Interlocutory Applications, if any, do not survive and are disposed of.
21. All concerned must act on an authenticated copy of this order.
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