PCIT Vs Kapoor Industries Limited (Delhi High Court)
Cash Seized From Another’s Locker Cannot Become Department’s Permanent Locker-Delhi HC Orders Refund After Adjustment u/s 132B
The Delhi High Court has held, at the interim stage, that once the assessment of the searched person stood completed without fastening any liability upon the seized cash & the Department accepted that the cash belonged to another assessee, the protection available to the Revenue under section 132B came to an end. The Department could not continue retaining the money merely because reassessment proceedings were subsequently initiated against its real owner.
However, the Court has admitted the Revenue’s appeal on the larger legal question whether cash seized from the lockers of searched persons could be claimed by another assessee as its self-assessment tax.
Facts of the Case
During search proceedings, cash of ₹17,66,50,000 was seized from lockers belonging to Shakun Tamang & Ashish Kapoor. Kapoor Industries Ltd. claimed that the seized cash represented its cash sales.
Before Kapoor Industries filed its return for AY 2024-25, Ashish Kapoor addressed a letter to the AO stating that the cash belonged to Kapoor Industries & requesting that the seized amount be treated as the company’s self-assessment tax. Significantly, the AO was common to both Ashish Kapoor & Kapoor Industries.
Kapoor Industries thereafter filed its return on 28.10.2024, disclosed the sum of ₹17.66 crore as cash sales & claimed corresponding credit as self-assessment tax. The return was processed under section 143(1) on 07.11.2024.
The ITAT directed the AO to give credit for ₹17.66 crore, adjust the outstanding tax liability of ₹3,74,28,230 & refund the balance amount to the assessee. The Revenue challenged the ITAT’s order before the Delhi High Court & sought a stay.
Revenue’s Argument
The Revenue contended that the seized cash could not be treated as self-assessment tax of Kapoor Industries because it had been seized from the lockers of other persons.
According to the Department, under section 132B, the seized amount could be retained until completion of the assessments of the searched persons. Merely because Ashish Kapoor had written a letter claiming that the cash belonged to Kapoor Industries did not confer an enforceable right upon the company to treat it as its self-assessment tax.
The Revenue further relied upon the fact that proceedings under section 148 had subsequently been initiated against Kapoor Industries on 18.06.2026. It argued that the amount could therefore continue to be retained against the possible liability arising from those proceedings.
Assessee’s Stand
The assessee pointed out that Ashish Kapoor had informed the common AO, even before the return was filed, that the cash belonged to Kapoor Industries. The company had duly offered the entire amount as its cash sales & the return was processed under section 143(1).
The Department had not disputed the basic fact that the cash belonged to Kapoor Industries. There was therefore no justification for refusing to give credit for the amount.
Alternatively, even if the amount could not technically be regarded as self-assessment tax on the date of filing the return, the Department was bound to adjust the admitted liability of ₹3.74 crore & refund the balance.
It was also argued that the reassessment notice issued nearly eight months after the ITAT’s order appeared to have been initiated only to prevent implementation of that order.
Delhi HC’s Prima Facie View
The High Court rejected the Department’s stay application.
It noted that the assessment of the searched person, Ashish Kapoor, had been completed on 27.03.2026. No demand relatable to the seized cash was raised against him & his explanation that the cash belonged to Kapoor Industries stood accepted.
The Court held that, upon completion of the searched person’s assessment, the Department’s charge over the cash under section 132B stood extinguished. Once that charge ended, the Department could not continue withholding the amount merely by initiating subsequent reassessment proceedings against Kapoor Industries—a person against whom no warrant of authorisation had been issued.
The Court acknowledged that the AO might initially have been justified in refusing to regard the seized cash as self-assessment tax. Nevertheless, after completion of Ashish Kapoor’s assessment on 27.03.2026, there remained no doubt that the money belonged to Kapoor Industries.
Accordingly, the AO was directed to release ₹17,66,50,000 after adjusting the tax liability of ₹3,74,28,230, within 30 days.
Interest Kept in Safe Custody
The Court directed the AO to calculate the applicable interest & communicate the computation to the assessee. However, since the question whether interest is payable on excess self-assessment tax was stated to be pending before a Larger Bench, the interest was not directed to be immediately paid to the assessee.
Instead, the calculated interest must be deposited with the Registrar General of the High Court, who will keep it in an auto-renewable interest-bearing FDR. If the Larger Bench decides the issue in favour of assessees, Kapoor Industries may seek release of that amount.
Appeal Admitted – Final Question Still Open
Importantly, this is not the final disposal of the Revenue’s appeal. The Court admitted the appeal to examine whether an assessee can claim, as its self-assessment tax, cash seized from lockers belonging to searched persons & whether the ITAT was justified in directing credit and refund when the AO had not accepted the searched person’s request by the date on which the return was filed.
Author’s Comments
The order draws an important distinction between the Department’s initial right to retain seized cash & its supposed right to retain it indefinitely. Section 132B protects legitimate Revenue interests; it does not convert seizure into permanent ownership.
Once the searched person’s assessment was completed, no liability was found against the cash & its ownership by Kapoor Industries was accepted, continued retention lost its statutory foundation. A reassessment notice issued much later could not retrospectively revive an extinguished charge.
The final ruling on whether such cash can technically be characterised as another assessee’s self-assessment tax is still awaited. But, for the moment, the Delhi HC’s message is clear: the Department may adjust a lawful demand, but it cannot keep the balance merely because the money is already in its hands.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Instant application has been filed under Section 260A(2A) of the Income Tax Act, 1961 read with Section 5 of the Limitation Act, 1963 seeking condonation of delay of 92 days in filing the appeal.
2. For the reasons stated in the application, the delay of 92 days in filing the appeal is condoned.
3. Application stands disposed of.
4. Mr. Puneet Rai, learned Senior Standing Counsel for the appellant argued that the assessee/Kapoor Industries had wrongly claimed the amount of Rs.17,66,50,000/- (which was seized from lockers of Shakun Tamang and Ashish Kapoor) as self assessment tax on its behalf for AY 2024-25, as the assessment proceeding of searched person was pending and as per the provisions of Section 132B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’), until the assessments of searched person(s) are complete, the Department or the Assessing Officer (hereinafter referred to as ‘AO’) can retain the seized amount to be adjusted against the demand.
5. He argued that neither the seized amount could be claimed as self-assessment tax nor any adjustment could be claimed as a matter of right in case of person other then the person from whose possession, it was seized.
6. In this regard, he submitted that the amount of cash seized during the course of search can be adjusted against the existing tax liability or the liability which is the likely to be determined against such person, but since on the date of filing the return by the respondent-assessee (on 28.10.2024), the assessment of the searched person, namely, Ashish Kapoor was pending, regardless of the fact that Ashish Kapoor had written a letter to consider the cash seized as income of Kapoor Industries-respondent, said amount could not have been treated to be a self-assessment tax.
7. Mr. Puneet Rai, as an additional fact submitted that reassessment proceedings under Section 148 of the Act of 1961 have been initiated against the respondent-assessee on 18.06.2026 and thus, the amount can be retained by Department by virtue of provisions of Section 132B of the Act of 1961.
8. Mr. Sachit Jolly, learned Senior Counsel for the respondent, on the other hand, submitted that even before filing the return, Ashish Kapoor, from whose locker the cash was seized had written a letter to the AO, who incidentally was the AO of the both the assessees (namely, Ashish Kapoor and Kapoor Industries), which letter stated that the disputed cash belonged to Kapoor Industries and that such cash lying seized be treated to be self-assessment tax of Kapoor Industries. And it was only, thereafter, the respondent-assessee had claimed it to be self-assessment tax, while furnishing the return on 28.10.2024.
9. He submitted that it is interesting to note that the assessee’s assessment under Section 143(1)(a) had been made and the amount of Rs.17,66,50,000/- which was offered as income by Kapoor Industries as cash sale had been accepted as claimed and vehemently argued that since the AO did not dispute the factual position that the cash of Rs.17,66,50,000/- did belong to Kapoor Industries, there was no valid reason to refuse to consider the amount of Rs.17,66,50,000/- as self-assessment tax.
10. He alternatively argued that even if the argument of Mr. Puneet Rai is presumed to be correct, then also, the amount of Rs.17,66,50,000/- which was lying with the Department should have been adjusted against the purported liability of Rs.3,74,28,230/- and the remaining amount ought to have been refunded, which is precisely the order of the Tribunal.
11. In relation to Mr. Puneet Rai’s contention that the Department has initiated proceedings under Section 148 of the Act of 1961, against the assessee, Mr. Sachit Jolly argued with all vehemence at his command that those proceedings apart from being illegal and without jurisdiction are arbitrary as well. He added that the same have been triggered only to frustrate the order of the Tribunal and ensure that the assessee does not get the fruits of the Tribunal’s order. He highlighted that the Tribunal’s order under consideration was passed on 31.10.2025, whereas the notice under Section 148 of the Act of 1961 came to be issued on 18.06.2026. Even the present appeal is also an afterthought and has been filed once the respondent assessee has pursued the Department for compliance of the order of the Tribunal and approached this Court for seeking direction by way of W.P.(C) 9138/2026.
12. He submitted that the respondent-assessee, at this juncture, is not much concerned as to whether the amount ought to have been considered as self-assessment tax or should have been adjusted after assessee’s assessment under Section 143(1)(a) of the Act of 1961 was made and after adjusting the liability of Rs.3,74,28,230/-. He argued that the appeal be rejected and the appellant be directed to refund the amount forthwith alongwith applicable interest.
13. Heard learned counsel for the parties.
14. The argument of Mr. Rai, learned Senior Standing Counsel that Section 132B of the Act of 1961 gives power to retain the seized amount does not come to the aid of the Department because it has to be taken into consideration that the notice under Section 148 of the Act of 1961 to the respondent (who was not a searched person) was issued on 18.06.2026, which is approximately 8 months of passing of the order of the Tribunal. The moment assessment of searched person was made (27.03.2026) the charge over the cash by virtue of Section 132B of the Act of 1961 stood extinguished. Once the charge got over, the Income Tax Department cannot withhold the amount by subsequent proceedings initiated against Kapoor Industries, qua whom even warrant of authorization was not issued.
15. The AO has accepted the return filed by the assessee, wherein the cash of Rs.17,66,50,000/- was shown as cash sale and in the return of income such amount was claimed as self-assessment tax. The return was processed under Section 143(1) on 07.11.2024. The AO may be justified in not considering this amount as self-assessment tax, but in any case once assessment of searched person-Ashish Kapoor has been made and no demand qua this amount was raised and his plea was accepted that this amount belonged to Kapoor Industries, after 27.03.2026, there remained no doubt that said amount belonged to Kapoor Industries. As such, we do not find any reason to grant stay as prayed by the appellant.
16. We, therefore, reject the stay application and direct the AO to pay the amount of Rs.17,66,50,000/- after adjusting the so called tax liability of Rs.3,74,28,230/- within a period of 30 days from today. The AO is directed to calculate the applicable amount of interest and communicate the same to the assessee. The amount so calculated shall not be paid to the assessee, as we are told that the issue, as to whether an assessee is entitled to get interest on excess payment of self-assessment tax is pending consideration of the Larger Bench.
17. The amount of interest so calculated shall be remitted to the Registrar General of this Court within two months from today, who shall get an auto renewable interest bearing FDR prepared in the name of respondent-assessee and keep it with him. In case the issue is decided in favour of the assessee by the Larger Bench, the said amount of interest shall be paid to the assessee on an application moved by it in this regard.
18. Stay application stands disposed of.
ITA 671/2026
19. The appeal is, however, admitted on the following questions:
(i) Whether in the facts and circumstances of the case, the assessee could have claimed adjustment of the amount seized from the locker belonging to Shakun Tamang and Ashish Kapoor (searched person) as its self-assessment Tax for Assessment Year 2024-25?
(ii) Whether the Income Tax Appellate Tribunal was legally justified in directing the Assessing Officer to give credit of the amount of Rs.17,66,50,000/- and give refund of the remaining amount to the assessee, when the AO had not accepted (expressly or impliedly) searched person’s request of treating the seized cash as income of the respondent assessee by the time return was filed?
20. List this case in due course.
