Back
Can Retain Seized Cash Beyond 120 Days? Refers
The has declined to order the immediate release of ₹5.68 crore in cash seized during an income tax search and has instead referred a fundamental question of to a larger bench: whether the must automatically release seized assets after the expiry of 120 days under . The reference arises from a petition by a person claiming ownership of cash that was seized from the premises of an angadiya firm, , in .
A Division Bench comprising Justice A.S. Supehia and Justice Vaibhavi D. Nanavati framed three specific questions concerning the interplay between the First and Second Provisos to . The court observed that earlier decisions had treated the 120-day deadline as effectively mandatory, but those rulings had not considered the effect of , which provides for interest on money retained beyond that period. The larger bench will now determine whether the words “” in the impose a in every case, particularly when a taxpayer has not adequately explained the .
Background: The Seizure and the Petition
The received intelligence on , about a large amount of cash at the Ahmedabad premises of , an angadiya firm. A was executed the next day, and ₹5,68,37,500 was seized. The petitioner, who claimed the money belonged to him, asserted that he had withdrawn the cash from bank accounts and kept it with Prime Enterprise for safe custody and for making payments connected with agricultural produce purchases.
Separate proceedings were initiated under the . On , the benami authority dropped those proceedings, recording that the ownership of the cash had been established and that it was not . Relying on that order, the petitioner applied for release of the cash on — well beyond the 30-day period prescribed under the to . He sent a reminder in and, receiving no response, approached the High Court.
The Three Questions Referred to the Larger Bench
The Division Bench identified a conflict between the plain language of the and the scheme of Section 132B as a whole. The three questions are:
-
Whether the release of seized assets is mandatory upon completion of 120 days, where an application is filed under the within 30 days, by construing the expression “” as mandatory.
-
Whether seized assets can be released upon completion of 120 days in the absence of any determination of tax liabilities in assessment proceedings, where no decision is taken by the on a timely application.
-
Whether the is required to take cognizance of an application filed by the taxpayer and intimate rejection thereof, where the application does not disclose the nature and source of the assets, and whether non-intimation results in after 120 days.
Mandatory or Not? The Court’s Preliminary View
The bench made it clear that, , the release of seized assets after 120 days is not routine or automatic. The court stated: “On a careful examination of the statutory framework of Section 132B of the IT Act, we find that the release of seized assets under to Clause(i) to Section 132B(1) of the IT Act on completion of 120 days is not routine or automatic, though it bears the expression ‘’.”
The court emphasised that the use of the word “shall” does not automatically make a provision mandatory. The real intention must be gathered from the overall scope and purpose of the statute. It held that the First and Second Provisos must be read together. The requires a person seeking release to apply within 30 days and explain the to the . That satisfaction is mandatory. Merely establishing ownership in other proceedings, such as under the Benami Act, does not fulfil the requirement under Section 132B.
The bench also observed that filing an application for release is not an empty formality. If the taxpayer does not disclose the nature and source of the seized asset, the is not required to call upon the taxpayer to provide that explanation. Consequently, the seized cash could not be ordered to be released in the absence of the required disclosure and the officer’s satisfaction.
Departure from Earlier Precedents
The existing position in the was set out in , where it was held that if no decision is taken within 120 days, “releasing of the asset becomes imminent.” That view was followed in and . The present bench, however, found that none of these decisions had examined the effect of on the release mechanism.
provides for payment of simple interest by the on money retained after the expiry of 120 days, running from the day immediately following that period until completion of the relevant assessment. The bench described this provision as a compensatory measure for taxpayers whose liquidity remains restricted and as a financial check on the Department to complete assessments promptly.
The court distinguished , which dealt with retention of books of account under , and held that its ratio could not simply be applied to the statutory scheme governing release of seized assets under Section 132B.
Interest as a Compensatory Mechanism: A Game-Changer
The bench’s focus on marks a significant shift. By treating the interest provision as relevant to interpreting the mandatory nature of release, the court has opened the door to a more nuanced approach. The existence of an interest remedy may indicate that Parliament intended to allow the Department to retain assets beyond 120 days in certain circumstances, while compensating the taxpayer. This could mean that is not the only consequence of delay.
If the larger bench accepts this reasoning, it will overturn the line of cases that treated the 120-day period as a hard deadline. Taxpayers may lose the ability to demand immediate release merely because the Department has not passed an order, but they will gain a clear right to interest. Conversely, the Department may be able to retain assets longer, provided it pays interest and does not act arbitrarily.
Implications for Taxpayers and the Department
For legal practitioners, the reference signals that the law on seized assets is far from settled. The larger bench’s decision will have wide-reaching consequences for every income tax search and seizure operation. If the bench holds that release is not automatic, taxpayers will need to ensure that their release applications are complete and supported by a full disclosure of the nature and source of assets. An application that merely asserts ownership will not suffice.
The Department, on the other hand, may be required to formally decide applications within 120 days, even if the application is deficient. The third question — whether the must communicate rejection of an incomplete application — will be critical. If the answer is yes, the Department cannot remain silent and then later argue that the application was invalid.
The reference also highlights the importance of the interest mechanism. Taxpayers may now consider whether to seek interest under rather than insist on release, particularly in cases where the assessment is likely to be completed soon and the assets are not needed for liquidity.
Conclusion
The ’s reference to a larger bench is a recognition that the interplay between the provisos to and the interest provision under raises substantial questions of law that require authoritative resolution. Until the larger bench renders its decision, the law in Gujarat remains in a state of flux. The case serves as a reminder that the words “” are not absolute and that the context of the entire statutory scheme must be considered. For the legal community, this development underscores the need to carefully draft release applications and to be prepared for a more flexible approach to the 120-day timeline. The larger bench’s answers will shape the balance between the Revenue’s power to retain assets and the taxpayer’s right to liquidity in the years to come.
