IMPORTANT POINT
The court ruled that interest on delayed refund is due despite provisions of the VSV Act denying such interest, emphasizing accountability for wrongful retention of funds.

JUDGMENT :

Bechu Kurian Thomas, J.

As per an order issued under the Vivad Se Vishwas Scheme, the petitioner was found eligible for a refund of Rs.28,81,185/-. Despite the order, the amount was paid only after a 23-month delay. The petitioner's claim for interest on the refund so ordered was declined, and hence, he has approached this Court under Article 226 of the Constitution of India.

2. On 04.08.2015, the police intercepted a vehicle, which, on search, was found to contain currency notes to the tune of Rs.1,10,00,000/- apart from 3 kilograms of gold bars, valued at Rs.75,00,000/-. The currency notes and the gold so seized were handed over to the jurisdictional Magistrate, pursuant to the registration of a crime. After due procedure, the income tax department declared the currency notes and the seized gold as income in the hands of the petitioner under the provisions of the Income Tax Act, 1961, (for short ‘the Act’). Thereafter, a claim petition was filed before the Magistrate’s Court and custody of the currency notes was granted to the Income Tax Department on 04.11.2015 in view of orders issued under section 132A of the Income Tax Act, 1961. Subsequently, an order of assessment dated 08.12.2017 was issued assessing the total income of the petitioner at Rs.1,86,80,000/- for the assessment year 2016-17.

3. Consequent to the enactment of the Direct Tax Vivad Se Vishwas Act, 2020 (for short ‘VSV Act’) petitioner had, on 08.01.2021, filed a declaration under section 4 of the said Act which was accepted and the amount payable by the petitioner was determined. Thereafter, a certificate dated 24.11.2021, in Form 5, stating the amount of penalty due from the petitioner was issued. Since out of the currency notes seized from the petitioner, an amount of Rs.42,82,185/- was retained by the respondents, by a proceeding dated 29.11.2023, an order was issued, giving effect to Form 5 certificate and directed refund of Rs.28,81,185/-.

4. The proceeding under the Vivad Se Vishwas Scheme was initiated at a time when the order levying a penalty of Rs.56,04,000/- was pending consideration before the CIT Appeals. Subsequently, on 29.11.2023, a recomputation was done and an amount of Rs.28,81,185/- was ordered to be refunded to the petitioner. By the time the refund was made, a delay of almost two years occurred. Hence petitioner raised his grievance stating that the order giving effect to Form 5 certificate was issued belatedly without payment of any interest. Again, on 01.02.2024, petitioner requested for grant of interest on the amount refunded. Despite two representations, when there was no response, petitioner has approached this Court through this writ petition, claiming interest on the delayed refund.

5. A statement has been filed on behalf of respondents 1 and 2 stating that as per section 7 of the VSV Act, interest is not payable and therefore the respondents are justified in refusing to grant interest on the refund. It was also stated that the denial of interest on refund issued under the VSV Act is in accordance with the provisions of the statute and the statutory scheme does not contemplate any grant of interest on the refund.

6. Sri. Saju S., the learned counsel for the petitioner vehemently contended that the quantum of refund was ordered as per Form 5, as early as on 24.11.2021 while it was actually paid only on 29.11.2023. After the refund crystallised, the respondents could not have sat on it and delayed granting the refund so ordered and hence it was submitted that interest was liable to be paid for the period of delay. The learned Counsel relied upon the judgment of the Division Bench of Bombay High Court in UPS Freight Services India Pvt. Ltd. v. Deputy Commissioner of Income Tax, Central Circle [2023 SCC OnLine Bom 2960] in support of his contentions.

7. Smt. Susie B. Varghese, the learned Senior Standing Counsel for the Income Tax Department, on the other hand, contended that petitioner was a non-filer of income tax returns all al