The Income Tax Department cannot claim seized cash from court custody without a valid tax assessment or demand; interim orders must respect legal processes and limitations of authority.

ORDER

[Crl.M.C. Nos.5034/2023, 5038/2023]

These petitions have been filed challenging the common order dated 6.6.2023 in C.M.P.No. 2061/2022 and C.M.P.No. 371/2023 filed in C.M.P.No. 1866/2023 on the file of the Judicial Magistrate of the First Class, Mananthavady. The above applications have been filed seeking interim release of a sum of Rs.40 lakhs seized by the Circle Inspector of Police, Mananthavady, in the course of routine patrol duty.

2. Short facts are as under:

For simplicity and clarity, the parties will be referred to as described in C.M.P.No. 2061/2022. The 1st petitioner operates a jewellery business under the name ‘Balaji Jewellers’ located in Sattur, Madurai. He is an Income Tax payee and his establishment is registered under the Goods and Services Tax Act. The 2nd petitioner, the son of the 1st petitioner, oversees the business. On 6.10.2022, the 3rd petitioner, an employee, was entrusted with Rs. 40 lakhs for jewellery procurement and an additional sum of Rs. 25,000/- for related expenses. The 3rd petitioner is stated to have travelled to Thrissur, Kerala, for the purchases. During his bus journey, an inspection by the Excise Circle Inspector, Mananthavady, revealed that the 3rd petitioner carried approximately Rs.40 lakhs in cash. Due to the 3rd petitioner's inability to provide a satisfactory explanation for the large amount, the cash was seized. It was subsequently produced before the Jurisdictional Magistrate along with a report numbered as C.M.P.No. 1866/2022.

3. The petitioners approached the learned Magistrate and filed Crl.M.P.No. 2061/2022 seeking interim release of the cash.

4. While the matter was pending consideration, the Income Tax Department filed a report indicating that the proceedings had been initiated under Section 131 (1) of the Income Tax Act, 1961 . Later, a report was filed before the learned Magistrate stating that the money should be released to the IT Department for appropriation towards the taxes and interest payable and the penalty leviable, which would become due on completion of the assessment proceedings and the penalty proceedings within the time specified under the Income Tax Act. Later, C.M.P.No.371/2023 was filed seeking interim custody of the cash.

5. The learned Magistrate, after considering the rival submissions, relied on the law laid down by this Court in Union of India v. State of Kerala , 1[2022 ICO 253] and came to the conclusion that the petitioners cannot be granted interim custody of the cash. It was held that the Income Tax Authority is the authority conferred with powers under the IT Act, and the Department was entitled to get the cash on interim custody. Orders were issued to release the sum of Rs.40 lakhs to the Assistant Director for proceeding under Section 132B or 153A or any other proceeding under the Income Tax Act. The Assistant Director was ordered to execute an undertaking that the entire proceedings shall be completed within a period of six months from the date of release. It was further ordered that if the Assistant Director failed to complete the proceedings within six months, it was ordered that the amount shall be deposited before the court.

6. In view of the issues involved, this Court had requested the learned Senior Counsel Sri Joseph Markose to assist this Court in resolving the issues. The learned Senior Counsel has graciously consented to shoulder the task.

7. Sri. P. Raghunath, the learned counsel appearing for the petitione