2004 (10) TMI 77 - HC - Income Tax

Retention of bonds which had been seized during the search and seizure operation - By the impugned order the learned single judge directed the Revenue authorities to release to the writ petitioner/respondent 9 per cent. R.B.I. Relief Bonds, valued at Rs. 7.2 crores which had been seized during the search and seizure operation under section 132 - In our view, once the block assessment in respect of the seized bonds was set aside by the Commissioner of Income-tax (Appeals) the right of the Revenue to retain the said bonds ceased, unless, of course, an appropriate order of stay had been obtained by the Revenue in the pending appeal before the Income-tax Appellate Tribunal. - We, therefore, see no reason to interfere with the judgment and order under appeal and the appeal and the revenue s application are both dismissed

Issues Involved:
1. Legality of the release of seized RBI Relief Bonds during the pendency of an appeal.
2. Application of Section 132B of the Income-tax Act, 1961.
3. Powers of the Income-tax Appellate Tribunal regarding stay applications.
4. Retention of disclosed assets by the Revenue.
5. Judicial discipline concerning orders of appellate authorities.

Detailed Analysis:

1. Legality of the Release of Seized RBI Relief Bonds During the Pendency of an Appeal:
The Revenue argued that the single judge erred in directing the release of the seized RBI Relief Bonds valued at Rs. 7.2 crores during the pendency of the appeal before the Income-tax Appellate Tribunal. The Revenue contended that if the appeal succeeds, it would be difficult to realize the assessed tax from the assessee. The court found that the pendency of the appeal could not justify the retention of the bonds, especially since the block assessment had been set aside by the Commissioner of Income-tax (Appeals).

2. Application of Section 132B of the Income-tax Act, 1961:
The court examined Section 132B, which deals with the application of seized or requisitioned assets. Mr. Poddar, representing the assessee, argued that the seized bonds were disclosed assets and not subject to Section 132B. The court agreed, stating that Section 132B(1)(i) applies to existing liabilities, and since the block assessment had been set aside, there was no existing liability. The court emphasized that the seized bonds could not be retained for future liabilities.

3. Powers of the Income-tax Appellate Tribunal Regarding Stay Applications:
The Revenue argued that there was no provision under the Income-tax (Appellate Tribunal) Rules, 1963, for the Revenue to apply for withholding seized securities. However, Mr. Poddar cited the Supreme Court's decision in ITO v. M.K. Mohammed Kunhi, which held that the Tribunal has the power to grant stay to ensure that the appeal is not rendered nugatory. The court noted that the Revenue did not take any steps under Rule 35A of the Appellate Tribunal Rules, which allows for stay applications.

4. Retention of Disclosed Assets by the Revenue:
The court found that the seized RBI Relief Bonds were disclosed assets and not subject to retention under Section 132B. Mr. Poddar argued that the bonds were purchased from funds withdrawn from partnership concerns and were not taxable. The court agreed, stating that the retention of the bonds was legally incompetent after the block assessment was set aside.

5. Judicial Discipline Concerning Orders of Appellate Authorities:
Mr. Poddar contended that orders passed by appellate authorities are binding on Revenue authorities, and the principles of judicial discipline require unreserved compliance. The court agreed, stating that the Revenue's right to retain the bonds ceased once the block assessment was set aside, unless a stay order was obtained from the Tribunal.

Conclusion:
The court dismissed the appeal and application filed by the Revenue, upholding the single judge's order to release the seized RBI Relief Bonds to the assessee. The court extended the time for compliance with the directions for the return of the bonds until October 31, 2004. The judgment emphasized that the appellate forum has incidental and ancillary powers, including granting stays to ensure that appeals are not rendered infructuous. The court found no justification for the Revenue to retain the bonds in the absence of an existing tax liability.

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