2007 (4) TMI 42 - HC - Income Tax

Search was conducted on 2.7.2002 u/s 132. Cash amounting to Rs. 33,00,000/- were seized. AO passed the Block Assessment Order as on 30.7.2004. It was held that the assessee is eligible to receive interest u/s 132B(4)(b) with effect from 1.11.2002 i.e. after expiry of 120 days from the date of seizure

Issues Involved:
1. Date from which the Income Tax Department is liable to pay interest on the seized amount.
2. Calculation and payment of interest on the seized amount.
3. Applicability and interpretation of Sections 132B(4) and 244A of the Income Tax Act.
4. Entitlement to compensation/damages for delay in payment of interest.

Detailed Analysis:

1. Date from which the Income Tax Department is liable to pay interest on the seized amount:
The primary issue in this case is determining the date from which the Income Tax Department is liable to pay interest on the amount seized from the Petitioner during a search conducted on 2.7.2002 under Section 132 of the Income Tax Act, 1961. The Department seized Rs.33,00,000/- and later determined that the Assessee's undisclosed income was Rs.12,43,232/-, leading to a tax demand and penalty totaling Rs.15,66,471/-. The remaining amount of Rs.17,33,529/- was released on 27.9.2004. The Assessee argued that interest should be paid from the expiry of 120 days after the search, i.e., from 1.11.2002. The Court noted that the Department had already computed interest from this date, indicating their understanding of the statutory provisions.

2. Calculation and payment of interest on the seized amount:
The Department paid interest on Rs.17,33,529/- for the period from 1.11.2002 to 30.7.2004, totaling Rs.2,09,753/-. However, the Petitioner contested the non-payment of interest for the period from 1.8.2004 to 27.9.2004. The Court found no valid explanation for this omission and directed the Department to pay interest for the additional two months. Similarly, for the amount of Rs.15,66,471/-, the Department paid interest only for the period from 1.9.2004 to 31.12.2004, ignoring the period from 1.11.2002 to 31.8.2004. The Court directed the Department to pay interest for this period as well, at the rate of 0.66% per month until 8.9.2003 and 0.5% per month thereafter.

3. Applicability and interpretation of Sections 132B(4) and 244A of the Income Tax Act:
The Court emphasized that Section 132B(4)(b) is the relevant provision for determining the interest payable on seized assets. This section specifies that interest shall run from the expiry of 120 days after the search to the date of assessment completion. The Court rejected the Department's reliance on Section 244A, which pertains to refunds, as an afterthought and not applicable to the present case. The Court highlighted that the purpose of Section 132B(4) is to ensure prompt decisions regarding the release of seized assets, and interest should be paid from the date specified in this section.

4. Entitlement to compensation/damages for delay in payment of interest:
The Court referred to the decision in Sandvik Asia Ltd. v. Commissioner of Income-Tax, which established that interest is payable as compensation for amounts wrongfully retained. The Court directed the Department to pay compensation/damages to the Petitioner at the rate of 9% per annum for the period of delay in releasing the amount of Rs.17,33,529/- (from 1.8.2004 to 27.9.2004) and for the amount of Rs.15,66,471/- (from 1.11.2002 to 1.9.2004).

Conclusion:
The Court allowed the writ petition, directing the Department to pay interest and compensation as specified, and awarded costs of Rs.5,000/- to the Petitioner. The judgment underscores the importance of timely decisions and payments by the Department in cases involving search and seizure, ensuring that taxpayers are compensated for any undue delays.

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