2016 (5) TMI 861 - HC - Income Tax

Release of a sum seized while transporting cash from the customers of HDFC Bank - entire cash amount seized was attributed to the income of Mr. R.K. Seth - Held that - There was failure on the part of the Department to discharge its basic responsibility of tracing the source of the cash. The Department was aware that Mr. Seth, one of the employees of SIPL had not accompanied the armoured vehicle. He reached the police station subsequent to the seizure and that too upon the insistence of the JDIT that someone from SIPL should be present before the JDIT to make a statement. In the circumstances, there was no occasion for the Department to assume that Mr. Seth himself was carrying the cash. To compound the error, the Department refused to admit to the mistake even when the full facts were placed before it. SIPL was performing a perfectly legitimate and legal task of collecting and transporting cash from the customers of HDFC to the Gandhi Nagar branch of HDFC. The entire service was being performed under a valid agreement. The HDFC also issued a confirmation letter. Despite this the Department made no enquiries with the HDFC Bank. Inexplicably the Investigation wing of the Department abdicated its basic responsibility and simply passed the buck to the AO. Mr R K Seth was only an employee of SIPL. He was not carrying the cash as was wrongly presumed by the AO. His statements offered a plausible explanation which could easily be verified. The Court fails to understand how the said sum could ever be added to the returned income of Mr Seth. The Court agrees with the learned counsel for SIPL that the indifferent and callous approach of the Department s officials has resulted in grave injustice to SIPL. It has had to have its account debited for the entire amount and the seized cash remained in the Department s account. The Court has, in the circumstances, no hesitation in holding the actions of the Department, in refusing to release the cash seized from the armoured vehicle to the Petitioner, to be invalid and illegal. The Department is directed to return to SIPL the entire seized amount of ₹ 60,48,748 together with interest @ 12% per annum from the date of seizure of the cash i.e., 9th January 2012 till the date of return which in any event shall take place not later than two weeks from today. The Department will also pay SIPL ₹ 1 lakh as costs within the same period. - Decided in favour of assessee

Issues Involved:
1. Legitimacy of the cash seizure by the Income Tax Department.
2. Verification of the cash source and related documentation.
3. Assessment of the seized cash as income of an individual employee.
4. Application of Rule 112F of the Income Tax Rules, 1962.
5. Legality of the Department’s refusal to release the seized cash.

Detailed Analysis:

Legitimacy of the Cash Seizure by the Income Tax Department:
The Petitioner, Securitrans India Pvt. Ltd. (SIPL), engaged in the business of transporting cash on behalf of banks, sought the release of ?60,48,672 seized by the Income Tax Department. The cash was being transported from HDFC Bank customers to its branch in Ghaziabad. The seizure occurred on 9th January 2012 during the Uttar Pradesh Legislative Assembly elections. The vehicle was intercepted by the Flying Squad Magistrate and the cash was taken into custody.

Verification of the Cash Source and Related Documentation:
SIPL had an agreement with HDFC Bank detailing its obligations, including security practices and procedures for cash collection and delivery. The Department, however, questioned the legitimacy of the cash, citing a lack of evidence that it was accounted for under the Income Tax Act. Despite SIPL producing the agreement and related documents, including challans and receipts, the Department alleged discrepancies and insufficient proof. The Court found that the challans contained sufficient information for verification, which the Department failed to undertake.

Assessment of the Seized Cash as Income of an Individual Employee:
The Department attributed the seized cash to the income of Mr. R.K. Seth, an employee of SIPL, and assessed his taxable income at ?67,80,860. The Court noted that Mr. Seth was not present in the vehicle during the seizure and had reached the police station only after the event. The assessment order was based on incorrect assumptions and incomplete enquiries, as the Department did not verify the details with HDFC Bank or its customers.

Application of Rule 112F of the Income Tax Rules, 1962:
The Department referred to Rule 112F, which deals with the seizure of money during elections. However, the Court noted that Rule 112F was not in effect at the time of the seizure and did not relieve the Assessing Officer (AO) from the duty of enquiry to determine the ownership of the seized cash. The AO's failure to verify the source of the cash and the customers' details from HDFC Bank was a significant oversight.

Legality of the Department’s Refusal to Release the Seized Cash:
The Court found the Department's actions in refusing to release the cash to SIPL to be invalid and illegal. SIPL was performing a legitimate service under a valid agreement with HDFC Bank. The Department's failure to verify the provided documentation and the subsequent wrongful assessment of Mr. Seth's income resulted in grave injustice to SIPL. The Court directed the Department to return the seized amount with interest and pay costs to SIPL.

Consequential Directions:
1. The assessment order dated 31st March 2014, adding ?60,48,672 to Mr. R.K. Seth's income, was deemed unsustainable and deleted.
2. The Department was directed to return the seized amount of ?60,48,748 with 12% interest per annum from the date of seizure until the return, within two weeks.
3. The Department was also ordered to pay ?1 lakh as costs to SIPL within the same period.

The writ petition was disposed of accordingly, and the order was to be provided to both parties.

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