2023 (9) TMI 1557 - HC - Income Tax

Seeking interim release of cash seized by the Circle Inspector of Police, Mananthavady, in the course of routine patrol duty - who is entitled to interim custody of the cash that has been seized by the Excise Preventive Officer during a routine check inside a bus? - Excise Department has closed the proceedings as they could not detect any wrongdoing on the part of the person from whom the cash was seized. 1st petitioner is an assessee under the Income Tax Act. A sum of Rs. 40 Lakhs was seized from the possession of the 3rd petitioner, who is stated to be an employee of the 1st petitioner - HELD THAT - With respect to assessment proceedings pursuant to a return filed, the Department has time of to complete the assessment within nine months from the end of the assessment year. Therefore, for income earned during the previous year 2022-23 corresponding to the assessment year 2023-24, the Department has time till 31.12.2024 to complete the assessment. The Department can assess escaped income u/s 147/148 before the expiry of three years from the end of the relevant assessment year if the escaped income is less than Rs. 50 Lakhs and ten years from the end of the relevant assessment year if the escaped income is more than Rs. 50 Lakhs subject to the conditions mentioned in Section 147/148. Whether Section 153A of the IT Act, relied on by the learned Magistrate, would have any application in the instant case ? - Under Section 153A, in the case of a person, where a search is initiated under Section 132, or books of account, documents, or asset is requisitioned under Section 132, notwithstanding the other provisions of the Act, the Department can complete an assessment of income for six assessment years immediately preceding the assessment year in which search is conducted, or requisition is made. Jurisdiction to make an assessment under Section 153A will arise only when the person has been searched under Section 132 or documents or assets are requisitioned under Section 132A. In all other cases, the assessment has to be completed under Section 143. Under Section 132, the Income Tax Department has the power to search any person or place when they have reasons to believe, inter alia, that any person has in his possession money or other valuable article or thing which represents income and which has not been disclosed and seize any such money or valuable thing found during such search. This is not relevant in these cases as the money was not found during the search by the Department. Under Section 132-A, if the Department has reason to believe, inter alia, that any asset which represents income and which has not been disclosed under the Act by any person has been taken into custody by any officer or authority under any other law for the time being in force, then the Department can requisition such officer or authority to deliver such asset to the Department and such officer or authority is obliged to deliver the same. Under Section 226(4), the Department can apply to the Court in whose custody there is money belonging to the assessee to meet the tax due by that assessee. This power can, however, be exercised only when the tax has been determined to be due by an assessment completed under the Act. In the case on hand, the seizure was effected on 8.10.2022. The income earned by a person during the financial year 1st April 2022 to 31 st March 2023 is to be assessed in the year 2023-24. The 1st petitioner, being an assessee is bound to file a return of income not before 31st July, 2023. If the 1st petitioner does not disclose the income that has been detected, the Department would have time to complete the assessment till 31.12.2024. The Department would have the power to assess escaped income under Section 147/148 before the expiry of three years from the end of the relevant assessment year. The jurisdiction to make an assessment under Section 153A will arise only when the person has been searched under Section 132 or documents or assets are requisitioned under Section 132A. In all other cases, the assessment has to be completed under Section 143. However, in view of the law laid down in Abdul Khader 1998 (11) TMI 76 - KERALA HIGH COURT Section 132A would not empower the Department to requisition the learned Magistrate. Section 132B would also have no application in view of the above. As held by the Apex Court in Choyi 1979 (7) TMI 1 - SUPREME COURT the revenue can only apply to the Court in whose custody there is money belonging to the assessee to meet the tax due by that assessee, and such power can be exercised only when the tax has been determined to be due by an assessment completed under the Act. As the assessment has not been completed, such a course cannot now be adopted. The advantage gained by the revenue owing to the detection of cash from the possession of the 3rd respondent is that the 1st petitioner has come forward claiming the amount. While making an assessment, the revenue would be in a position to insist that the amounts seized also be included in the returns to be submitted by the 1st petitioner before the due date. In the case on hand, the 1st petitioner is yet to file his assessment. He would have to disclose the sum of Rs. 40 Lakhs, which was seized from his employee. The Revenue can thereafter complete the assessment in accordance with the provisions of the Act. As there is no valid order of assessment and no culminated demand for Income Tax, the revenue cannot aspire to keep the money on the premise that there will be demand later in point of time. At present, there is no authority of law under which the money can be demanded and be kept by the revenue. We find that there is considerable force in the submission made by the learned counsel. As per the provisions of the Act, the assessee has been granted a time frame to file his return with respect to income of the previous year, and further time has been granted to the Revenue to make an assessment. The revenue can only act in terms of the provisions of the Act. The learned Magistrate, while exercising powers under Section 451 of the Code, cannot issue directions to the revenue to conclude the assessment proceedings within a time frame bypassing the provisions. The order passed by the learned Magistrate is clearly illegal on that count as well. The order passed by the learned Magistrate ordering the handing over of the amounts to the revenue cannot be sustained. Union of India v. State of Kerala 2022 (1) TMI 657 - KERALA HIGH COURT was rendered in the facts of the said case without noting the principles of the law laid down in J.R. Malhotra 1975 (12) TMI 170 - SUPREME COURT ORDER The common order passed by the learned Magistrate will stand quashed.The Assistant Director, with whom the amounts were entrusted, is ordered to return the amounts released to the learned Magistrate. The learned Magistrate shall release the amount to the 1st petitioner on furnishing a bond for a sum of Rs. 40 lakhs (Rupees Forty Lakhs only) with two solvent sureties each for the like sum to the satisfaction of the learned Magistrate.

Summary

Issues Involved:
1. Legality of the interim release of seized cash.
2. Applicability of the Income Tax Act provisions, including Sections 131(1), 132, 132A, 132B, 133A, 139, 143, 147, 148, 153A, and 226(4).
3. Judicial discretion under Section 451 of the Cr.P.C.
4. Compliance with procedural timelines for assessment and tax liability determination.

Detailed Analysis:

1. Legality of the Interim Release of Seized Cash:
The petitioners challenged the common order denying the interim release of Rs. 40 lakhs seized by the Circle Inspector of Police. The learned Magistrate had ordered the release of the seized amount to the Income Tax Department for proceedings under Section 132B or 153A of the Income Tax Act. The Court held that the petitioners cannot be granted interim custody of the cash, as the Income Tax Authority is the competent body under the IT Act.

2. Applicability of the Income Tax Act Provisions:
The Court examined various sections of the Income Tax Act:
- Section 131(1): The Income Tax Department filed a report under this section, indicating initiation of proceedings.
- Section 132 and 132A: The Court noted that these sections empower the Department to search and seize assets representing undisclosed income. However, it was held that Section 132A does not authorize the Department to requisition assets from a court's custody. The Court cited Abdul Khader v. Sub Inspector of Police, emphasizing that Section 132A applies only to officers or authorities, not courts.
- Section 132B: This section allows the Department to apply seized assets towards tax liabilities. However, the Court ruled it inapplicable as the assets were not seized under Section 132 or requisitioned under Section 132A.
- Section 133A: The Court highlighted that this section, which deals with the power of survey, does not permit the removal of cash or other valuable items by the Income Tax Authority.
- Sections 139, 143, 147, 148, and 153A: The Court detailed the timelines and procedures for filing returns and completing assessments. It noted that the 1st petitioner had until 31st July 2023 to file a return, and the Department had until 31st December 2024 to complete the assessment. The jurisdiction under Section 153A arises only when a search or requisition is conducted under Sections 132 or 132A.
- Section 226(4): The Court ruled that this section allows the Department to apply to the court for the release of money to meet tax liabilities only after the assessment is completed.

3. Judicial Discretion under Section 451 of the Cr.P.C.:
The Court examined the Magistrate's discretion under Section 451 of the Cr.P.C., which allows for interim custody of seized property. It was noted that this is a temporary arrangement to preserve the property until the conclusion of the trial. The Court emphasized that the Magistrate's discretion must be exercised judicially, considering factors like the safety of the property and the possibility of its return without damage.

4. Compliance with Procedural Timelines for Assessment and Tax Liability Determination:
The Court found that the learned Magistrate's order directing the Revenue to finalize the assessment within six months was illegal. The Income Tax Act provides specific timelines for filing returns and completing assessments, which the Revenue must follow. The Court held that the Magistrate could not bypass these provisions by imposing a different timeline.

Conclusion:
The Court quashed the Magistrate's order and directed the Assistant Director to return the seized amount to the learned Magistrate. The Magistrate was instructed to release the amount to the 1st petitioner upon furnishing a bond. The 1st petitioner was required to file a return disclosing the amount, and the Revenue was to finalize the assessment in accordance with the law. The Court highlighted the principles laid down in J.R. Malhotra, emphasizing that the Revenue cannot keep the money without a valid order of assessment and tax demand.