2025 (1) TMI 601 - HC - Income Tax

Seizure of cash in search proceedings - application for release of the amount seized by CBI rejected as matter was under investigation by the Income Tax Department - whether there was any delay in issuing the impugned requisition and if so, the effect thereof? - HELD THAT - There has been some delay in issuance of the impugned requisition, however, the Income Tax Department has explained that the said delay was on account of investigations conducted by it. In the given circumstances, we are unable to accept that the impugned requisition is liable to be rejected on the ground of delay. Whether the impugned requisition is liable to be set aside on the ground that there was no reason to believe that the cash seized could not be disclosed by the petitioner? - According to the petitioner, he continued to hold cash against a transaction, which never fructified. There is no material on record to show the creditworthiness of Mr. Vinay Sharma or any explanation why he made payments in cash. Given the nature of explanation, we find no infirmity with the decision of the Income Tax Authorities in not accepting the same. Thus, the petitioner s contention that the Income Tax Authorities had no reason to believe that the cash as seized was an undisclosed asset, is rejected. We find no infirmity with the decision of the Income Tax Authorities to issue the impugned requisition. Clearly, it is necessary for the authorities to examine the source of funds seized from the petitioner s premises. Whether the Income Tax Authorities can continue to retain the cash after more than twelve years have expired since the same was seized? - In terms of Section 153B(1)(a) of the Act, the assessment u/s 153A of the Act is required to be completed within a period of twenty-one months from the end of the financial year in which the requisition u/s 132A of the Act was executed. In the present case, the warrant u/s 132A (1) (c) of the Act was executed on 15.12.2016, thus, the Income Tax Authorities are required to complete the assessment within the time period stipulated u/s 153B(1)(a) which was required to be reckoned from 15.12.2016. In the present case, it is contended on behalf of the petitioner that the time period for framing an assessment u/s 153A of the Act has expired. Undisputedly, if the time period for framing an assessment u/s 153A of the Act has expired, and there is no outstanding demand, the Income Tax Authorities would have no justification in retaining the seized cash. This court directs that if no demand has been crystalized against the petitioner as yet, the seized cash be returned to the petitioner within a period of four weeks from date.

Summary

1. ISSUES PRESENTED and CONSIDERED

The High Court of Delhi considered the following core legal issues:

• Whether there was an undue delay in issuing the requisition under Section 132A of the Income Tax Act, 1961, and the implications of such delay.
• Whether the requisition under Section 132A was justified based on the belief that the seized cash was undisclosed income.
• Whether the Income Tax Authorities could continue to retain the seized cash after the statutory period for assessment had expired.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Delay in Issuing the Requisition

• Relevant Legal Framework and Precedents: Section 132A of the Income Tax Act allows the authorities to requisition books, documents, or assets if there is reason to believe they represent undisclosed income.
• Court's Interpretation and Reasoning: The court examined whether the delay in issuing the requisition was justified. It acknowledged that the Income Tax Department received information about the seized cash in January 2013 but noted that the CBI was conducting its investigation at that time.
• Key Evidence and Findings: The court found that the Income Tax Department had issued summons to the petitioner and conducted investigations before issuing the requisition in September 2016.
• Application of Law to Facts: The court concluded that the delay was attributable to ongoing investigations and did not invalidate the requisition.
• Treatment of Competing Arguments: The petitioner argued the delay rendered the requisition invalid, while the respondents attributed the delay to necessary investigations.
• Conclusions: The court rejected the argument that the requisition was invalid due to delay, considering the ongoing investigations justified the time taken.

Issue 2: Justification for the Requisition

• Relevant Legal Framework and Precedents: Section 132A requires a belief that the assets represent undisclosed income for a requisition to be valid.
• Court's Interpretation and Reasoning: The court assessed whether the Income Tax Department had sufficient reason to believe the cash was undisclosed income.
• Key Evidence and Findings: The petitioner provided explanations for the cash, including business proceeds and advances for sales, but failed to substantiate these claims with credible documentation.
• Application of Law to Facts: The court found the petitioner's explanations insufficient, noting inconsistencies and lack of documentation.
• Treatment of Competing Arguments: The petitioner claimed the cash was accounted for, while the respondents highlighted gaps in the petitioner's explanations.
• Conclusions: The court upheld the requisition, finding the Income Tax Department had valid reasons to question the legitimacy of the cash.

Issue 3: Retention of Seized Cash

• Relevant Legal Framework and Precedents: Section 153A and 153B of the Income Tax Act outline the timelines for completing assessments following a requisition.
• Court's Interpretation and Reasoning: The court examined whether the authorities could retain the cash beyond the statutory period for assessment.
• Key Evidence and Findings: The requisition was executed on 15.12.2016, and the assessment should have been completed within 21 months.
• Application of Law to Facts: The court noted that if no demand had been crystallized, the authorities had no basis to retain the cash.
• Treatment of Competing Arguments: The petitioner argued for the release of cash due to the expiry of the assessment period, while the respondents did not provide evidence of any crystallized demand.
• Conclusions: The court directed the return of the cash if no demand had been crystallized against the petitioner.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The explanation provided by the petitioner fails to give any particulars as to how much cash was collected by each concern and delivered to the petitioner."
• Core Principles Established: The court emphasized the necessity of credible documentation to substantiate claims of accounted cash and the validity of requisitions based on reasonable belief of undisclosed income.
• Final Determinations on Each Issue: The court upheld the requisition under Section 132A, rejected the argument of invalidation due to delay, and directed the return of cash if no demand had been crystallized.