2012 (9) TMI 93 - HC - Income Tax

Claim of interest for inordinate delay in releasing amount u/s 132-B (3) - Held that - If a decision to hold or withhold monies/assets discovered during a Search is not taken with the prescribed period of 120 days interest would start to run from the date of the Seizure itself - the reasonable and equitable rate of interest having regard to the circumstances would be 12%. A sum of Rs.33, 72, 907/- was adjusted against the demand outstanding against the petitioner s brother vide letter dated 23.02.2007 - Held that - The position of the respondents in adjusting Rs.33, 72, 907/- even for the purpose of payment of interest liability is clearly unwarranted as the assessment was completed on 26.12.2006 therefore while calculating the interest the respondents were clearly alive to this specific fact and in fact it worked out to a sum of Rs.7, 42, 616/- in these circumstances the Court sees no justification in reducing that amount on the basis of the later event i.e. the adjustment under Section-132B (i) made on 23.02.2007. The liability as on 26.12.2006 was in respect of the whole amount of Rs.92, 82, 700/-. Thus the petitioner is entitled to interest for the period of 16 months on the total amount of Rs.92, 82, 700/- which works out to Rs.7, 42, 616/- after adjusting the sum of Rs.4, 72, 783/- paid on 11.5.2012. The balance shall be paid over to the writ petitioner within a period of four weeks from date of Order - in favour of assessee. The petitioner is entitled to interest @ 12 % p.a. on the balance sum of Rs.59, 09, 793/- for the period 1.3.2007 till 1.3.2011. These amounts shall be paid over to the petitioner within six weeks from date of Order - in favour of assessee. The concerned AO/Commissioner shall give a hearing to the petitioner with regard to the adjustment made under Section-132 B (1) (i) in respect of the sum of Rs.33, 72, 907/- by order dated 23.02.2007 and make a speaking order within two months from date of Order -in favour of assessee for statistical purposes.

Issues Involved:
1. Entitlement to interest on the seized amount under Section 132B(4) read with Section 244A of the Income Tax Act.
2. Legality of the adjustment of Rs.33,72,907/- against the petitioner's brother's tax liability.
3. Calculation and payment of interest on the seized amount.
4. Application of restitutionary principles and equitable rate of interest.

Detailed Analysis:

1. Entitlement to Interest on the Seized Amount:
The petitioner sought interest for the inordinate delay in releasing Rs.92,82,700/- seized during a search and seizure operation. The petitioner argued that under Section 132B(4) read with Section 244A of the Income Tax Act, they were entitled to interest for the entire period the amount was withheld. The court acknowledged that Section 132B(4) mandates the Central Government to pay simple interest at the rate of 1/2 % per month from the date immediately following the expiry of 120 days from the last authorization for search until the date of assessment completion. The court found that the interest calculation should be based on the entire seized amount of Rs.92,82,700/- until the assessment date of 26.12.2006.

2. Legality of the Adjustment of Rs.33,72,907/-:
The petitioner contended that the adjustment of Rs.33,72,907/- against their brother's tax liability was unauthorized under Section 132B(1). The court noted that the adjustment was made on 23.02.2007, after the assessment was completed on 26.12.2006. The court directed the concerned AO to re-examine the correctness of this adjustment, giving the petitioner a right to be heard and to pass a speaking order on the matter.

3. Calculation and Payment of Interest:
The court examined the calculation of interest provided by the respondents, which was based on the reduced amount after adjusting Rs.33,72,907/-. The court held that the petitioner was entitled to interest on the full amount of Rs.92,82,700/- until the assessment date, resulting in an interest amount of Rs.7,42,616/-. After adjusting the already paid Rs.4,72,783/-, the balance interest amount was to be paid to the petitioner within four weeks.

4. Application of Restitutionary Principles and Equitable Rate of Interest:
The court referred to the Supreme Court's ruling in Sandvik Asia Ltd. v. CIT, which recognized the restitutionary principle and mandated interest in the absence of an express statutory provision. The court found that the absence of a provision for interest beyond the period stipulated in Section 132B(4) did not absolve the liability of the authorities. The court determined that a reasonable and equitable rate of interest, considering the circumstances, would be 12% per annum. Thus, the petitioner was entitled to 12% interest on the balance sum of Rs.59,09,793/- for the period from 1.3.2007 to 1.3.2011, to be paid within six weeks.

Conclusion:
The court allowed the writ petition with the following directions:
1. The petitioner is entitled to interest of Rs.7,42,616/- for the period of 16 months on the total amount of Rs.92,82,700/-, after adjusting the paid sum of Rs.4,72,783/-. The balance interest amount shall be paid within four weeks.
2. The petitioner is entitled to interest at 12% per annum on the balance sum of Rs.59,09,793/- for the period from 1.3.2007 to 1.3.2011, to be paid within six weeks.
3. The concerned AO/Commissioner shall re-examine the adjustment of Rs.33,72,907/- after giving the petitioner a hearing and pass a speaking order within two months.

The writ petition was allowed in these terms, and the order was issued dasti.

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