2013 (4) TMI 445 - HC - Income Tax

Search/Seizure - return/release the cash seized - dispute is with regard to the return of Rs.25 Lakhs seized in the search operation and interest thereupon - Held that - it is but evident that the respondents have failed to discharge their legal obligation in not refunding the seized amount immediately or shortly after the completion of the assessment proceedings finally at least. Speedy and affordable justice is the requirement of the day. But it cannot be achieved until the executive including tax-man discharge their duties faithfully honestly within the four corners of law. As seen above, it is clear that the revenue official failed to take any decision right or wrong on the refund application filed by the petitioners and passed on the buck on the Court. Time has come for the heads of the departments to keep a strict vigil on such shirkers and to fix their responsibility. While it is no doubt true that collection of revenue is a serious matter for the State -and the bounden duty of the authorities functioning under the Act is to implement the provisions of the Act, there should be safety and assurance to an honest tax-payer. The Apex Court in the case of Sandvik Asia Ltd. (2006 (1) TMI 55 - SUPREME Court) by the following paragraph has recorded their displeasure for this kind of attitude of the department. We also do not appreciate the argument of the respondent that unless a direction is issued, the respondents shall not pass any speaking order on the application filed by the petitioner for refund. As seen above, it is clear that the revenue official failed to take any decision right or wrong on the refund application filed by the petitioners and passed on the buck on the Court. In the result, the writ petition succeeds and is allowed. The respondents are directed to refund in all Rs.25 Lakhs seized from the petitioners along with interest.

Summary

Issues Involved:
1. Legitimacy of the cash seizure during the search operation.
2. Entitlement to the return of the seized cash.
3. Entitlement to interest on the seized cash.
4. Connection between the petitioners and other parties with tax arrears.
5. Legal obligations of the Income Tax Department regarding the refund process.

Detailed Analysis:

1. Legitimacy of the cash seizure during the search operation:
The petitioners, three brothers and their partnership firm, filed a writ petition for the return of cash seized during a search operation on October 17, 2006. The search warrant was issued in the names of certain individuals and entities, including two of the petitioners but not the other two. Despite this, the search party seized cash from all four petitioners. The legitimacy of this seizure was questioned, as there was no warrant for two of the petitioners.

2. Entitlement to the return of the seized cash:
The petitioners argued that the seized cash should be returned, as they had no connection with the tax arrears of other parties named in the search warrant. The court noted that the petitioners had no business link or commercial relationship with the other parties. The Income Tax Department's defense that the cash could not be released due to tax arrears of other parties was deemed invalid. The court concluded that the petitioners were entitled to the return of the seized cash.

3. Entitlement to interest on the seized cash:
Section 132B of the Income Tax Act mandates that seized assets be applied to the assessee's liabilities and any surplus be returned with interest. The court found that the petitioners were entitled to interest on the seized cash from the date following the expiry of 120 days after the search to the date of assessment completion. The court ordered the payment of interest at the rate prevalent at the time.

4. Connection between the petitioners and other parties with tax arrears:
The court examined whether the petitioners had any connection with the parties in tax arrears, as claimed by the Income Tax Department. The petitioners denied any such connection, and the court found the department's defense to be vague and unsubstantiated. The court emphasized that separate assessment orders were passed for the petitioners, and they were treated as distinct entities. Therefore, the connection argument was dismissed.

5. Legal obligations of the Income Tax Department regarding the refund process:
The court criticized the Income Tax Department for failing to refund the seized amount promptly after the completion of assessment proceedings. The court highlighted the department's obligation to process refunds and pay interest on delayed refunds as per Sections 132B(4) and 244A of the Income Tax Act. The court also noted that the department's failure to act on the petitioners' refund application was a dereliction of duty.

Conclusion:
The court allowed the writ petition, directing the Income Tax Department to refund the seized amount of Rs. 25 Lakhs along with interest as per the provisions of the Income Tax Act. The court also imposed a cost of Rs. 15,000 on the respondents for unnecessary harassment of the petitioners. The judgment emphasized the need for the tax authorities to discharge their duties faithfully and avoid unnecessary harassment of honest taxpayers.