2018 (8) TMI 206 - HC - Income Tax

Search operation u/s 132 - unexplained cash found - uncompleted assessment proceedings - interest demand - Held that - In the present case, assessment proceedings are yet to be completed. Further, the search and seizure operation was carried out not only at the business premises of the petitioners but also at the banks in which they had their accounts and in those accounts huge unexplained cash was deposited by the petitioners. The entire unexplained amount found at the business premises as well as bank accounts were seized and a bank draft was got prepared and the amount was deposited in the P.D. Account to meet the final liabilities towards tax of the petitioners after the assessment proceedings get over. Unless the assessment proceedings are completed, the amount could not have been released to the petitioners. There is no question of payment of any interest at this stage when the liabilities of the petitioners are yet to be finalised after assessment proceedings under Section 153-A of the Act get over. This writ petition is not maintainable as it is barred by principle of res judicata neither it has any merit and substance. We, therefore, dismiss this writ petition.

Summary

Issues:
1. Validity of search and seizure operation under Section 133-A of the Income Tax Act.
2. Authority of Income Tax Department to withdraw cash from bank accounts during search operations.
3. Entitlement of petitioners to refund of seized amount and interest thereon.
4. Applicability of legal principles regarding interest payment in similar cases.

Issue 1: Validity of search and seizure operation under Section 133-A of the Income Tax Act:
The petitioners, a group of companies, were subject to a survey under Section 133-A of the Income Tax Act in 2015. During the survey, cash and incriminating evidence were seized, indicating discrepancies in cash transactions. The authorities proceeded to convert the survey into a search operation under Section 132(1) of the Act based on the incriminating evidence found. The High Court, in a previous judgment, upheld the validity of the search operation, stating that the authorities had sufficient material to conduct the survey and subsequent search. Therefore, the first writ petition challenging the search operation was dismissed.

Issue 2: Authority of Income Tax Department to withdraw cash from bank accounts during search operations:
In a subsequent writ petition, the petitioners sought the release of seized cash deposited in bank accounts by the Income Tax Department. The Court noted that the Department had withdrawn an amount exceeding the seized cash from the petitioners' bank accounts. The Court held that the Department lacked the authority to withdraw funds from the petitioners' accounts without their consent. Consequently, the Court directed the Department to return the excess amount withdrawn and ordered further adjudication on the matter of interest payment.

Issue 3: Entitlement of petitioners to refund of seized amount and interest thereon:
Following the Court's order, the Department refunded the excess amount withdrawn from the petitioners' accounts. The petitioners then requested interest on the refunded amount. The Court directed the Department to provide instructions on the interest payment and identify the officers involved in the withdrawal and deposit of funds during the search operation.

Issue 4: Applicability of legal principles regarding interest payment in similar cases:
The petitioners argued for interest payment based on a Supreme Court judgment that discussed interest payment in cases of excess amounts seized by tax authorities. However, the Court distinguished the present case, where assessment proceedings were ongoing and the seized amount was held to meet future tax liabilities. The Court ruled that interest payment was premature until the finalization of assessment proceedings under Section 153-A of the Act. The Court dismissed the writ petition, citing lack of merit and res judicata, as the issues raised had been previously addressed in a prior judgment.

In conclusion, the High Court upheld the validity of the search operation, addressed the unauthorized withdrawal of funds by the Income Tax Department, directed the return of excess withdrawn amount, and clarified the inapplicability of interest payment until the completion of assessment proceedings.