Court Orders Release of Seized Assets After Tax Department's Inaction

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Case Name:

Mul Chand Malu & Ors. vs Assistant Deputy Commissioner of Income Tax (High Court of Gauhati)

WP(C) 4362 of 2015

Date: 2nd May 2016

Key Takeaways:

1. The Income Tax Department must respond to applications for asset release within 120 days.

2. Failure to dispute the nature and source of seized assets within this period limits the department's authority to retain them.

3. The court reinforced the importance of timely action by tax authorities in handling seized assets.

Issue: 

Did the Income Tax Department have the authority to retain the petitioners' seized assets after failing to dispute their nature and source within the 120-day period specified in Section 132B(1)(i) of the Income Tax Act?

Facts:

1. The petitioners were subjected to a search under Section 132 of the Income Tax Act from October 9, 2014 onwards.

2. Jewellery, ornaments, and bullion worth Rs. 13,44,70,018/- were seized from the petitioners' premises.

3. On November 26, 2014, the petitioners applied for the release of their assets under the first proviso to Section 132B(1)(i) of the Act.

4. The Income Tax Department did not make a decision within the stipulated 120-day period.

5. The department later informed the petitioners that their case had been centralized with CIT (Central) 3, New Delhi.

Arguments:

Petitioners:

- They applied for asset release within the prescribed 30-day period and explained the nature and source of the assets.

- The Income Tax Department failed to make a decision within the mandatory 120-day period.

Income Tax Department:

- The department did not present substantial arguments in the judgment. Their inaction appears to be the primary issue.

Key Legal Precedents:

1. Mitaben R. Shah vs. Deputy Commissioner of Income Tax and another (2011) 331 ITR 424 (Guj): This case established that if no dispute is raised within 120 days of an application for asset release, the department loses authority to retain the seized assets.

2. Sree Ayyanar Spinning & Weaving Mill Limited vs. CIT dated 01.05.2008 30 ITR 0434: This case was mentioned in the internal communication of the tax department, suggesting that applications can be disposed of even after the 120-day period.

Judgement:

The court ruled in favor of the petitioners, ordering the immediate release of the seized assets. The court agreed with the Gujarat High Court's decision in Mitaben R. Shah vs. Deputy Commissioner of Income Tax, holding that when an application is made for asset release under Section 132B(1)(i) and no dispute is raised within 120 days, the department loses authority to retain the assets.

FAQs:

1. Q: What is the significance of the 120-day period mentioned in the judgment?

  A: The 120-day period is the time frame within which the Income Tax Department must decide on an application for asset release. If they fail to dispute the nature and source of the assets within this period, they lose the authority to retain them.

2. Q: Does this judgment apply to all cases of asset seizure by the Income Tax Department?

  A: While this judgment sets a precedent, it's important to note that each case may have unique circumstances. However, it emphasizes the importance of the department acting within prescribed time limits.

3. Q: What should taxpayers do if their assets are seized during an income tax search?

  A: Based on this judgment, taxpayers should file an application for release of assets within 30 days from the end of the month in which the assets were seized, explaining the nature and source of the assets.

4. Q: Can the Income Tax Department appeal this decision?

  A: While the judgment doesn't mention any appeal, it's generally possible for decisions to be appealed to a higher court if there are grounds to do so.

5. Q: What is Section 132B(1)(i) of the Income Tax Act?

  A: This section deals with the application of seized or requisitioned assets and outlines the process for their potential release, including the time frames for application and decision-making by the tax authorities .

In this petition filed under Article 226 of the Constitution of India the petitioners have prayed for a direction against the respondents to release their assets seized under Section 132 of the Income Tax Act ( in short the Act ).

2. Petitioner No.1 is Hindu Undivided Family. Petitioner No.2 is Karta of t he family and petitioner No.2 and 3 are his wife and son.

3. The petitioners were subjected to search under Section 132 of the Act fr om 9.10.2014 onwards on different dates pursuant to execution of warrants of authorization for each search. According to the petitioners, jewellery, ornaments and bullion etc. amounting to Rs.13,44,70,018/- were seized from different premises of the petitioners.

4. On 26.11.2014, the petitioners made an application for release of their assets under first proviso to Section 132B(1)(i) of the Act to the Assessing Officer within 30 days from the end of the month in which the assets were seized.

The petitioners also explained therein the nature and source of acquisition of such assets. But no decision was taken within the stipulated period of 120 days from the date on which the last authorization for search under Section 132 of the Act was executed. On the contrary, the petitioners were informed vide communication dated 13.7.2015 (Annexure-22) by the Assistant Commissioner of Income Tax,Circle-4, Guwahati that by order dated 28.1.2015 centralization of their cases has been done with CIT (Central) 3, New Delhi and therefore jurisdiction of the office of Assistant Commissioner of Income Tax, Guwahati had ceased. By the said communication dated 13.7.2015, the Assistant Commissioner also informed the petitioners that their application dated 26.11.2014 was treated as disposed of in the light of order dated 28.1.2015.

5. It is to be noted that the petitioners challenged order dated 28.1.2015 of the centralization of their cases with CIT (Central)-3, New Delhi in WP(C) No.5828/2015 and the learned Single Judge of this High Court vide order dated 25.2.2016 has quashed the same on the ground that it was passed without giving reasonable opportunity of hearing to them.

6. Admittedly, the Revenue Department did not take any decision on the peti tioners’ application to the Assessing Officer for release of seized assets within a period of 120 days from the date on which the last authorization for search under Section 132 of the Act was executed. This is also obvious from the communication dated 1.7.2015 (Annexure-D9) addressed to the Additional Commissioner of Income Tax, Guwahati from the office of the Principal Commissioner of Income Tax, Guwahati. The communication reads as under:

2. It is seen from the report of the Assessing Officer that assessee has fi led application as per 1st proviso to Section 132B(1)(i) of the Income-Tax Act,1961 for release of Gold Ornaments and Jewelleries within prescribed time of 30 days of the end of the month of seized of such items. This application was not disposed off within 120 days prescribed in 2nd proviso to Section 132B (1)(i) of the Income Tax Act,1961.

3. In Para No.10 of the report dated 19.06.2015 of Assessing Officer, he has reported that he is satisfied of the nature and source of the Gold Jewellery of 15582.280 gm, Gold Bar & Coin of 3.238 kg and Diamond of 34.160 cts (31 pcs) amounting to a total value of Rs.8,23,36,841/-.

4. The Assessing Officer has also reported that there is existing liability against the assesses of this group to the tune of Rs.90,24,420/-.

5. He has further reported that he is no satisfied with the source of seize d silver items.

6. It is also seen that you have also recommended for release of the said s eized of the items which is reproduced as under:-

In view of the detailed report submitted, release of the Gold Jewellery, Gold Bar, Coins and Diamonds for a sum of Rs.8,23,36,841/- may be considered for release u/s 132B(1)(i) of the Income Tax Act, 1961 subject to clearance of outstanding liabilities stated.

7. In the ratio and the principle of the decision of the Hon’ble Supreme Co urt of India in the case of Sree Ayyanar Spinning & Weaving Mill Limited vs. CIT dated 01.05.2008 30 ITR 0434, since the application filed by the assessee under 1st proviso of Section 132B (1)(i) of the I.T.Act, 1961, the application is well within the prescribed time limit of 30 days from the end of the month seized,the application can be disposed off even after 120 days of time prescribed 2nd proviso to section 132B(1)(i) is lapsed.

The case of Mitaben R. Shah vs. DCIT decided by the Hon’ble Gujarat High Court,42DTR124 (Guj), is identical to this case. Relevant portion of the decision is reproduced hereunder:-

In the above view of the matter, all these orders which are challenged in the present group of petitions retaining assets beyond the period of 120 days are hereby quashed and set aside and the respondent authorities are directed to release the gold ornaments and jewellery seized by them during the course of search and seizure operation forthwith and in any case not later than two weeks from the date of receipt of the writ of this Court or from that date of receipt of certified copy of this order, whichever is earlier.

9. In view of the decision of the Hon’ble Gujarat High Court in the above r eferred case, your proposal for release of seized items ad mentioned in your aforementioned letter and also in the report of Assessing officer is hereby approved under 1st proviso to section 132B(1)(i) of the Income Tax Act,1961 subject to the collection of existing liability of Rs.90,24,420/-. The Assessing Officer may be directed accordingly.

Sd/- Illegible

(Vinay Kumar)

Pr. Commissioner of Income Tax Guwahati-2, Guwahati.

7. Section 132B of the Act deals with application of seized or requisitioned assets and the manner in which assets seized be dealt with. The relevant Section 132B(1) reads as under:-

Section 132B. (1) The assets seized under section 132 or requisitioned under section 132A may be dealt with in the following manner, namely :-

(i) The amount of any existing liability under this Act, the Wealth-tax Act, 1957 (27 of 1957), the Expenditure-tax Act, 1987 (35 of 1987), the Gift-tax Act, 1958 (18 of 1958) and the Interest-tax Act, 1974 (45 of 1974), and the amount of the liability determined on completion of the assessment under section 153A and the assessment of the year relevant to the previous year in which search is initiated or requisition is made, or the amount of liability determined on completion of the assessment under Chapter XIV-B for the block period, as the case may be (including any penalty levied or interest payable in connection with such assessment) and in respect of which such person is in default or is deemed to be in default, may be recovered out of such assests:

[Provided that where the person concerned makes an application to the Assessing Officer within thirty days from the end of the month in which the asset was seized, for release of asset and the nature and source of acquisition or any such asset is explained] to the satisfaction of the Assessing Officer, the amount of any existing liability referred to in this clause may be recovered out of such asset and the remaining portion, if any, of the asset may be released, with the prior approval of the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner, to the person from whose custody the assets were seized. Provided further that such asset or any portion thereof as is referred to in the first proviso shall be released within a period of one hundred and twenty days from the date on which the last of the authorization for search under section 132 or for requisition under section 132A, as the case may be, was executed;

8. The above quoted Section 132B was discussed and interpreted by a Division Bench of the Gujarat High Court in Mitaben R. Shah vs. Deputy Commissioner of Income Tax and another (2011) 331 ITR 424 (Guj). In that case, like in the case at hand, no decision was taken by the Revenue Department within 120 days from the date on which the last authorization for search under Section 132 was executed despite filing of an application within 30 days for release of seized assets. And the Revenue Department later dismissed the application for release of assets after the expiry of 120 days on numerous grounds. The Court held that when an application is made for the release of assets under first proviso to Section 132B(1)(i) of the Act explaining the nature and source of the seized assets and if no dispute was raised during the permissible time of 120 days by the Revenue Depar tment, it had no authority to retain the seized assets in view of the mandate contained in second proviso to Section 132B(1)(i) of the Act. This decision does not seem to have been challenged by the Revenue Department before the Supreme Court. For the reasons stated in the decision, we too find ourselves in complete a greement with the view taken by the Division Bench of Gujarat High Court.

9. We accordingly allow the writ petition and direct the respondents to imm ediately release the seized assets of the petitioners.