No automatic release of seized assets u/s 132B If no order is passed within 120 days – High Court

Section 132B of Income Tax Act 1961 does not stipulate that if no order is passed within 120 days, seized assets must be released – High Court

In a recent judgment, the Hon’ble Allahabad High Court has held that Section 132B of Income Tax Act 1961 does not stipulate that if no order is passed within 120 days, seized assets must be released

ABCAUS Case Law Citation:
ABCAUS 3915 (2024) (03) HC

Important Case Laws relied upon by parties:
Mitaben R. Shah vs. Deputy Commissioner of Income-Tax And Another; (2011) 311 ITR 424 (GUJ)
Mul Chand Malu (HUF) vs. Assistant/Deputy Commissioner of Income Tax; (2016) 69 437 (Gauhati)
Nadim Dilip Bhai Panjvani vs. Income-tax Officer, Ward No.3; (2016) 66 124 (Gujarat)
New India Assurance Company vs. Hilli Multipurpose Cold Storage (P) Ltd; (2020) 5 SCC 757
Ashish Jayantilal Sanghavi vs. Income-tax Officer; (2022) 139 126 (Gujarat)
Banwarilal Agarwalla vs. The State of Bihar And Others; AIR 1961 SC 849, 
C. Bright vs. District Collector And Others; (2021) 2 SCC 392 

seized cash

In the instant case, the assessee had filed a writ petition to quash the seizure of cash under Section 132B(1)(i) of the Income Tax Act, 1961 (the Act). Further relief was sought to release the said amount detained, together with due interest payable under Section 132(B)(4) read with Rule 119 (A) of the Income Tax Rule, 1961 (the Rules).

The petitioner was a jeweller. He regularly filed his income tax returns since more than 10 years. According to him, in the relevant year, for the oncoming Dushehra and Diwali festivities he decided to acquire stock of gold jewellery.

He handed over cash to his worker alongwith railway ticket requiring him to undertake the rail journey to Kolkata to buy jewellery. On the same day his worker was apprehended by the Government Reserved Police (GRP) at Railway Station. In the course of search by the police authorities, cash was recovered from his bag.

Later, that information was passed on to the Income Tax Authority who arrived on the scene and subjected the cash recovered to proceeding under Section 132 (1-A) of the Act.

The petitioner further claimed that during the course of the investigation, petitioner had produced regular books of accounts and details of his income tax returns filed for the past Assessment Years to establish that the seized cash was duly accounted for/tax paid money.

Within two weeks, the petitioner made an application to the assessing authority in terms of Section 132B(1)(i) read with the proviso to Section 132B(1)(i) of the Act to release the seized cash. However, the said application has remained pending till now.

The petitioner urged that in view of the clear language of Section 132B(1)(i) of the Act read with the second proviso thereto, once the application had been made by the petitioner to release the seized amount, the assessing authority was obligated to examine, if the nature and source of acquisition of any part of the seized money was explained. Further, it was obligated to examine, if there was any existing liability of tax or penalty etc. against the petitioner that may be satisfied from the seized amount. In absence of such pre-existing demand etc., the amount or the balance amount, as the case may be, ought to have been released in favour of the petitioner.

Relying heavily of the second proviso, it has been urged, in absence of any decision made under the first proviso, the entire seized amount had to be released at the end of 120 days time period specified therein. Since, the petitioner had made the application within the stipulated time of 30 days (from the end of month in which assets/money was seized), that period of 120 days would expire not beyond mid January, 2023. Since no decision was made within that time, the petitioner has become absolutely entitled to release of that money.
The Petitioner placed reliance on the decisions of the various High Courts I support of his contentions.

Also, referring to the provisions of Section 132 B (4) read with Rule 119 A of the Rules, it was been submitted, the petitioner is entitled to monthly interest at the rate one-half percent, to be computed strictly in accordance with Rule 119 A of the Rules.

It was submitted that the word ‘shall’ used in the second proviso to Section 132 B (1) (i) of the Act is a legislative mandate. It comes into force on its own, upon expiry of time. Thus, at most, the revenue may hold the seized money for 120 days. During that period upon application filed, the assessing authority would become obligated to apply his mind-if money is duly accounted for and also if such money may be applied to satisfy any existing demand or demand likely to arise from the seizure itself. In the present facts, there was no pre-existing demand against the petitioner. Therefore, the revenue authority could only have examined if the seized cash was accounted for and it it was required to satisfy the likely demand of tax. The petitioner produced his books of accounts and clearly established that the entire money was duly accounted for. In absence of any adverse inference drawn within the permissible time limitation of 120 days, the petitioner is entitled to refund of that money, by operation of law.

Thus. the issue involved in the Writ was whether in such facts where the petitioner had made an application to release seized cash in terms of the first proviso to Section 132 B (1) (i) of the Act and the Assessing Authority failed to record any satisfaction within ‘120 days’ stipulated under the second proviso to the above noted provision, the petitioner became absolutely entitled in law to obtain release of those assets?

The Hon’ble High Court opined that to decide the issue, it is essential to arrive at the interpretation of the word ‘shall release’ appearing in the second proviso to Section 132 B (1) (i) of the Act.

The Hon’ble High Court noted that the Hon’ble Supreme Court has observed that a well-settled rule of interpretation of the statutes is that the use of the word “shall” in a statute, does not necessarily mean that in every case it is mandatory that unless the words of the statute are literally followed, the proceeding or the outcome of the proceeding, would be invalid. It is not always correct to say that if the word “may” has been used, the statute is only permissive or directory in the sense that non-compliance with those provisions will not render the proceeding invalid and that when a statute uses the word “shall”, prima facie, it is mandatory, but the Court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute. The principle of literal construction of the statute alone in all circumstances without examining the context and scheme of the statute may not serve the purpose of the statute.

The Hon’ble Supreme Court also held that when the provisions of a statute relate to the performance of a public duty and the case is such that to hold acts done in neglect of this duty as null and void, would cause serious general inconvenience or injustice to persons who have no control over those entrusted with the duty, the practice of the courts should be to hold such provisions as directory.

The Hon’ble Supreme Court distinguished between failure of an individual to act in a given time-frame and the time-frame provided to a public authority, for the purposes of determining whether a provision was mandatory or directory, when it was held that it is a well-settled principle that if an act is required to be performed by a private person within a specified time, the same would ordinarily be mandatory but when a public functionary is required to perform a public function within a time-frame, the same will be held to be directory unless the consequences therefor are specified.

The Hon’ble High Court agreed with the contention of the Revenue that the only consequence of non-compliance of Section 132B(1)(i) of the Act is by way of payment of interest at the highest rate provided by the legislature i.e. @ of 18 % per annum. The legislature itself contemplated cases where orders may remain to be passed by the Assessing Authority within the timeline provided under Section 132 B (1) (i) of the Act. Payability of interest may arise only in a case where the order may have remained to be passed within a time stipulation provided under the second proviso to Section 132 B (1) (i) of the Act.

In view of the only consequence provided in the Act, the Hon’ble High Court expressed disagreement to the reasoning of the Gujarat High Court which was the sheet anchor of the submissions advanced by the petitioner.

The Hon’ble High Court stated that perusal of that decision reveals, mandatory intent was read into the language of Section 132B(1)(i) of the Act by relying on the reasoning/ratio in a case of proceeding under Section 132 (8) of the Act and not Section 132B of the Act, as it then existed.

The Hon’ble High Court opined that under the provision of Section 132B(1)(i) of the Act, it only contemplates-a person subjected to search may not be made to wait endlessly for release of valuable assets that may have been seized during the course of search. If, the nature and source of acquisition of a seized asset is wholly explained and it may not be required for recovery of any outstanding demand or demand of tax that may arise under the assessment proposed to be made consequent to the search giving rise to the seizure itself, the same may be released.

The Hon’ble High Court stated that the provisions does not stipulate any consequence of automatic release. It would first have to be invoked by the assessee by filing a proper application. Then if conditions are fulfilled, an order recording that satisfaction may be passed. It is for that purpose a timeline of 120 days is contemplated on a non-imperative basis. In the event of delay in making the decision the revenue has been saddled with interest liability @ 18 % per annum.

The Hon’ble High Court stated that in similar stipulations of time provided under different enactments have been interpreted to be directory and not mandatory. Therefore, it can not find the reasoning that has found its acceptance by the Gujarat High Court.

The Hon’ble High Court further opined that the provision in question [Section 132B(1)(i)] being directory, the jurisdiction of the Assessing Authority to deal with the petitioner’s application did not lapse or abate upon expiry of the period of 120 days. Since that stipulation of law is only directory, it survives to the Assessing Authority to deal with the application, even today.

Accordingly, the Hon’ble High Court declined to issue the writ of Mandamus as prayed. Instead, it directed the Assessing Authority to proceed to deal with and decide the application of the petitioner within two weeks, by a reasoned and speaking order, after hearing the petitioner.

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