Release of seized assets if mandatory on completion of 120 days? Question referred to Larger Bench

Whether the release of seized assets is mandatory upon completion of 120 days –High Court refers the case to a Larger Bench.

In a recent judgment, the Hon’ble High Court has referred the question as to whether the release of seized assets is mandatory upon completion of 120 days, as prescribed under the Second Proviso to Section 132B(1)(i) of the Income Tax Act, 1961 (the Act) to a larger bench

ABCAUS Case Law Citation:
5243 (2026) (10) abacus.in HC

Important Case Laws relied upon by Parties:
Nadim Dilip Bhai Panjvani vs Income Tax Officer
Ashish Jayantilal Sanghavi vs. Income Tax Officer
Mitaben R. Shah vs. Dy. CIT

In the instant case, the assessee/Petitioner had filed a writ petition challenging the action of the Income Tax authorities in withholding cash amounting in contravention of the provision of Section 132B of the Act.

The Income Tax Department on the basis of information received from the Police conducted an inquiry in exercise of powers under Section 131 of the Act. Subsequently, a warrant of authorisation was issued under Section 132 of the Act, pursuant to which a large amount of cash was seized at the premises of a firm.

Thereafter, proceedings were initiated under the provisions of the Prohibition of Benami Property Transactions Act, 1988 (Benami Act). However, the proceedings were dropped the petitioner’s (not the searched party) ownership of the cash was established.

Thereafter, the petitioner submitted an application followed by a reminder under Section 132B of the Act (Section 250 of Income Tax Act, 2025), seeking release of the cash seized. However, due to inaction of the Authorities, the petitioner filed the writ petition.

It was submitted that the statutory period of 120 days from the date of authorisation of the search had expired, hence the continued retention of the seized cash beyond the said period was illegal and without jurisdiction. In support of his submissions, the Petitioner placed reliance upon the decision of the High Court

The Revenue submitted that Section 132B of the Act does not contemplate the automatic release of seized cash merely because no quantified liability under the Act or the other statutes referred to therein exists at the relevant stage.

It was also the stand of the Revenue that request for release of seized cash was not fit for consideration since the assessment proceedings were not completed.

The Hon’ble High Court observed that the petitioner was seeking release of cash primarily by placing reliance on further Proviso to Section 132B(1)(i) of the Act, which specifies the outer limit of 120 days to release of seized assets from the date on which the last authorizations for search under Section 132 or requisition under Section 132A of the Act. In this regard reliance was placed on the decision of the Co-ordinate Bench of the High Court which held that if the application filed by the concerned person seeking release of the asset within the prescribed time i.e. 30 days, can be rejected on the ground of not being satisfied about the source of its acquisition, and if no such decision is taken within the time envisaged in further Proviso to Clause (i) to sub-section (1) of Section 132B of the Act i.e. 120 days, releasing of the seized asset becomes imminent.

With regard to the Revenue’s contention that provision of Section 132B of the Act will not apply to the petitioner since he was a third party and the assets cannot be released till the assessment proceeding against searched firm were in progress, the Hon’ble High Court further held that the expression “person concerned” will include the person whose assets are seized during the search proceedings from another person. Section 132B of the IT Act will encompass any person, against whom liability of tax is established after determination of assessment proceedings.

Effect of First and Second Proviso to Section 132b(1)(i) of The Income Tax Act, 1961

The Hon’ble High Court observed that the quintessential feature of the provisions of section 132B is that  the taxpayer has to explain the nature and source of acquisition of the asset to the satisfaction of the Assessing Officer. The recording of satisfaction by the Assessing Officer on the disclosure/explanation is mandatory for determination of existing liability and proportionate release of assets, and the remaining portion can be released with the prior approval of the prescribed authority. Even if the taxpayer discloses the nature and source of acquisition of seized assets, unless the Assessing Officer records satisfaction on such disclosure, the assets cannot be released, merely on the ground that its ownership is established in any other proceedings under any other Statute.

The Hon’ble High Court observed that the expression “for release of asset and the nature and source of acquisition of any such is explained” in the First Proviso to Clause (i) to sub-section (1) of Section 132B of the IT Act casts a statutory obligation to explain the nature and acquisition of the assets, and if the taxpayer does not explain source and nature of seized assets, and simply makes an application for release, the Assessing officer is not supposed to act on such application. Thus, the cash-asset cannot be ordered to be releases in absence of any disclosure and satisfaction of Assessing Officer on such disclosure.

The Hon’ble High Court opined that the Second Proviso to Section 132B(1)(i) of the Act will only get triggered, if any decision is taken by Assessing officer on the application filed by the taxpayer within a period of 30 days as specified in the First Proviso determining the liability and adjustment made to the existing / past tax liability. In absence of any determination of source or nature of the seized assets, the release of assets cannot be automatic. In order to appreciate the release or continuous seizure of the asset beyond 120 days, it would be necessary to examine the consequences of such retention which is governed under sub-sections (3) and (4) of Section 132 of the Act.

Impact of sub-section (4) of section 132B of the Act on clause (i) of sub-section (1) of section 132b of the Act.

The Hon’ble High Court observed that the Co-ordinate Bench had not examined the operation and effect of Sub-section (4) of Section 132B of the Act on the retention of the seized assets.

The Hon’ble High Court observed that Section 132B(3) of the Act thereof provides that any asset or proceeds which remain after the liabilities are discharge shall be forthwith met over or paid to the person from whose custody the assets were seized, whereas sub-section (4) of Section 132 creates liability of the Central Government to pay interest on seized money. The trigger for interest timeline begins on the day immediately following the expiry of 120 days from the date, on which the last search authorization was executed, and the end point, when the liability to grant interest ends, is on the date of completion of assessment or reassessment or recomputation. Thus, sub-section (4) of Section 132B oblige as a compensatory measure for taxpayers, whose liquidity is restricted beyond a reasonable time-frame, while acting as a financial check on the Income Tax Department to complete assessments promptly. Thus, the Revenue is saddled with liability of paying interest on the aggregate amount retained by it up to the date prior to the framing of the assessment or reassessment order.

The Hon’ble High Court observed that release of seized assets under Second Proviso to Clause(i) to Section 132B(1) on completion of 120 days is not routine or automatic, though it bears the expression “shall be released”. It is settled legal precedent that use of word “shall” in every statute does not mean that the intention of the legislature is its mandatory operation. Once the consequences of retaining the seized assets is prescribed, the release cannot be held to be mandatory, but would be directory.

The Hon’ble High Court opined that earlier decisions of the Co-ordinate Bench did not examine the effect of Section 132B(4) of the Act on clause (i) of Section 132B(1) and the provisos thereto, therefore, issues raised call for determination by a Larger Bench, since the view expressed in the earlier judgments had subsequently been followed.

Accordingly, the Division Bench of the Hon’ble High Court referred the following questions to the Larger Bench for determination:

(1) Whether the release of seized assets is mandatory upon completion of 120 days, as prescribed under the Second Proviso to Section 132B(1)(i) of the Act, where an application is filed under the First Proviso within a period of 30 days, by construing the expression “shall be released” as mandatory.

(2) Whether the seized assets can be released upon completion of 120 days in the absence of any determination of tax liabilities in the assessment proceedings, as contemplated under Clause (i) of Sub-section (1) of Section 132B of the Act, where no decision is taken by the Assessing Officer on an application filed under the First Proviso.

(3) Whether the Assessing Officer is required to take cognizance of an application filed by the taxpayer and intimate the taxpayer of the rejection thereof, where such application is bereft of any disclosure regarding the nature and source of the assets, and whether non-intimation thereof would result in the automatic release of the assets upon completion of 120 days.

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