By TIOL News Service

AHMEDABAD, JAN 22, 2016: THE issue before the Bench is - Whether where the person concerned has made an application for release of asset within the prescribed time, the authority can refuse such request on the ground of not being satisfied about the source of its acquisition. YES is the answer.

Facts of the case

The assessee was travelling from Morbi to Rajkot carrying cash of Rs. 20,07,000/-. According to him, he had to handover such cash to his friend Manoj P. Rajdev. The vehicle, in which, the assessee was travelling, was intercepted by the police authorities being the election period for general election to the parliament. The police authorities, after being satisfied that the cash, which the assessee was carrying, had no connection with the ensuing election, informed the I-T Department which, later on seized the cash from the assessee. Hence, the assessee filed a petition before the ITO for releasing the cash. Vide communication, the assessee reminded to the authority that the petition was still pending. The ITO however rejected the application on the grounds that cash could be released only when the source was explained to the satisfaction of the AO. The assessee failed to satisfy this requirement. The assessee contended that since assessment u/s 153A as well as final assessment of tax and penalty liabilities was still pending, only after the completion of such proceedings, question of release of seized asset could be considered. The AO however rejected this contention of assessee.

Having heard the parties, the High Court held that,

++ the assets seized u/s 132 or requisitioned u/s 132A has to be dealt with in the manner provided in Clauses (i) to (iii) thereof. Principally, under Clause (i), it is provided that the amount of any existing liability under the Income Tax Act or the related fiscal statutes and the liability determined on completion of assessment u/s 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 including the penalty and interest would be recovered out of such assets. Provisio to Clause (i) of Section 132B, however, provides that where the person concerned makes an application to the AO within thirty days from the end of the month, in which, the asset was seized, for release of the asset and the nature and source of acquisition of any such assets is explained to the satisfaction of the AO, the amount of existing liability referred to in the said clause may be recovered out of such asset and the remaining portion, if any, may be released to the person from whose custody the asset was seized, with the prior approval of the officer prescribed under the said proviso. Under Clause (i) of Section 132B, any seized assets would be adjusted towards the recoveries not only against existing but also liabilities which may crystallize on completion of the assessment u/s 153A and the assessment of the relevant year to the previous year, in which, the search is initiated or the request is made or in the block assessment proceedings. Such liabilities would not only include the principal tax but also interest and penalties, if any. However, under the first proviso to Clause (i) of sub section (1), if the person concerned makes an application within the prescribed time and also satisfies the AO about the source of acquisition of such asset, the asset would be adjustable only against the existing liabilities. In other words, upon the concerned person applying to the AO and satisfying him about the source of the acquisition of the asset, the same would be released after adjustment towards existing liabilities, without waiting for the outcome of the assessment proceedings u/s 153A or the assessment for the year relevant to the previous year, in which, the search was initiated or a requisition is made or for the block period referred to under Chapter XIV-B;

++ However, the further proviso puts a time limit, within which, such asset must be released. The question of not releasing the asset would arise only upon the decision on an application that may have been made by the person concerned is taken by the AO. If no decision is taken, necessarily, the option of the AO to adjust such seized asset would be confined to the existing liabilities. It is, in this context, in our opinion, the legislature required the AO to follow the time limit scrupulously. In other words, if the person concerned has made an application for release of the asset within the prescribed time, the authority can refuse such request on the ground of not being satisfied about the source of its acquisition. But if no such decision is taken within the time envisaged in the further proviso, releasing of the asset becomes imminent. It is seen that the Division Bench of this Court in case of Cowasjee Nusserwanji Dinshaw vs. Income Tax Officer, has found that the books and documents of the assessee, which were seized during search and seizure operation, were retained beyond a period of 180 days without communicating the reasons recorded by the AO for such purpose. This Court therefore held that, continued retention of the books and accounts and seized documents would, therefore, be illegal and invalid. Therefore, impugned order is set aside and the seized cash shall be released in favour of the assessee alongwith interest as per the statute.

(See 2016-TIOL-127-HC-AHM-IT)