SUPREME COURT OF INDIA

KCC Software

v.

DIT

DR. ARJIT PASAYAT AND S.H. KAPADIA JJ.

CIVIL APPEAL NO. 769 OF 2008

JANUARY 29, 2008

Section 132B of the Income-tax Act, 1961 - Search and seizure - Retained assets, application of - Whether where order passed under section 132B showed that certain amount withdrawn from assessee’s bank account, which had been seized, was retained for estimated liability pending completion of assessment, there was no challenge to order passed under section 132B and assessment was yet to be completed, no relief to assessee against retention of amount could be granted - Held, yes

Facts

A search and seizure operation was conducted by the department at the premises of the assessee pursuant to warrants of authorization dated 3-8-2005. On 4-8-2005, certain assets including jewellery, cash and fixed deposit receipts were seized and the assessee, by order passed under section 132(3), was restrained from operating its Savings Bank Accounts. Subsequently, the bank accounts of assessee were seized through withdrawal of cash by demand drafts. The assessee moved an application under section 132B(1) to department to adjust towards self-assessment tax, certain sums for assessment year 2005-06 and certain sum towards advance tax for assessment year 2006-07 from seized amount and to release the balance. The department, however, by passing order under section 132B, declined the assessee’s request and stated that the amount was retained for the estimated liability. The assessee’s writ was dismissed by the High Court observing that the department had taken a stand that there was estimated tax liability of approximately Rs. 10,00,000. On appeal, the assessee submitted that the factual scenario clearly showed that the authorities acted without jurisdiction in directing either to retain the amount after adjustment of the self-assessment and advance tax or also withdrawing the amount by demand drafts from the bank accounts. The revenue’s case was that the money had been withdrawn in terms of “Search and Seizure Manual, 1989”, and that the adjustment that had been done was for existing liability and there was no appropriation in that sense because it could be done only after assessment was complete.

Held

The “Search and Seizure Manual” to which reference had been made deals with Chapter V under heading “Post Search Work”. It was stated that amount had not become a part of the Consolidated Fund of India and was deposited in separate personal deposit account of the concerned Commissioner and was held in the custody till final determination of the tax liability by the Assessing Officer for the relevant assessment years. On a bare reading of the Manual, it is clear that the same is relatable to cash seized and cash in bank is conceptually different from cash in hand. At this juncture, it was appropriate to clarify about the impermissibility to convert assets into cash and thereafter impound the same. However, there was no need to go into the broader issue in view of the fact that there was no challenge to the order passed under section 132B. It had been stated by the revenue that it was permissible to complete the assessment by 31-3-2008. In view of the aforesaid scenario, the appeal was to be disposed of with the following directions :

(i) in view of the non challenge to the order passed under section 132B, no relief could be granted to the assessee ;

(ii) however, it would be in the interests of the assessee as well as the revenue if the amount transferred to the personal deposit account of the Commissioner was kept in interest-bearing fixed deposit as ultimately in the event the assessee succeeded, it would be entitled to interest as provided in the statute. The assessment has to be completed on or before 31-3-2008, i.e., within the time statutorily provided. [Paras 14, 15, 16 and 19]