S.132B(1)(i) Income Tax Act | Power Of Assessing Authority To Decide Application For Release Of Seized Assets Not Automatically Abated After 120 Days: Allahabad HC

The Allahabad High Court has held that the jurisdiction of the Assessing Authority to decide the application for release of seized assets under Section 132B (1)(i) does not abate after a period of 120 days from the date on which the last of the authorizations for search under section 132 or for requisition under section 132-A was executed.

The Court held that the word “shall” in 2^nd proviso to Section 132B (1)(i) is directory in nature as no stipulation is made for the automatic release of goods after the period of 120 days. It held that a levy of interest on the seized asset contemplated under Section 132B (4) does not make the “shall” in 2^nd proviso to Section 132B (1)(i) mandatory in nature.

The first proviso to Section 132B (1)(i) provides the person whose asset was seized an opportunity to make an application for the release of the asset before the Assessing Officer within thirty days from the end of the month in which asset was seized. If the nature and source of acquisition of the asset is explained to the satisfaction of the Officer, he may release the asset after recovering any existing liability mentioned in Section 132B (1)(i).

The second proviso to Section 132B (1)(i) provides that the asset seized referred to in the first proviso or part thereof, as the case may be, shall be released within a period of 120 from the date on which the last of the authorizations for search under section 132 or for requisition under section 132-A was executed.

The Court held that Section 132B (1)(i) stipulates that the amount seized shall not be withheld except when there is any outstanding recovery of tax against the assessee and the seized asset may be required to recover the tax demand which may arise upon assessment pursuant to the search.

The bench comprising Justice Saumitra Dayal Singh and Justice Surendra Singh-I held 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.”

Case Background

Petitioner, a jeweller, handed Rs.36,12,000/- to his worker along with a train ticket to Kolkata to buy jewellery. The worker was apprehended by the Government Reserved Police in Mirzapur and the money was recovered from him. The Income Tax Authorities arrived later and initiated proceedings under Section 132(1-A) of the Act.

During the proceedings, the worker maintained the stand that the cash belonged to the petitioner. The petitioner submitted that regular books of accounts and income tax returns had been produced at the time of investigation to show that the money recovered was not unaccounted for. Thereafter, the petitioner made an application for release of the amount, which is still pending.

Counsel for the petitioner argued that upon application being made, the assessing authority ought to have examined if the nature and source of acquisition of the amount was explained and if the liability of tax/penalty existing could be satisfied from the seized amount. It was argued that since there was no pre-existing demand, the amount ought to have been released in favour of the petitioner.

It was argued that 'shall' in 2^nd proviso to Section 132B (1)(i) was mandatory and the entire seized amount ought to have been released at the end of 120 days once the application was not decided. It was argued that the petitioner was also entitled to interest in terms of Section 132B(4) read with Rule 119A of the Rules as the period of 120 days had expired.

Counsel for Revenue argued that the petitioner had no right to refund during the pendency of assessment proceedings arising from the requisition made under Section 132A (c) of the Act. It was argued that 'shall' in 2^nd proviso to Section 132B (1)(i) was directory and not mandatory in nature.

High Court Verdict

The Court observed that since the nature and source of the acquisition was explained and the money seized from the worker was asset seized, an application under Section 132B (1)(i) could be made. Further, it was observed that the application was made by the petitioner within the time prescribed under the proviso. The Court held that the application made by the petitioner for the release of the seized amount was maintainable.

Thereafter, the issue framed by the Court was whether once the application is held maintainable and has not been decided within 120 days, will it entitle the petitioner to obtain the release of the seized assets under 2^nd proviso to Section 132B (1)(i).

The Court observed that the word “shall” represents mandatory nature, whereas “may” represents the directory nature of the provision. The Court relied on State of U.P. v. Manbodhan Lal Srivastava where the Supreme Court had held that though “shall” is generally taken to be mandatory in nature and “may” is taken as directory, they may not necessarily have that effect in every case depending upon the words in the statue that follow it.

Further, the Court relied on C. Bright v. District Collector And Others wherein the Apex Court held that while deciding whether “shall” is mandatory or not, the Court must look at the legislative intent regarding the scope of the statute. It was observed that if a time frame has been prescribed for an act to be done by a private person, it will be mandatory in nature. However, the time frame for an act of a public functionary shall be directory unless consequences for no-adherence are specified.

The Court held that the consequence for non-compliance with the provision under Section 132B (1)(i) is provided in Section 132B (4) which is payment of interest at the rate of 18 % per annum.

“By imposing the levy of interest on the revenue, a plain reading of sub section (4) of Section 132 B (1) (i) of the Act, 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.”

However, the Court observed that Section 132B (1)(i) does not contemplate any automatic release of the seized assets if the application is not decided.

The Court held that in Cowasjee Nusserwanji Dinshaw v. Income Tax Officer, Section 132(8) of the Income Tax Act was the relevant provision where it is provided that authorities must record reasons to retain the documents beyond 180 days. If the reasons were not recorded, it would lead to the release of the documents. Distinguishing the said case, the Court held that no such provision for automatic release has been provided in Section 132B which stipulates automatic release of seized assets upon expiry of 120 days.

The Court held that “in absence of statutory intent shown to exist, it may not be inferred through the process of legal reasoning-that if no order is passed within a time of 120 days, seized assets must be released notwithstanding its impact on the recovery of existing and likely demands.”

Accordingly, the Court held that the jurisdiction of the Assessing Authority did not abate upon expiry of 120 days and the petitioner was not entitled to the automatic release of goods under the 2^nd proviso to Section 132B (1)(i).

While directing the Assessing Authority to decide the application of the petitioner, the Court observed that whatever amount is refunded to the petitioner after assessment shall attract interest in terms of Section 132B(4) read with Rule 119 A of the Rules.

Case Title: Dipak Kumar Agarwal vs. Assessing Officer And 4 Others 2024 LiveLaw (AB) 248 [WRIT TAX No. - 1597 of 2022]

Case Citation: 2024 LiveLaw (AB) 248

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