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Income Tax--Search And Seizure

Assessee is Entitled to Compensatory Interest Under Section 132B(4) For Delay in Release of Cash

CA. Manoj Gupta

section 132B deals with manner in which the retained assets post search can be used. The relevant amount can be recovered out of the retained assets only if in respect of such amounts, the person concerned is in default or is deemed to be in default. From the retained assets certain term liabilities can be recovered. Interest under Section 132B(4) is payable to the person whose assets have been retained as compensation for retention of money seized and proceeds of assets sold being in excess of the total tax, liabilities, etc., against which they are applied. The liabilities covered under this section are not only for tax but also for any penalty and interest payable. Recently the assessee in the case of Sanjeev Kumar v. UOI 2022 TaxPub(DT) 4216 (Bom-HC) : (2022) 444 ITR 0334 : (2022) 288 Taxman 0334 demanded compensatory interest for wrongful retention of assets by the Revenue. The High court held that there was delay on part of revenue in releasing the cash amount seized from assessee. Therefore, department being solely responsible for gross delay in not releasing the cash amount of assessee under Section 132B(4)(b) could not refuse payment of compensation to assessee for wrongfully withholding the said amount from the date of assessment order till payment. Revenue was directed to allow the claim for the interest by way of compensation/damages at the rate of 6% per annum for delayed period. The learned author examines the issue.

1. Use of retained assets for recovering any existing liability under direct tax laws

Under Section 132B of the Act, the manner in which the retained assets can be used is provided. The relevant amount can be recovered out of the retained assets only if in respect of such amounts, the person concerned is in default or is deemed to be in default. From the retained assets following term liabilities can be recovered-

(i) The amount of existing liability under the Act and any one or more of the following Act, namely-

(a) The Indian Income Tax Act, 1961

(b) The Wealth Tax Act, 1957

(c) The Gift Tax Act, 1958

(ii) The amount of the liability determined on completion of the assessment or reassessment or recomputation 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 on completion of the assessment under Chapter XIV-B for the block period, as the case may be

(iii) The amount of penalty levied or interest payable in connection with such assessment.

 Section 132B(1)(i) of the Income-tax Act has been amended from 1-6-2015 to provide that the asset seized under Section 132 or requisitioned under Section 132A may also be adjusted against the amount of liability arising on an application made before the Settlement Commission under sub-section (1) of Section 245C.

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