Retention of seized assets pending penalty proceedings remains valid despite payment of assessed tax and interest.

Section 132B(1)(i) of the Income-tax Act, 1961 permits seized assets to be retained and applied against liability determined in search-related proceedings, including penalty or interest connected with the assessment. Where penalty proceedings are pending and the assessee is in default or deemed to be in default, payment of assessed tax and interest does not by itself require release of the seized property. The statutory basis for withholding the assets continues until the penalty liability is determined, so a claim for immediate release of the seized gold was not sustainable.

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Issues: Whether gold seized during a search could be retained by the Revenue and withheld from release pending penalty proceedings, and whether payment of assessed tax and interest excluded any further liability justifying such retention.

Analysis: Section 132B(1)(i) of the Income-tax Act, 1961 permits seized assets to be applied not only against existing liability but also against liability determined on completion of assessment, including penalty levied or interest payable in connection with such assessment. The provision was construed as enabling retention of the seized gold until the penalty liability, arising from the search-related proceedings, is determined, provided the assessee is in default or deemed to be in default. Payment of tax and interest under the assessment orders did not, by itself, negate the statutory basis for retention where penalty proceedings were already initiated and remained pending.

Conclusion: The request for release of the seized gold was not sustainable, and the Revenue was entitled to retain the assets until the penalty liability was determined; the issue was decided against the assessee.

Final Conclusion: The writ petition failed because the statutory scheme governing seized assets allowed their retention for adjustment against pending penalty-related liability, and the challenge to withholding of the gold was rejected.

Ratio Decidendi: Under Section 132B(1)(i) of the Income-tax Act, 1961, seized assets may be retained and applied towards liability determined in search-related proceedings, including penalty payable in connection with such assessment, and cannot be claimed back merely because assessed tax and interest have been paid while penalty proceedings remain pending.

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