Search and seizure interest rules: pre-assessment and refund interest must follow statutory rates, with compensation possible for inordinate delay.

In search and seizure matters, interest is payable on surplus seized cash retained beyond the statutory period under section 132B(4)(b) for the pre-assessment period, and post-assessment refund interest under section 244A must be computed at the rates applicable from time to time rather than at a flat monthly rate. The Court also recognised that unexplained inordinate delay in paying interest already due can justify separate compensation for wrongful retention of money. On these principles, the refusal or restriction of interest was unsustainable and consequential relief followed.

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Issues: (i) Whether the assessee was entitled to interest on the surplus seized cash for the pre-assessment period under section 132B(4)(b) of the Income-tax Act, 1961. (ii) Whether the assessee was entitled to interest on the refundable amount for the post-assessment period under section 244A of the Income-tax Act, 1961 at the rate applicable from time to time. (iii) Whether the assessee was entitled to compensation for the inordinate delay in payment of statutory interest.

Issue (i): Whether the assessee was entitled to interest on the surplus seized cash for the pre-assessment period under section 132B(4)(b) of the Income-tax Act, 1961.

Analysis: The seized cash exceeded the tax liability ultimately determined after appeal, leaving a surplus retained by the Department. The Court applied the principle that section 132B(4)(b) governs the pre-assessment period in search and seizure matters and that interest is payable on amounts retained beyond the statutory period after expiry of 120 days from seizure until regular assessment or reassessment.

Conclusion: The assessee was held entitled to interest on the surplus amount for the pre-assessment period.

Issue (ii): Whether the assessee was entitled to interest on the refundable amount for the post-assessment period under section 244A of the Income-tax Act, 1961 at the rate applicable from time to time.

Analysis: After the block assessment was reduced in appeal, the refundable amount became payable to the assessee. The Court held that post-assessment refund interest must be computed at the rates applicable from time to time and not at a flat rate of 0.5% per month, since the authorities had ignored the statutory scheme governing refund interest.

Conclusion: The assessee was held entitled to interest for the post-assessment period at the rates applicable from time to time.

Issue (iii): Whether the assessee was entitled to compensation for the inordinate delay in payment of statutory interest.

Analysis: The Court found unexplained delay of several years in paying interest that had already become due. Relying on the principle that compensation may be granted where the revenue wrongfully withholds money for an inordinate period, the Court held that the case warranted compensation separate from statutory interest.

Conclusion: The assessee was held entitled to compensation for the delayed payment of interest.

Final Conclusion: The impugned orders refusing or restricting interest could not be sustained, the writ petition succeeded, and consequential relief was granted in favour of the assessee.

Ratio Decidendi: In search and seizure matters, interest on retained surplus is payable for the pre-assessment period under section 132B(4)(b), refund interest for the post-assessment period is governed by section 244A at the applicable statutory rates, and inordinate unexplained delay in paying such interest can justify compensation for wrongful retention of money.

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