Income Tax Dept.'s Seizure of Rs. 5 Crores Ruled Illegal, Ordered to Refund with 12% Interest Since 2019.

The HC declared the seizure and retention of Rs. 5.00 Crores by the Income Tax Dept. as illegal and ultra vires the Income-tax Act, 1961. The court ordered the respondents to refund the cash to the petitioner with 12% interest from 28.08.2019 and awarded costs of Rs. 20,000/-. The decision underscored the necessity of lawful procedures and protection of property rights.

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Issues Involved:
1. Legality of the seizure of cash by the Income Tax Department.
2. Validity of the authorization for search and seizure under Section 132 of the Income-tax Act, 1961.
3. Legitimacy of the retention of cash by the Income Tax Department.
4. Entitlement of the petitioner to the return of the seized cash.

Detailed Analysis:

1. Legality of the Seizure of Cash by the Income Tax Department:
The petitioner, a proprietary concern involved in the purchase of agricultural lands and products, claimed that Rs. 5.00 Crores was entrusted to its employee, Vipul Kumar Patel, for business purposes. On 23.08.2019, the Task Force Police of Telangana intercepted the car carrying Vipul Kumar Patel and seized the cash. The petitioner contended that the seizure was illegal as there was no valid authorization under Section 132 of the Income-tax Act, 1961, at the time of the seizure. The court noted that the cash was indeed handed over to the Income Tax Department by the police on 27.08.2019, and the subsequent panchanama prepared by the Income Tax Department on 28.08.2019 was fabricated. The court found the seizure and retention of the cash by the respondents to be illegal.

2. Validity of the Authorization for Search and Seizure under Section 132 of the Income-tax Act, 1961:
The petitioner argued that the authorization for search and seizure under Section 132 must be given prior to the seizure. The court observed that the Task Force Police admitted to handing over the cash to the Income Tax Department on 27.08.2019, and the authorization for search was issued on 28.08.2019. The court found that the absence of a specific location in the panchanama and the fabricated nature of the search narrative indicated that the authorization was not honest or bona fide. The court held that the authorization issued on 28.08.2019 was invalid as the cash was already in the possession of the Income Tax Department.

3. Legitimacy of the Retention of Cash by the Income Tax Department:
The Income Tax Department retained the cash on the basis of the fabricated panchanama and invalid search authorization. The court held that mere possession of a large amount of cash does not constitute sufficient information to infer that it was undisclosed income. The court emphasized that the retention of cash without a valid basis and authorization violated Article 300-A of the Constitution of India, which protects the right to property. The court found the retention of the cash by the respondents to be illegal and unsustainable.

4. Entitlement of the Petitioner to the Return of the Seized Cash:
The petitioner in W.P.No.23023 of 2019 was the only claimant for the cash, and Vipul Kumar Patel, in his individual capacity, also asserted that the cash belonged to the petitioner. The court noted that there was no rival claim for the cash from any third party, and the respondents could not retain the cash indefinitely on the pretext of a possible third-party claim. The court directed the respondents to return the cash of Rs. 5.00 Crores to the petitioner with interest at 12% per annum from 28.08.2019 till the date of payment. The court also awarded costs of Rs. 20,000/- to the petitioner.

Conclusion:
The court allowed the writ petitions, declaring the seizure and retention of the cash by the respondents as illegal and ultra vires the provisions of the Income Tax Act, 1961. The respondents were directed to refund the cash to the petitioner with interest and pay the costs. The court's decision emphasized the importance of adhering to legal procedures and protecting the rights of individuals against arbitrary actions by authorities.

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