Enforcement Directorate must release seized currency after 2 years 9 months delay violates Section 132B Income Tax Act

The Rajasthan HC held that the Directorate of Enforcement's prolonged retention of seized currency violated statutory provisions. Despite search conducted on 14/3/2019 and repeated representations in 2019-2020, authorities neither released assets nor rejected applications with reasons. Even after show cause notice issued on 16/10/2020 and response filed on 19/3/2021, no determination occurred after 2 years 9 months. The court found this violated Section 132B of Income Tax Act, 1961 (applicable via Section 37(3) FEMA 1999), which mandates asset release within 120 days unless liability determined. Petition partly allowed; respondents directed to release seized assets within four weeks.

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Issues involved:
The validity of seizure/confiscation by the respondents and seeking direction to return/release the money, currency illegally confiscated/seized.

Judgment details:

Issue 1: Seizure of Indian and Foreign currency
The petitioners challenged the seizure of Indian and Foreign currency by the authorities, citing non-compliance with the provisions of the Income Tax Act, 1961. The petitioners argued that the stock-in-trade of the business should not have been seized and that the authorities were required to release the assets within 120 days. Despite multiple representations seeking release of the seized assets, no response was received, and a show cause notice was issued after a significant delay. The court noted the inaction of the respondents in releasing the currency and directed them to comply with the provisions for release.

Issue 2: Applicability of FEMA, 1999 and Act, 1961
The court considered the provisions of Section 37 of the Foreign Exchange Management Act, 1999 (FEMA, 1999) which confers power of search and seizure on the officers of Enforcement Directorate. It was highlighted that the power should be exercised in accordance with the provisions of the Income Tax Act, 1961, subject to the limitations laid down under the said Act. The court emphasized the importance of expeditiously determining liabilities and releasing assets within the specified time frame.

Issue 3: Compliance with statutory provisions
The court analyzed the provisions of Section 132B of the Income Tax Act, 1961, which governs the application of seized and requisitioned assets. The court noted that the assets seized must be released within 120 days from the date of the search authorization. Emphasis was placed on the need for timely determination of liabilities and the release of assets accordingly. The court found the respondents' inaction in releasing the seized assets to be in violation of the statutory provisions.

Separate Judgment:
The High Court, comprising Hon'ble Mr. Justice Arun Bhansali and Hon'ble Mr. Justice Ashutosh Kumar, partly allowed the petition. The respondents were directed to pass appropriate orders for the release of the seized assets within four weeks from the date of the judgment. However, it was clarified that the release of assets would be subject to the final outcome of the proceedings initiated by the respondents against the petitioners.

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