2024 (1) TMI 337 - HC - FEMA

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 ... Power of search and seizure conferred on the Directorate of Enforcement as per FEMA - validity of seizure/confiscation made by the respondents - seeking a direction to return/release the money, currency illegally confiscated/seized - HELD THAT:- The provisions of Section 132B of the Income Tax Act, 1961 inter alia provides for application of seized and requisitioned assets which provides that the assets seized may be dealt with in the manner provided therein, whereby, the amount of any existing liability and the amount of liability determined on completion of the assessment may be recovered out of such assets, however, such power is, thereafter, governed by two provisos A bare look at the first proviso would reveal that on an application made for release of the assets while indicating the source of acquisition of such assets, after adjusting the liability, remaining portion of the assets has to be released. The second proviso indicates that such asset or any portion thereof shall be released within a period of 120 days from the date on which the last of the authorizations for search was executed. The proviso are not without reason inasmuch as the same have been incorporated only with a view that to ensure that determination of liability has to take place expeditiously and in case the same does not take place the assets have to be released. In the present case, search took place on 14/3/2019 and despite repeated representations made in the year 2019 and 2020, neither the assets have been released nor the representations have been rejected indicating any reason. Further, even when a show cause notice was issued on 16/10/2020 and a response was filed on 19/3/2021, despite passage of over 02 years and 09 months, no determination has taken place. So far as the source of acquisition is concerned, as required by the first proviso (supra), a specific submission has been made that the books of account have been seized along with currency and everything is recorded therein and, therefore, the source is very much reflected and available with the respondents. Thus plea raised by respondents pertaining to attempt to challenge the show cause notice is concerned, the adjudication/determination of the show cause notice is well within the powers of the respondents and none prevented them from determining the same expeditiously, however, the respondents have chosen not to make the determination and continue to sit over the various representations made for release of assets, which action cannot be countenanced. Respondents despite release of the seized currency are free to make the determination of the show cause notice, qua which no relief has been claimed presently. Action of the respondents in not releasing the seized assets of the petitioners is essentially in violation of Section 132B of the Act, 1961, which is applicable in terms of Section 37(3) of the FEMA, 1999 and, therefore, the inaction of the respondents in this regard cannot be sustained. Petition is partly allowed. The respondents are directed to pass appropriate orders for release of the seized assets pursuant to the search conducted on 14/3/2019 within a period of four weeks from today. 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 currencyThe 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, 1961The 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 provisionsThe 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.