The Delhi High Court has declined to stay an Income Tax Appellate Tribunal (ITAT) order directing the Income Tax Department to release ₹17.66 crore in cash seized during a search operation, holding that the Department could not continue retaining the seized money after the assessment of the searched person had been completed and the statutory charge over the cash under Section 132B of the Income Tax Act, 1961 had come to an end.
A Division Bench comprising Justice Dinesh Mehta and Justice Rajneesh Kumar Gupta passed the order while considering the Income Tax Department’s appeal against the ITAT decision concerning cash seized from lockers belonging to searched persons Shakun Tamang and Ashish Kapoor.
Seized Cash of ₹17.66 Crore at the Centre of Dispute
The dispute arose from the seizure of approximately ₹17.66 crore during an income tax search. The seized cash was subsequently claimed by Kapoor Industries Limited, which contended that the money belonged to the company and could be treated as payment towards its income tax liability.
The Income Tax Department, however, questioned the company’s entitlement to claim the seized amount as self-assessment tax for Assessment Year (AY) 2024-25.
According to the Department, when Kapoor Industries filed its return, the assessment proceedings relating to Ashish Kapoor, one of the searched persons, were still pending. The Department also relied upon subsequent reassessment proceedings initiated under Section 148 of the Income Tax Act, contending that the continuation of proceedings justified retention of the seized cash.
What Does Section 132B Provide?
Section 132B governs the manner in which assets, including cash, seized during an income tax search may be dealt with by the Department.
Broadly, seized assets can be applied towards existing tax liabilities and certain liabilities arising from the assessment of the searched person, subject to the conditions prescribed by law.
The crucial question before the High Court was whether the Department could continue to retain the seized cash after the assessment of the searched person had been completed.
Assessment Completed on 27 March 2026
The High Court placed significant emphasis on the fact that Ashish Kapoor’s assessment was completed on 27 March 2026.
The Court noted that the assessment did not result in any demand relating to the seized cash. More importantly, the Department had accepted Kapoor’s position that the cash belonged to Kapoor Industries Limited.
In these circumstances, the Court held that the statutory charge over the seized cash under Section 132B could not continue indefinitely.
The Bench observed:
“The moment assessment of searched person was made (27.03.2026) the charge over the cash by virtue of Section 132B … stood extinguished.”
This observation formed the principal basis for refusing to grant a stay against the ITAT’s direction for release of the money.
Department Could Not Retain Cash Through Subsequent Proceedings
The High Court also noted an important factual aspect: Kapoor Industries Limited was not the searched person, and no warrant of authorisation had been issued against the company.
Therefore, according to the Court, subsequent proceedings against Kapoor Industries could not by themselves provide a continuing legal basis for withholding the cash after the statutory charge arising from the search had ended.
The Court consequently directed the Assessing Officer to release the ₹17.66 crore, after making an adjustment towards the purported tax liability of approximately ₹3.74 crore.
The Assessing Officer was directed to complete the release within 30 days. The Department was also directed to calculate the applicable interest.
Interest Issue Kept Open
While directing release of the principal amount, the High Court adopted a different approach regarding interest.
The Court directed that the interest amount be kept in an interest-bearing Fixed Deposit Receipt (FDR) until the Larger Bench determines the question concerning entitlement to interest on excess self-assessment tax.
Thus, the Court separated the immediate question of release of the seized cash from the broader legal question concerning interest.
Larger Legal Questions Still Pending
Although the Delhi High Court refused to stay the ITAT order, it admitted the Department’s appeal on substantial questions concerning:
- Whether Kapoor Industries could claim the seized cash as self-assessment tax;
- Whether the ITAT was justified in directing credit of the seized amount to the company’s tax account; and
- Whether the balance amount was liable to be refunded to Kapoor Industries.
Accordingly, the High Court’s order does not finally settle every issue concerning the ownership, tax treatment or refund of the seized cash. However, it provides significant guidance on the duration of the Department’s authority to retain seized assets under Section 132B.
Key Takeaway for Taxpayers
The ruling highlights an important principle in search and seizure proceedings: seized assets cannot necessarily be retained indefinitely merely because subsequent tax proceedings remain pending.
Once the assessment of the searched person is completed and the statutory basis for retaining the seized asset under Section 132B comes to an end, the Department must establish an independent legal basis for continued retention.
The decision is therefore significant for taxpayers involved in search proceedings, particularly where substantial cash or other assets have been seized and the Department seeks to retain them beyond completion of the assessment.
Case: The Pr. Commissioner of Income Tax – Central-1 v. Kapoor Industries Limited
Case No.: ITA 671/2026
Court: Delhi High Court
Issue: Retention and release of ₹17.66 crore seized cash under Section 132B of the Income Tax Act, 1961