Penalty can’t be levied on Erroneously Seized Amount: Supreme Court [Read Judgment]

The Supreme Court of India has held that when the liability to pay an erroneously withheld sum is acknowledged and accepted by the Revenue Department, then to deny relief by directing payment in terms of the order under Section 132(5) of the Act would be unjust, unfair and inequitable amount. Supreme Court says that penalty can’t be levied on Erroneously Seized Amount.

The Appellant Kishore Jagjivandas Tanna who was a resident of Mumbai had checked into a hotel in New Delhi on 25.08.1987. The revenue conducted a search and seizure operations under 132 of the Income Tax Act, 1961 and Rs. 5,00,000/- was found in a polythene bag. The appellant had claimed that he had collected the amount from a trader in New Delhi. The revenue had also failed to prove the exact source of the amount.

On 22.12.1987 an order under Section 132(5) of the Act, as was then applicable, was passed by the First Income Tax Officer holding, inter alia, that there were contradictions and fabrications in the appellant’s version and stand on the source of the amount and therefore it would be retained till the assessment for the Assessment Year 1988-1989 was finalized, as the estimated tax liability and penalty for concealment could exceed the seized amount. Since these steps were taken by the revenue without following the principle of natural justice, this order was set aside by the Bombay High Court and asked the revenue to pass a fresh order. Therefore, a fresh order was passed where it was stated that the said amount need not be retained. But, unfortunately, the seized money could not be traced, and the revenue blamed the appellant for not keeping adequate information about the seized money. In subsequent letters, the revenue also went to the extent to claim that the said amount was not collected by the appellant even after an opportunity to claim the seized amount was given. The Revenue was then of the opinion that the said amount can be claimed after directing penalty payment and interest as per section 132(5) of the act since it is a seized amount.

Finally, on 24th of January 2020, the appellant was brought to justice after nearly 33 years Justice S. Abdul Nazeer and Justice Sanjiv Khanna who held, “ . . . . Laches is this case would require sheer negligence of nature and type which would render it unjust and unfair to grant relief. . . . the appeal is allowed with the direction to the respondent authorities to pay Rs. 4,99,900/- with interest as per law within a period of three months from the date on which the copy of this order is received. In case of failure to pay in time, the appellant would be at liberty to file a contempt petition against the officers concerned and also claim costs.”