Delhi HC Awards Interest on Interest for Unlawful Retention of Seized KVPs & IVPs; Slams Income Tax Dept for “Stubborn Attitude” [Read Order]

The Delhi High Court directed the Income Tax Department to compensate an assessee for the "loss of opportunity cost" arising from the unlawful retention of seized Kisan Vikas Patras (KVPs) and Indira Vikas Patras (IVPs), going beyond statutory interest to award "interest on interest."

Pradeep Misra and Gyanwati Mishra, the petitioners, had their KVPs/IVPs seized during a search in 1997. Despite the petitioners approaching the Settlement Commission and depositing the settlement dues on December 23, 2003, the Assessing Officer (AO) failed to release the documents until January 10, 2005.

The Division Bench of Justice Dinesh Mehta and Justice Om Prakash Shukla observed that the AO displayed a "stubborn attitude" and "indecisive approach" by ignoring repeated requests to renew the maturing certificates or convert them into Fixed Deposit Receipt (FDRs). The Court noted that even after the Settlement Commission ordered the release of assets upon deposit of dues, the AO retained the KVPs/IVPs for over a year to recover a "meagre amount of audit fee," despite holding jewellery as security.

Rejecting the Department's reliance on CIT v. Gujarat Floral Chemicals, the Court distinguished the case, noting that the present claim was not for statutory interest under Section 244A but for compensation for wrongful withholding. Relying on the Supreme Court's ruling in Sandvik Asia Ltd. v. CIT, the Court held that the Revenue must compensate the assessee when amounts are wrongfully withheld without authority of law.

The Court directed the Department to pay interest at the prevailing KVP/IVP rate on the maturity value for the period of unlawful retention from Dec 2003 to Jan 2005. Furthermore, applying the principle of restitution, the Court awarded an additional simple interest of 4% per annum on the calculated interest amount from the date of release until the date of actual payment.

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