Rajasthan HC Directs Income Tax Dept to Refund Rs. 24.06 Lakh with 12% Interest for Withholding Money without Demand Order [Read Order]

The Rajasthan High Court ruled that the Income Tax Department could not retain money collected during a search without passing a valid demand order, and directed it to refund the amount along with interest and costs.

Prince Khunteta, proprietor of Mateshwari Mobiles in Jaipur, filed a petition after the Commercial Tax Department collected Rs. 24,06,375 from him during a search operation. He argued that the amount had been taken under coercion and that no order creating a tax demand had been passed. The petitioner sought a refund of the money with interest.

The court had earlier, on 5 July 2024, directed the State authorities to clarify whether any demand order existed. Despite repeated opportunities, including a further hearing on 30 May 2025, the authorities did not produce any such order. On 4 September 2025, the matter came up before the Division Bench of Chief Justice K.R. Shriram and Justice Maneesh Sharma.

The petitioner’s counsel argued that since no demand order was ever passed, retention of the amount collected was illegal and contrary to law. He argued that the amount must be refunded with interest and that costs should be imposed on the Department for withholding money without authority.

The State’s counsel argued on the basis of instructions from the Assistant Commissioner that no order had been issued creating a demand against the petitioner.

The bench comprising Chief Justice K.R. Shriram and Justice Maneesh Sharma observed that despite being given sufficient time, the Department had failed to produce any demand order justifying the collection.

The court pointed out that money collected during a search cannot be retained in the absence of lawful authority. The judges explained that the conduct of the Department amounted to non-compliance with earlier directions of the court.

The court allowed the petition. It directed the Department to refund Rs. 24,06,375 to the petitioner along with interest at 12 percent per annum, with payment to be made on or before 30 September 2025. The court also ordered the authorities to pay Rs. 25,000 as costs, and permitted recovery of the costs personally from the officer responsible for the non-compliance. The writ petition was disposed of.

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