Assessee Is Entitled to 6% Interest on Seized Cash Refunded Due to Delayed Assessment

By | July 23, 2026
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Assessee Is Entitled to 6% Interest on Seized Cash Refunded Due to Delayed Assessment

Issue

Whether the High Court under Article 226 of the Constitution can award compensatory interest at 6% per annum on seized cash refunded to the assessee when the Revenue fails to frame an assessment within the statutorily prescribed time, despite pending internal vigilance proceedings against defaulting officials.

Facts

  • Search and Seizure: The assessee was subjected to a search and seizure operation under Section 132 of the Income-tax Act, 1961, during which cash was seized by the Revenue.

  • Failure to Frame Assessment: The Revenue failed to make or complete any assessment within the statutorily prescribed time limit following the search.

  • Refund and Delay: Since no assessment was framed within the permissible timeline, the seized cash was eventually refunded to the assessee, but the refund was unduly delayed.

  • Defense by Revenue: The Revenue resisted paying interest on the delayed refund on the ground that internal vigilance references were pending to fix responsibility on the officials who failed to hold the assessment proceedings on time.

Decision

  • Power to Award Compensatory Interest: Where no assessment is made within the prescribed period despite seizure and the refund is unduly delayed, the High Court can exercise its extraordinary jurisdiction under Article 226 of the Constitution to award compensatory interest [Para 15].

  • Vigilance Reference Irrelevant to Assessee: The pendency of internal vigilance proceedings against defaulting officials is an internal administrative matter and does not constitute a valid ground to withhold interest due to the assessee [Para 16].

  • Entitlement and Rate of Interest: The assessee is entitled to compensatory interest at the rate of 0.5% per month (6% per annum) on the refunded cash [Para 17].

  • Period of Interest Computation: Interest must run from the date immediately following the expiry of 120 days from the date on which the last authorization for search under Section 132 or requisition under Section 132A was executed, up to the actual date of refund [Para 18].

Key Takeaways

  • Writ Jurisdiction for Delay Redressal: High Courts can invoke Article 226 to grant compensatory interest when tax authorities illegally withhold seized assets or cause undue delay in refunding them without statutory authority.

  • Internal Administrative Delays Cannot Prejudice Taxpayers: Pendency of departmental inquiries or vigilance proceedings against negligent tax officers is not a permissible excuse to deny or delay interest payouts to an assessee.

  • 120-Day Statutory Trigger: Section 132B principles apply to compute interest on delayed refunds of seized cash, starting right after the 120-day mark from the execution of the search authorization through to the date of release.

HIGH COURT OF JHARKHAND
Kamal Kumar Khetawat
v.
Union of India
M.S. Sonak, CJ.
and Rajesh Shankar, J.
W.P. (T) No. 2575 of 2026
JUNE  23, 2026
Sumeet Gadodia, Ranjeet Kushwaha, Miss. Shruti Shekhar, Miss. Nidhi Lall and Anish Lal, Advs. for the Petitioner. Kumar Vaibhav, Sr. SC, Durgesh Agarwal, Sr. S.C. and Ms. Saudamini Gupta, Jr. SC for the Respondent.
ORDER
1. Heard learned counsel for the parties.
2. The rule is made returnable forthwith at the request of and with the consent of the learned counsel for the parties.
3. The petitioner, by instituting this petition, had sought for the release of the seized cash amount of Rs. 9,00,000/- along with statutory rate of interest in terms of Section 132 of the Income Tax Act, 1961.
4. During the pendency of this petition, the seized cash amount of Rs. 9,00,000/- was released to the petitioner. However, no interest was paid to the petitioner on this amount. Hence, Mr Sumeet Gadodia, the learned counsel for the petitioner, made it clear that this petition is now restricted to the payment of interest @ 18% per annum on the seized amount of Rs. 9,00,000/-.
5. Mr Kumar Vaibhav, the learned counsel for the Income Tax Department, submitted that this matter has been referred to the Director General of Income Tax (Vigilance), New Delhi, inter alia, to fix responsibility for how no assessment proceedings were carried out within the statutorily prescribed period despite there being a seizure as contemplated under Section 132 of the I.T. Act. He therefore submitted that the matter may be remanded to the Principal Commissioner of Income Tax, Ranchi, to decide on the issue of payment of interest.
6. Mr Kumar Vaibhav, without prejudice to the above, submitted that the claim of interest for 18% per annum is not justified because Section 132(B)(4)(a) provides for simple interest at the rate of only one-half per cent for every month or part of a month and further, even such interest, runs from the date immediately following the expiry of the period of 120 days from the date on which the last of the authorisations for search under Section 132 or requisition under Section 132A was executed to the date of completion of the assessment or reassessment or recomputation. In short, he submitted, without prejudice, that the interest, if at all, would be at the rate of 6% per annum, and that, too, up to the date of completion of the assessment.
7. The rival contentions now fall for our determination.
8. In this case, search and seizure operations were carried out against the petitioner on 30.04.2019/01.05.2019 under Section 132 of the I.T. Act. During these search and seizure operations, Rs. 9,00,000/- in cash was seized from the petitioner and deposited into the personal deposit account of the 2nd respondent.
9. Admittedly, within 120 days from the date on which the last of the authorisations for search under Section 132 or requisition under Section 132A was executed, no assessment proceedings were taken. Therefore, upon the expiry of the statutorily prescribed period, the petitioner represented to the respondents for a refund of the seized amount of Rs. 9,00,000/- together with interest at the statutorily prescribed rate. Since the amount with interest was not refunded, the petitioner instituted the present petition.
10. As noted earlier, during the pendency of this petition, an amount of Rs. 9,00,000/-, which was seized, has been refunded to the petitioner, i.e. on 5th June 2026. However, no interest has been paid on this refunded amount.
11. Section 132B (4) of the I.T. Act, which is relevant to decide this petition, reads as follows: –
“(4) (a) The Central Government shall pay simple interest at the rate of [one-half per cent for every month or part of a month] on the amount by which the aggregate amount of money seized under section 132 or requisitioned under section 132A, as reduced by the amount of money, if any, released under the first proviso to clause (i) of sub-section (1), and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (i) of sub-section (1), exceeds the aggregate of the amount required to meet the liabilities referred to in clause (i) of sub-section (1) of this section.
(b) Such interest shall run from the date immediately following the expiry of the period of one hundred and twenty days from the date on which the last of the authorisations for search under section 132 or requisition under section 132A was executed to the date of completion of the assessment [or reassessment or recomputation].”
12. Based on the same, we are satisfied, at least presently, that the respondents must pay to the petitioner interest on the refunded amount at the rate of one-half per cent per month, or 6% per annum. In terms of Section 132B(4)(b), such interest should run from the date immediately following the expiry of the period of 120 days from the date on which the last of the authorisations for search under Section 132 or requisition under Section 132A was executed to the date of completion of the assessment, reassessment or recomputation.
13. However, in this case, no assessment was undertaken. Therefore, Mr. Gadodia argued that compensatory interest must be awarded to the petitioner. He relied upon the decisions of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643 (SC)/(2006) 2 SCC 508 and of the Allahabad High Court in the case of Umang Agrawal v. Commissioner of Income-tax ( Central Circle), (Allahabad)/2015 SCC OnLine All 10003 .
14. Under Section 132B(4)(b), interest on refunds runs up to the date of completion of the assessment. Since no assessment was made in this case, the Revenue cannot argue that no interest is payable. In fact, it is possible to contend that compensatory interest must be paid in such a situation, as held by the Allahabad High Court after considering Sandvik Asia Ltd. (supra). Otherwise, the Revenue would be allowed to benefit from its own default, and correspondingly, the assessee would be forced to suffer for the Revenue’s failure to act or to act within the period prescribed by law.
15. The Court held that interest beyond the period specified under the above statute may not be allowed at the statutory rate prescribed in that provision. However, that does not preclude a Court from exercising its extraordinary jurisdiction under Article 226 of the Constitution of India to award compensatory interest where, despite seizure, no assessment is made and refunds are unduly delayed.
16. Insofar as the argument about the reference of the matter to the Director General of Income Tax (Vigilance) is concerned, we do not consider it a sufficient ground to withhold interest from the petitioner at this stage. Such a reference is intended to determine, and hopefully fix, responsibility on officials who failed to hold assessment proceedings within the statutorily prescribed period, thereby requiring the Revenue to refund the seized amount and pay interest thereon to the assessee. The payment of interest to the assessee cannot be further delayed on account of such a reference.
17. Further, we clarify that this order shall not affect or influence the reference proceedings referred to by Mr Kumar Vaibhav. They can always proceed in accordance with the law. However, for the reasons discussed above, the pendency of such a reference will not be a sufficient reason to further delay payment of interest to the petitioner.
18. Accordingly, we allow this petition and direct the respondents to pay the petitioner interest at the rate of one-half per cent per month or 6% per annum on the amount of Rs. 9,00,000/- commencing from the expiry of 120 days from 01.05.2019 till the date of refund of this amount, i.e. on 5th June 2026. This interest component must be paid to the petitioner within six weeks from today, failing which, the respondents will be liable to pay interest at the rate of 12% per annum.
19. If at all the situation arises for payment of interest at the rate of 12% per annum, the respondents must hold the errant officials responsible for the delay and consider recovering this additional amount from such officers, no doubt after complying with the principles of natural justice and fair play. But we do hope that such a situation will not arise. Rule is made absolute to the above extent without any order for costs.
20. Pending Interlocutory Applications, if any, do not survive and are disposed of.
21. All concerned must act on an authenticated copy of this order.
HIGH COURT OF JHARKHAND
Kamal Kumar Khetawat
v.
Union of India
M.S. Sonak, CJ.
and Rajesh Shankar, J.
W.P. (T) No. 2575 of 2026
JUNE  23, 2026
Sumeet Gadodia, Ranjeet Kushwaha, Miss. Shruti Shekhar, Miss. Nidhi Lall and Anish Lal, Advs. for the Petitioner. Kumar Vaibhav, Sr. SC, Durgesh Agarwal, Sr. S.C. and Ms. Saudamini Gupta, Jr. SC for the Respondent.
ORDER
1. Heard learned counsel for the parties.
2. The rule is made returnable forthwith at the request of and with the consent of the learned counsel for the parties.
3. The petitioner, by instituting this petition, had sought for the release of the seized cash amount of Rs. 9,00,000/- along with statutory rate of interest in terms of Section 132 of the Income Tax Act, 1961.
4. During the pendency of this petition, the seized cash amount of Rs. 9,00,000/- was released to the petitioner. However, no interest was paid to the petitioner on this amount. Hence, Mr Sumeet Gadodia, the learned counsel for the petitioner, made it clear that this petition is now restricted to the payment of interest @ 18% per annum on the seized amount of Rs. 9,00,000/-.
5. Mr Kumar Vaibhav, the learned counsel for the Income Tax Department, submitted that this matter has been referred to the Director General of Income Tax (Vigilance), New Delhi, inter alia, to fix responsibility for how no assessment proceedings were carried out within the statutorily prescribed period despite there being a seizure as contemplated under Section 132 of the I.T. Act. He therefore submitted that the matter may be remanded to the Principal Commissioner of Income Tax, Ranchi, to decide on the issue of payment of interest.
6. Mr Kumar Vaibhav, without prejudice to the above, submitted that the claim of interest for 18% per annum is not justified because Section 132(B)(4)(a) provides for simple interest at the rate of only one-half per cent for every month or part of a month and further, even such interest, runs from the date immediately following the expiry of the period of 120 days from the date on which the last of the authorisations for search under Section 132 or requisition under Section 132A was executed to the date of completion of the assessment or reassessment or recomputation. In short, he submitted, without prejudice, that the interest, if at all, would be at the rate of 6% per annum, and that, too, up to the date of completion of the assessment.
7. The rival contentions now fall for our determination.
8. In this case, search and seizure operations were carried out against the petitioner on 30.04.2019/01.05.2019 under Section 132 of the I.T. Act. During these search and seizure operations, Rs. 9,00,000/- in cash was seized from the petitioner and deposited into the personal deposit account of the 2nd respondent.
9. Admittedly, within 120 days from the date on which the last of the authorisations for search under Section 132 or requisition under Section 132A was executed, no assessment proceedings were taken. Therefore, upon the expiry of the statutorily prescribed period, the petitioner represented to the respondents for a refund of the seized amount of Rs. 9,00,000/- together with interest at the statutorily prescribed rate. Since the amount with interest was not refunded, the petitioner instituted the present petition.
10. As noted earlier, during the pendency of this petition, an amount of Rs. 9,00,000/-, which was seized, has been refunded to the petitioner, i.e. on 5th June 2026. However, no interest has been paid on this refunded amount.
11. Section 132B (4) of the I.T. Act, which is relevant to decide this petition, reads as follows: –
“(4) (a) The Central Government shall pay simple interest at the rate of [one-half per cent for every month or part of a month] on the amount by which the aggregate amount of money seized under section 132 or requisitioned under section 132A, as reduced by the amount of money, if any, released under the first proviso to clause (i) of sub-section (1), and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (i) of sub-section (1), exceeds the aggregate of the amount required to meet the liabilities referred to in clause (i) of sub-section (1) of this section.
(b) Such interest shall run from the date immediately following the expiry of the period of one hundred and twenty days from the date on which the last of the authorisations for search under section 132 or requisition under section 132A was executed to the date of completion of the assessment [or reassessment or recomputation].”
12. Based on the same, we are satisfied, at least presently, that the respondents must pay to the petitioner interest on the refunded amount at the rate of one-half per cent per month, or 6% per annum. In terms of Section 132B(4)(b), such interest should run from the date immediately following the expiry of the period of 120 days from the date on which the last of the authorisations for search under Section 132 or requisition under Section 132A was executed to the date of completion of the assessment, reassessment or recomputation.
13. However, in this case, no assessment was undertaken. Therefore, Mr. Gadodia argued that compensatory interest must be awarded to the petitioner. He relied upon the decisions of the Hon’ble Supreme Court in the case of Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643  (SC)/(2006) 2 SCC 508 and of the Allahabad High Court in the case of Umang Agrawal v. Commissioner of Income-tax ( Central Circle),  (Allahabad)/2015 SCC OnLine All 10003 .
14. Under Section 132B(4)(b), interest on refunds runs up to the date of completion of the assessment. Since no assessment was made in this case, the Revenue cannot argue that no interest is payable. In fact, it is possible to contend that compensatory interest must be paid in such a situation, as held by the Allahabad High Court after considering Sandvik Asia Ltd. (supra). Otherwise, the Revenue would be allowed to benefit from its own default, and correspondingly, the assessee would be forced to suffer for the Revenue’s failure to act or to act within the period prescribed by law.
15. The Court held that interest beyond the period specified under the above statute may not be allowed at the statutory rate prescribed in that provision. However, that does not preclude a Court from exercising its extraordinary jurisdiction under Article 226 of the Constitution of India to award compensatory interest where, despite seizure, no assessment is made and refunds are unduly delayed.
16. Insofar as the argument about the reference of the matter to the Director General of Income Tax (Vigilance) is concerned, we do not consider it a sufficient ground to withhold interest from the petitioner at this stage. Such a reference is intended to determine, and hopefully fix, responsibility on officials who failed to hold assessment proceedings within the statutorily prescribed period, thereby requiring the Revenue to refund the seized amount and pay interest thereon to the assessee. The payment of interest to the assessee cannot be further delayed on account of such a reference.
17. Further, we clarify that this order shall not affect or influence the reference proceedings referred to by Mr Kumar Vaibhav. They can always proceed in accordance with the law. However, for the reasons discussed above, the pendency of such a reference will not be a sufficient reason to further delay payment of interest to the petitioner.
18. Accordingly, we allow this petition and direct the respondents to pay the petitioner interest at the rate of one-half per cent per month or 6% per annum on the amount of Rs. 9,00,000/- commencing from the expiry of 120 days from 01.05.2019 till the date of refund of this amount, i.e. on 5th June 2026. This interest component must be paid to the petitioner within six weeks from today, failing which, the respondents will be liable to pay interest at the rate of 12% per annum.
19. If at all the situation arises for payment of interest at the rate of 12% per annum, the respondents must hold the errant officials responsible for the delay and consider recovering this additional amount from such officers, no doubt after complying with the principles of natural justice and fair play. But we do hope that such a situation will not arise. Rule is made absolute to the above extent without any order for costs.
20. Pending Interlocutory Applications, if any, do not survive and are disposed of.
21. All concerned must act on an authenticated copy of this order.