Application and Release of Assets Seized Under Search
Introduction
Section 132B provides the framework for applying assets seized during search to recover existing and future tax liabilities under various Direct Tax Acts. Surplus assets are released to the assessee after adjustment of liabilities. The assessee is entitled to interest at 0.5% per month or part thereof on excess money retained.
Purpose and Scope of Section 132B
The provision enables application of seized money or assets to (i) recover existing liabilities under all Direct Tax Acts, (ii) apply disclosed assets seized during search, (iii) adjust undisclosed assets against tax, penalty, and interest determined post-assessment, (iv) realise assets in kind for tax recovery, (v) release any surplus assets, and (vi) pay interest on excess retained funds.
Recovery of Existing Liability
Seized assets may be applied towards recovery of existing tax, interest, or penalties under the Income-tax Act, Black Money Act, and repealed Direct Tax Acts. “Existing liability” excludes advance tax, as clarified by CBDT, which applies prospectively. Liability arising from an application before the Settlement Commission may also be recovered.
Application of Disclosed Assets Seized During Search
Disclosed assets may be seized when the assessee fails to produce evidence at the time of search. Under the first proviso to Section 132B(1)(i), such assets may be used to recover existing liabilities. The assessee may apply for release of disclosed assets within 30 days from the end of the month of seizure and must satisfactorily explain their nature and source. After adjusting existing liability, the balance is released with approval of higher authorities, and the release must occur within 120 days of executing the last authorisation. In practice, this procedure is rarely implemented, and assets are seldom released.
Application of Undisclosed Assets Against Liabilities Determined
Seized assets may be applied towards liabilities determined for search-related assessments, including tax, interest, and penalty for the block period. Although assessment may conclude within the prescribed time, assets are often retained until penalty proceedings or appellate proceedings are finalised.
Application Only When Assessee is in Default
Seized assets may be adjusted only if the assessee is in default or deemed to be in default for payment of tax. Demand must be due and unpaid.
Realisation and Application of Assets in Kind
Where assets are not in monetary form, they may be sold for recovery of liabilities. Section 132B(2) affirms that tax recovery may also proceed via other modes such as attachment or sale through the Tax Recovery Officer under the Third Schedule. For this purpose, seized assets are treated as under distraint under Section 226(5).
Release of Surplus Assets
Under Section 132B(3), any surplus assets or sale proceeds remaining after discharging all liabilities, including penalty and interest, must be released to the assessee. Commissioner’s approval is not required for release of surplus, although approval is required for release of disclosed assets under the proviso to Section 132B(1)(i).
Release of Seized Cash and CBDT Instructions
Frequent delays in releasing seized cash led to Board instructions mandating strict timelines. Where the assessee explains the nature and source of seized cash, it must be released after adjusting existing liability within the statutory timeline. If not released, cash lying in the Personal Deposit (PD) Account must be released within one month of the assessment order after adjusting existing and assessed liabilities and retaining amounts only for expected penalty. Upon appellate orders or penalty orders, balances must be reviewed and released within one month. Commissioners must ensure no cash is retained merely because the Department has filed appeals.
Release of Jewellery and Perishable Items
Jewellery and perishable items may be released on furnishing an unconditional bank guarantee equal to their value. The guarantee must cover the full value, be valid until assessment completion, and be enforceable at any time.
Release of Assets in Presence of Witnesses
Rule 112B requires release of assets in the presence of two witnesses to the person from whose custody they were seized, unless assets relate to another person under Section 158BD, in which case release is made to the rightful owner.
Authority to Release Assets
The power to release seized assets rests with the Assessing Officer, not the authorised officer who conducted the search.
Delay in Release
For delays, the assessee may approach higher authorities, file a writ petition before the High Court, or approach the Income Tax Ombudsman for relief.
Payment of Interest on Excess Money Retained
Section 132B(4) mandates simple interest at 0.5% per month or part thereof, calculated from the expiry of 120 days after execution of the last authorisation until completion of assessment. Interest is payable on surplus money remaining after deducting disclosed money released, proceeds applied towards existing liabilities, and all tax, interest, and penalty liabilities arising from assessment and penalty proceedings.