Delay in Completing Assessment after 4 Years of Search: Bombay HC allows Compensation to Assessee [Read Order]

A division bench of the Bombay High Court has directed the income tax department to pay interest by way of compensation/ damages to the assessee for the delay in completing assessment after search proceedings.

During the course of search, the department seized an amount of Rs.48,00,000/- along with gold jewellery. On 29.11.2017 the petitioners filed their explanation explaining the source of the said cash and jewellery. The petitioners applied for the release of the assets on 29.11.2017 as per proviso to Section 132(B)(1)(i) of the Act, 1961. However, since the assessment under Section 153-A or under Chapter XIV-B of the Act, 1961 is not yet passed by the department, the petitioners sought for an order and direction against respondents to pay interest at the rate of 12% p.a. from 01.11.2017 to 01.12.2020 on cash amount of Rs.9,35,000/- and interest at the rate of 12% p.a. from 01.11.2017 till its final realization of the amount of Rs.24,29,000/-.

The petitioners contended that there is no provision in the Income Tax Act regarding the payment of interest as well as compensatory interest after the passing of the assessment order dated 23.12.2019 and 26.12.2019. it was further contended that the department, however, cannot deliberately delay the payment of the amount due and payable with interest from the date of the assessment order on the ground that there is no provision for payment of interest after the date of passing of the assessment order.

The division bench comprising Justice R. D. Dhanuka & Justice S. G. Mehare observed that there is no dispute about the preposition of law laid down by the Supreme Court.

“We do not propose to expand the scope of Section 132- B(4) of the Act, 1961 in this matter. The Hon’ble Supreme Court and the Delhi High Court have already held that, the assessee who is deprived of refund of their amount in view of wrongful withholding of their amount by the authority cannot be refused to compensate for such wrongful deprivation of their amount lying with the authority for no fault of the assesses,” the bench said.

“Though in this case the petitioners have prayed for interest at the rate of 12% p.a. from 01.11.2017 to 01.12.2020 on cash amount of Rs.9,35,000/- and compensatory interest at the same rate from 24.12.2019 till 01.12.2020 on the amount of cash released of Rs.14,36,000/-, the petitioners have restricted their prayer for compensatory interest at the rate of 6% p.a. on these two amounts and also on Rs.24,29,000/. In our view, though Delhi High court had awarded interest at the rate of 9% p.a. towards compensation/damages for the delayed period, since the petitioners in this case have restricted their claim for compensation/damages at the rate of 6% p.a. for the delayed period, we are inclined to allow the claim for the interest by way of compensation/damages at the rate of 6% p.a. for delayed period already quantified in the chart submitted by the petitioners,” the bench said.

Allowing the petition, the bench directed the department to pay interest by way of compensation/ damages for the period from 03.03.2018 to 23.12.2019 as prayed under Section 132-B(4) of the Act, 1961 at the rate of 6% p.a. totaling to Rs.5,99,780/- after giving credit of the interest already paid by the revenue for the period from 01.03.2018 to 13.12.2019 in the sum of Rs.2,06,360/- within a period of four weeks from the date of this order.

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