Case: M/S. K.C.C. Software Ltd.  Vs. Director Of Income Tax (Inv.)

A search and seizure was conducted by the respondents in the premises of the appellants pursuant to warrants of authorization dated 3.8.2005. On 4.8.2005 certain assets including jewellery, cash and fixed deposit receipts were seized. On that very day, appellants received a letter from the HDFC Bank at B-28, Community Centre, Janakpuri, New Delhi that operation of five bank accounts of appellant No.1 had been restrained by order issued under Section 132 (3) of the Income Tax Act, 1961 (in short theThe Bank issued a similar letter to appellant No.3 intimating that the said appellant had been restrained from operating her Savings Bank account by order dated 3.8.2005 passed under Section 132(3) of the Act.stand was that existence of the lockers and the bank accounts were disclosed by the appellants in the regular books of account maintained and no opportunity was provided to establish the said fact. It was further submitted that the computers which contained the details of the bank accounts were available at the business premises at Janakpuri and no opportunity was allowed to the appellants to place these before the authorities. Grievance is made that apart from the non grant of opportunity no effort whatsoever was made to ascertain whether the accounts had been disclosed in the regular books of account maintained by the appellants. On 8.8.2005 appellant addressed a letter to the Additional Director of Income Tax stating inter alia that all bank accounts under restraint have been disclosed in the regular books of account and also that the restraint order was hampering the day to day operations of the business of the company. On the same day, appellant No.3 wrote another letter to the concerned authority requesting him to remove the restraint order in Savings Bank account. On 16.9.2005, appellant No.1 addressed another letter to the Assistant Director of Income Tax (Investigation) again reiterating its stand that the bank accounts have been disclosed in the regular books of account and there was no justification for keeping the restraint on the operation for the bankto the appellants no reply was received to the letters dated 8.8.2005 and 16.9.2005 and the respondents did not make any effort to verify the correctness of thecontentions. On 21.9.2005 appellant No.3 moved an application under Section 132(B) of the Act to the Deputy Commissioner of Income Tax for release of jewellery worth Rs.4,76,588/- and FDR of Rs.1,79,710/-. Since the nature and source was duly explained, the limitation of 60 days in terms of Section 132(8A) expired w.e.f. 31.8.2005 i.e. the date of issuance of the order of restraint. On 3.10.2005 appellant No.2 addressed a letter to the Manager, HDFC Bank informing him that as per provisions of Section 132 (8A) of the Act, the restraint order was no longer operative. On 4.10.2005 Bank through its Bank Manager sought clarification from the Deputy Director of Income Tax. The Income Tax Department on 4.10.2005 issued two fresh warrants of authorization under Section 132 of the Act in respect of the bank accounts. It is alleged that the appellants were not informed about the warrants of search. On 5.10.2005 the bank accounts of the appellants were searched and seized through withdrawal of cash by demand drafts.stand in essence is that the fresh warrants of authorization were without jurisdiction and in any event since the accounts had been duly disclosed in the regular books of account, there was no scope for operating Section 132 (3) of the Act. The earlier order passed under Section 132 (3) of the Act ceased to be operative w.e.f. 2/3.10.2005. On 8.10.2005 the bank by a letter informed the appellants about search and seizure of the bank accounts under Section 132 (3) of the Act and also gave details of demand drafts issued in favour of respondent No.2 withdrawing the money from the accounts of the28.10.2005 the appellants were supplied with copies of the Panchnama. On 29.10.2005 appellant No.1 requested the respondents to adjust towards self assessment tax of Rs.77,68,177/- for the assessment year 2005-06 from the seized amount of Rs.1,81,91,982/- and to release the balance. On 29.11.2005 appellants Nos.1 and 3 moved an application under Section 132 (B) of the Act for release of the amount seized on 5.10.2005 i.e. within 30 days of the end of the month in which seizure took place. Several documents were filed to substantiate the claim. Again on 16.2.2006 Income tax authorities were requested for adjustment of Rs.40,00,000/- as advance tax for the assessment year 2006-07 from the seized amount and to release the balance. Since the respondents failed to respond to the requests of the appellants, writ petitions Nos.6313-6315 of 2006

Court's reasoning:
is to be clarified about the impermissibility to convert assets to cash and thereafter impound the same. We need not go into the broader issue in view of the fact that there is no challenge to the order passed under Section 132B of the Act. But it has been stated by learned counsel for the revenue that it is permissible to complete the assessment by 31st March, 2008. In view of the aforesaid scenario, we dispose of the appeal with the followingIn view of the non challenge to the order passed under Section 132B, no relief can be granted to the appellants.(ii) However, it would be in the interests of the assessee as well as the revenue if the amount transferred to the PD account of the Commissioner is kept in interest bearing fixed deposit as ultimately in the event the assessee succeeds, would be entitled to interest as provided in the statute. The assessment has to be completed on or before 31st March, 2008 i.e. within the time statutorily provided.