Mr. K.Mohanlal vs. The Deputy Commissioner of Income Tax

This Writ Petition is filed to declare the inaction of the respondents in granting a refund of interest payable to the petitioner, in an amount of Rs.9,21,528/- as arbitrary, illegal

The brief facts of the case are that the petitioner is an individual engaged in the business of exchanging cut and mutilated currency notes with effect from 01.04.2007. Earlier, petitioner worked as a part-time Club Boy in the Reserve Bank of India Sports and Recreation Club, Hyderabad and was also a member of the Welfare Association formed by persons engaged in the said business. During March 2011, the petitioner received old and mutilated currency notes worth Rs.14,00,000/- from M/s. Kethwani Brothers, Delhi, in three instalments, namely, Rs.3,00,000/- on 16.03.2011, Rs.5,50,000/- on 19.03.2011 and Rs.5,50,000/- on 21.03.2011, for exchange. After exchanging the notes, the petitioner arranged to return the amount to the said firm through M/s. Andhra Express Service Transport, Hyderabad, on 24.03.2011. 4. On 24.03.2011, the Assistant Commissioner of Prohibition and Excise Enforcement, Hyderabad, raided the premises of M/s. Andhra Express Service Transport and seized the aforesaid amount while it was being transported to Delhi. The seized cash was subsequently handed over to the Assistant Director of Income Tax, Investigation Unit-2(3), Hyderabad, who examined the petitioner on the same day under Section 131 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). On 25.03.2011, the Income Tax authorities conducted a search of the petitioner's residential premises between 12.30 a.m. and 01.30 a.m. No incriminating material was found during the search. However, the panchanama erroneously recorded that the aforesaid cash had been seized during the search of the petitioner's residence, whereas, in fact, the same had already been seized by the Prohibition and Excise authorities on 24.03.2011 from the premises of M/s. Andhra Express Service Transport.

In response to the query regarding the source of the seized amount, the petitioner submitted a detailed explanation vide letter dated 07.07.2011, enclosing copies of the relevant cash book entries and confirmation letters issued by M/s. Kethwani Brothers, Delhi. The petitioner filed his return of income for the Assessment Year 2011-2012 on 03.11.2011, declaring a total income of Rs.1,14,000/-, comprising Rs.42,000/- from house property and Rs.72,000/- from business. During the assessment proceedings, the Assessing Officer again called upon the petitioner to furnish the relevant particulars, which were duly furnished. The Assessing Officer also examined the Managing Partner of M/s.Kethwani Brothers, Delhi, and the representative of M/s. Andhra Express Service Transport, Hyderabad. The former confirmed having sent the cut and mutilated currency notes to the petitioner for exchange, while the latter confirmed that the cash had been seized from the transport premises by the Prohibition and Excise authorities. However, without furnishing copies of their statements to the petitioner, the Assessing Officer completed the assessment under Section 143(3) of the Act, vide order dated 28.03.2013, treating the entire seized amount as the petitioner's income.

Aggrieved by the assessment order, the petitioner preferred an appeal before the Commissioner of Income Tax

Learned counsel for the petitioner submits that Section 7 of the DTVSV Act provides that any amount paid pursuant to a declaration made under Section 4 shall not be refundable. However, the Explanation thereto clarifies that where an assessee has, before filing such declaration, paid any amount towards tax arrears in excess of the amount payable under Section 3, the assessee shall be entitled to a refund of the excess amount, though without interest under Section 244A of the Act.

In order to put an end to the pending litigation and buy peace with the Revenue, the petitioner opted for the DTVSV Scheme and submitted Forms 1 and 2 on 10.06.2020, seeking adjustment of the tax liability against the seized amount of Rs.14,00,000/- and refund of the balance amount. Pursuant thereto, the Designated Authority issued Form 3 on 30.04.2021, determining the amount payable by the petitioner under the DTVSV Act at Rs.3,52,775/-. The petitioner accordingly withdrew the pending appeal before the Income Tax Appellate Tribunal on 25.08.2021 and subsequently submitted Form 4 on 16.10.2021. 11. Even prior to the issuance of Form 3, the petitioner had submitted a representation dated 24.06.2019 before the Assessing Officer, requesting adjustment of the outstanding

Despite the issuance of Form 3 and the petitioner's subsequent withdrawal of the appeal and submission of Form-4, the authorities failed to process the refund. The petitioner therefore submitted a further representation dated 11.06.2021 before the 3rd respondent. Thereafter, the 3rd respondent, vide letter dated 17.12.2021, directed the 2nd respondent to examine the matter and pass appropriate orders. Pursuant thereto, the petitioner again requested the 2nd respondent on 06.01.2022 to issue the refund. However, vide communication dated 17.01.2022, the 1st respondent rejected the petitioner's request on the ground that Form 4 had not been filed and that the process under the DTVSV Act had not been completed. The said communication was issued

The petitioner submits that the respondents have erroneously calculated the interest payable at Rs.1,04,335/-, as against Rs.10,25,863/- allegedly payable under Section 244A of the Act. According to the petitioner, the total amount refundable, including interest, works out to Rs.20,73,088/-. After deducting the amount of Rs.11,51,560/- already refunded, the balance amount payable is Rs.9,21,528/-. In this regard, the petitioner submitted detailed representations dated 03.05.2024, 10.12.2024, 16.08.2025 and 18.08.2025, requesting the respondents to release the balance amount of Rs.9,21,528/-. However, the respondents have neither considered the said representations nor passed any orders thereon.

The petitioner contends that, having adjusted the tax liability determined under the DTVSV Act against the seized amount of Rs.14,00,000/- and refunded the balance principal amount, the respondents cannot arbitrarily deny the petitioner's claim for the balance interest allegedly payable under Section 244A of the Act. The action of the respondents in withholding the balance amount, without considering the petitioner's representations and the statutory

Per contra, learned Senior Standing Counsel for the Income Tax appearing for the respondents has filed counter affidavit and contended that the petitioner voluntarily opted for Vivad se Vishwas Scheme (DTVSV, 2020) under Section 7, once declaration is made and settled, no further claim can be raised except refund of excess principal tax amount paid before declaration. Interest u/s 244A is specifically excluded in Explanation to Section 7 of the DTVSV Act. The relevant extract of Section 7 of the DTVSV Act, 2020 is reproduced below:

Therefore, the claim for interest under Section 244A of the Income Tax Act, 1961, falls outside the scope of the DTVSV Act. Learned Senior Standing Counsel further contended that the Department has already refunded an amount of Rs.11,51,560/-, comprising Rs.10,47,225/- towards principal and Rs.1,04,335/- towards interest, vide order dated 12.03.2024 passed under Section 154 of the Income Tax Act, 1961, in F.No. ACIT-3(1)/VsVS/154/2023-

It is submitted that the refund was computed strictly in accordance with the provisions of Section 132B(4) read with Section 7 of the DTVSV Act. The repeated representations made by the petitioner seeking further interest are contrary to the statutory provisions.

Learned Senior Standing Counsel further contended that this Court, in the earlier W.P. No.14146 of 2022, vide order dated 14.03.2024, had already recorded that the refund, together with applicable interest, had been issued vide order dated 12.03.2024 passed under Section 154 of the Income Tax Act, 1961, and observed that nothing further remained to be adjudicated in the said writ petition. However, the petitioner was granted liberty to dispute the computation

Learned Senior Standing Counsel further submitted that the petitioner's reliance on the principle of approbate and reprobate is wholly misplaced, as the Revenue has acted strictly in accordance with the applicable statutory provisions. Though Section 244A of the Income Tax Act, 1961, provides for payment of interest on refunds, the Explanation to Section 7 of the DTVSV Act specifically bars the grant of any further interest on refunds arising out of excess payments under the said Act. Therefore, the petitioner's claim for further interest under Section 244A of the Income Tax Act, 1961, is not only repetitive but also falls outside the purview of the Direct Tax Vivad Se Vishwas Act, 2020, and is consequently unsustainable in law. In view of the foregoing submissions, learned Senior Standing Counsel prayed that the writ petition be dismissed in limine.

Heard the contentions and rival contentions of both the parties and perused the material on record. The petitioner

It is pertinent to note that the petitioner claims interest under two distinct statutory provisions, namely, Section 132B(4) and Section 244A of the Income Tax Act, 1961. The claim under Section 132B(4) relates to the interest payable on the amount seized, whereas the claim under Section 244A relates to the interest payable on the excess amount retained by the Department after completion of the assessment.

According to the petitioner, the Department granted a refund of Rs.11,51,560/- by adding interest to the excess

Though the petitioner has referred to 28.06.2013 as the relevant date, the assessment order, admittedly, was passed on 28.03.2013. In this regard, it is relevant to observe that the interest under Section 132B(4) is payable from the expiry of 120 days from the date of execution of the last of the authorisations for search under Section 132(1) till the date of completion of the regular assessment. Therefore, after excluding the initial period of 120 days from the date of search, the petitioner would be entitled to interest under Section 132B(4) only for the period commencing from 24.07.2011 till 28.03.2013, i.e., the date of completion of the assessment. Consequently, the calculation furnished by the petitioner under Section 132B(4), to the extent that it claims interest beyond the aforesaid period, cannot be accepted.

Coming to the claim for interest under Section 244A of the Act, the same operates in respect of the post-assessment period, commencing from the date on which the assessment is completed and the excess amount becomes refundable, until the actual date of refund.

Once the regular assessment is completed, the seized amount, to the extent it is found to be in excess of the tax liability, ceases to retain its character as an amount seized during the search and is treated as an excess amount retained by the Department and refundable to the assessee. Consequently, the assessee becomes entitled to interest under Section 244A for the period commencing from the completion of the assessment till the actual date of refund, subject to the statutory provisions governing such entitlement.

Admittedly, the Department has granted a refund to the petitioner. However, the dispute is with regard to the proper computation of the statutory interest payable on the amount retained by the Department and the period for which such interest is payable.

In this context, it is pertinent to observe that there cannot be any overlapping of the periods for which interest is claimed under Sections 132B(4) and 244A of the Act. The statutory framework governing the Direct Tax Vivad Se Vishwas Act, 2020, also contemplates that, where a refund arises pursuant to a declaration made under the said Scheme, the assessee would not be entitled to interest under Section 244A for the period up to the date of settlement. However, where there is a delay in releasing the refund even after the settlement under the Scheme has attained finality, the assessee would be entitled to statutory interest, subject to the applicable provisions of law, for the period of such delay.

It is also well settled that an assessee may be entitled to interest under both Sections 132B(4) and 244A in respect of the same seized amount, provided that the respective periods are distinct and do not overlap. In other words, while Section 132B(4) governs the period commencing from the expiry of 120 days from the date of search till the completion of the regular assessment, Section 244A governs the subsequent period commencing from the completion of the assessment

In the present case, there is no dispute with regard to the seizure of the amount during the search operation or the fact that an excess amount remained with the Department. The controversy is confined to the quantum of statutory interest payable to the petitioner and the proper computation thereof under the aforesaid provisions.

In view of the aforesaid circumstances, and having regard to the fact that the entitlement to refund of the excess amount is not in dispute, the petitioner is entitled to claim statutory interest in accordance with Sections 132B(4) and 244A of the Act, for their respective periods of operation. Therefore, the contention advanced by the learned Senior Counsel appearing for the Department that the petitioner's claim for interest under Section 244A is repetitive in nature

However, the contention of the learned Senior Standing Counsel for the Department that there cannot be a repetitive or overlapping claim for interest deserves acceptance to that limited extent. Nevertheless, such a contention cannot defeat the petitioner's substantive entitlement to statutory interest under Section 132B(4) from the expiry of 120 days from the date of search till the date of completion of the assessment and under Section 244A from the date of completion of the assessment till the actual date of refund, subject to the applicability of the relevant statutory provisions.

In view of the foregoing discussion, we are of the considered opinion that the writ petition deserves to be allowed and is, accordingly, allowed. The respondents are directed to verify the amount already refunded to the petitioner and compute the balance statutory interest, if any, payable under Sections 132B(4) and 244A of the Income Tax Act, 1961, in accordance with the respective periods specified

The respondents shall undertake the aforesaid exercise, make the necessary calculations and release the balance amount payable to the petitioner, as expeditiously as possible, preferably within a period of eight (8) weeks from the date of receipt of a copy of this order.

Accordingly, the instant writ petition is allowed. There shall be no order as to costs.