Income Tax Department Liable to Pay Interest on Delayed Release of Seized Cash Even After Assessment Order; Absence of Statutory Provision No Defence Against Compensation: Punjab and Haryana High Court
Case Name: Paramvir Singh Gill v. Principal Chief Commissioner of Income Tax, Chandigarh and Others
Date of Judgment: 13 October 2026
Citation: CWP No. 26997 of 2021
Bench: Hon’ble Mr. Justice Deepak Sibal and Hon’ble Mr. Justice Sunish Bindlish
Held: The Punjab and Haryana High Court held that the Income Tax Department is liable to pay interest on the delayed release of seized cash even beyond the date of completion of assessment proceedings, notwithstanding the absence of an express statutory provision authorising such interest. Once the assessment establishes that no tax liability exists, Section 132B(3) of the Income-tax Act, 1961 mandates the immediate release of the seized assets. Unjustified retention thereafter attracts the principle of restitution, enforceable in writ jurisdiction under Article 226 of the Constitution.
The Court further clarified that liability to pay interest arises from deprivation of the assessee’s use of money, irrespective of whether the Department itself earned any interest on the retained amount.
Summary: The petitioner challenged the Income Tax Department’s refusal to pay interest on ₹30 lakh seized under Section 132A of the Income-tax Act on 27.12.2011. Although the assessment order dated 20.03.2014 accepted the petitioner’s explanation regarding the cash and made no addition to his declared income, the Department released the amount only on 15.01.2017, without interest.
The principal issue before the Division Bench was whether interest could be awarded for the period following completion of assessment, particularly when Section 132B(4) expressly provides for interest only until the assessment is completed.
Examining Sections 132B(3) and 132B(4), the Court held that statutory interest at 0.5% per month or part thereof was payable from 26.04.2012, following expiry of 120 days from requisition and seizure, until 20.03.2014, when the assessment was completed.
Regarding the subsequent period, the Court observed that the Department was statutorily obligated to release the cash forthwith upon completion of assessment, since no tax liability had been determined. Its unexplained retention until January 2017 was contrary to Section 132B(3) and deprived the petitioner of the use of his property.
Relying on Ajay Gupta v. Commissioner of Income Tax, 2007 SCC OnLine Del 526, and GL Jain v. Commissioner of Income Tax, 2012 SCC OnLine Del 4453, the Court held that the absence of an express provision for post-assessment interest does not extinguish the assessee’s right to compensation. Constitutional Courts can enforce restitutionary principles to remedy wrongful retention of money by public authorities.
Rejecting the Revenue’s contention that it had earned no interest on the seized amount, the Court held that compensation must be determined from the standpoint of the person deprived of the money, rather than the financial benefit derived by the Department.
Decision: The High Court allowed the writ petition and directed the Income Tax Department to pay interest on ₹30 lakh for two distinct periods: interest under Section 132B(4) at 0.5% per month or part thereof from 26.04.2012 to 20.03.2014, and interest at 6% per annum from 21.03.2014 to 15.01.2017, representing the period of unlawful retention following completion of assessment.