The Delhi High Court has held that the Income Tax Department cannot retain cash seized during a search once the assessment of the searched person is completed and the charge over the cash under Section 132B of the Income Tax Act, 1961 comes to an end.

A Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta made the observation while refusing to stay an Income Tax Appellate Tribunal (ITAT) order concerning Rs. 17.66 crore seized from lockers of searched persons Shakun Tamang and Ashish Kapoor. It observed:

“The moment assessment of searched person was made (27.03.2026) the charge over the cash by virtue of Section 132B ... stood extinguished.”

Section 132B sets out how the Department can deal with assets seized during an income-tax search. It permits seized assets to be adjusted against existing tax liabilities or liabilities likely to arise on completion of the relevant assessment, subject to the statutory conditions.

The Department argued that Kapoor Industries, the Respondent, could not claim the seized cash as self-assessment tax for Assessment Year (AY) 2024-25 because Ashish Kapoor's assessment was pending when the company filed its return.

It also relied on subsequent reassessment proceedings under Section 148 of the Income Tax Act, which allows the Department to reassess income that has escaped assessment, to justify retaining the cash.

The Court noted that the Department completed Ashish Kapoor's assessment on 27 March 2026. It did not raise any demand relating to the seized cash and accepted Kapoor's claim that the cash belonged to Kapoor Industries.

It held that once the charge under Section 132B ended, the Department could not continue withholding the cash through subsequent proceedings against Kapoor Industries. It noted that Kapoor Industries was not the searched person and that the Department had issued no warrant of authorisation against it.

Therefore, the High Court directed the Assessing Officer to release the Rs. 17.66 crore after adjusting the purported tax liability of Rs. 3.74 crore within 30 days. It also directed the Department to calculate the applicable interest. However, it ordered the Department to keep the interest amount in an interest-bearing fixed deposit receipt (FDR) pending a Larger Bench decision on entitlement to interest on excess self-assessment tax.

It admitted the Department's appeal on questions concerning whether Kapoor Industries could claim the seized cash as self-assessment tax and whether the ITAT was justified in directing credit and refund of the balance.

Accordingly, while declining to stay the ITAT order and directing release of the seized cash after adjustment of the purported tax liability, the High Court left the broader questions concerning the credit and refund of the amount for consideration in the appeal.

For Appellant: Mr. Puneet Rai, SSC with Mr. Ashvini Kr., JSC, Mr. Rishabh Nangia, JSC, Mr. Nikhil Jain & Ms. Nancy Jain, Advs.

For Respondent: Mr. Sachit Jolly, Sr. Adv. with Ms. Mansha Anand, Mr. Sohum Dua, Mr. Abhyudaya Shankar Bajpai & Ms. Saloni Ray, Advs.

Case Title :  The Pr. Commissioner Of Income Tax -Central -1 v. Kapoor Industries LimitedCase Number :  ITA 671/2026CITATION :  2026 LLBiz HC (DEL) 898
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