'Left No Stone Unturned To Harass': Delhi HC On IT Dept's Delay In Releasing KVPs, IVPs

The Delhi High Court has pulled up the Income Tax Department for delaying the release of seized Kisan Vikas Patras (KVPs) and Indira Vikas Patras (IVPs) even after the assessee deposited the settlement amount, observing that the authorities had “left no stone unturned to harass” the petitioner.

A division bench of Justices Dinesh Mehta and Om Prakash Shukla directed the tax authorities to compensate the petitioners for loss of interest caused due to wrongful retention of the instruments.

The case arose from searches conducted by the Income Tax Department in January 1997 at the residential and business premises of the petitioners, during which KVPs, IVPs, fixed deposits, jewellery and cash were seized.

After assessment proceedings resulted in a substantial tax demand, the petitioners approached the Settlement Commission. During pendency of those proceedings, they repeatedly requested the authorities to either release the KVPs and IVPs, permit renewal of the instruments, or convert them into interest-bearing fixed deposits because many had matured or were nearing maturity.

The High Court noted that despite repeated representations, the Assessing Officer neither acted on the requests nor even communicated any decision.

“Because of the indecisive approach of the Assessing Officer, the petitioner has been put to loss of opportunity cost of the interest, which he would have otherwise earned,” the Court observed.

The bench further recorded that the Settlement Commission had directed release of the KVPs and IVPs once the settlement amount was deposited. Although the petitioners deposited the amount on December 23, 2003, the instruments were released only on January 10, 2005.

Criticising the conduct of the department, the Court observed:

“For a meagre amount of audit fee they retained the KVP's/IVPs though they had jewellery and other assets in their possession.”

The Court held that once the settlement amount had been deposited, the Assessing Officer ought to have “forthwith released” the instruments in compliance with the Settlement Commission's order.

It also rejected the Revenue's stand that no compensation could be granted, observing there was no statutory provision authorising indefinite retention of such interest-bearing instruments.

“There is no Power or Statute, which justifies the continuous seizure or retention of FDRs and KVPs etc. until the demand is satisfied,” the Court said.

Reliance was placed on Sandvik Asia Ltd. v. CIT (2006) where the Supreme Court held that the Revenue must compensate an assessee where amounts are wrongfully withheld without authority of law.

As such, the Court directed the authorities to pay interest at prevailing KVP/IVP rates for the period from December 23, 2003 to January 10, 2005 on the maturity value of the instruments, along with further simple interest at 4% per annum on the delayed payment amount.

For Petitioner: Senior Advocate Aseem Chawla with Advocates Mukti Chaudhary, Sai Dhanush, Pratishtha Chaudhary, Ishika Sharma and Saksham Arya.

For Respondents: Senior Standing Counsel Ruchir Bhatia with Junior Standing Counsel Anant Mann.